Categorized | China, Trade

China Auto Parts case: Why not just file a domestic CVD case?

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As I was interviewed on a radio show yesterday about the Administrations’ recent WTO filing against China, I wondered privately why they just didn’t work to get countervailing duties under US law.  Why go to the WTO when we can use US trade laws for a more immediate remedy?

If a domestic trade case is filed (by private parties), you can expect a decision within months that will result in countervailing and/or antidumping duties to neutralize the foreign cheating.  If you file a WTO case, resolution is 1.5 to 2 years away, and a full remedy (if you win) is often that the offending country stops the practice (or changes the practice and hides it better).

Keith Bradsher of the NY Times explores the question in this article, which deserves a full read.  Two points Bradsher makes are:

1.  If a domestic trade enforcement case is filed, you have to prove (a) unlawful subsidies and (b) injury to the industry.  Because the auto industry is growing right now, perhaps it would be difficult to show injury.  Whereas the WTO case requires only a showing of an unlawful subsidy or other practice… not a showing of injury.

2.  A WTO ruling in our favor would impact the Chinese industry’s competitiveness across the world, not just in the U.S. market.  A full U.S. win would make U.S. producers more competitive in all those countries where China’s predatory practices undercut the fair market price… not just in the U.S. market.

I would add a third point that could also be a reason.  Once you prove that the particular “export base policies” of China are unlawful, that establishes trade law on the specific set of facts at issue.  The whole world then knows you can’t do those things, and are deterred from trying them again.  The counter-argument is that China’s “export base policies” are very numerous and pervasive, thus you will never be able to fully ferret them out.

Maybe we’ll get some commenters to this post that shed more light on the decision.

The bigger point is this:  Enforcement is necessary, but insufficient to solve the trade deficit problem.  If we are to balance trade, we need bigger solutions.  Countervailing currency manipulation, neutralizing the foreign VAT, neutralizing the State Owned Commercial Enterprises phenomena, and perhaps a “national strategic tariff” which is what Ian Fletcher argues in “Why Free Trade Doesn’t Work”.

The national strategic tariff would be remedial and strategic, not punitive or protectionist.  It would basically be calculated to cover all these hard and soft foreign mercantilist practices without spending our coffers dry proving each one.  And would be calculated to balance trade.

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