China’s First Victory in the Fastener Trade War

ON July 15, the appellate body of the World Trade Organization (WTO) ruled in favor of China in its case alleging that the Europe- an Union (EU) is illegally txing steel fasteners of all'sizes needed for everything from furniture to cars to bridges. This is the firsttime China has won a lawsuit against the EU on a trade dispute.

China's Ministry of Commerce (MOC) welcomed the WTO ruling:"It isof great significance and will help Chinese enterprises enjoy better competi-tive conditions in the whole international market, including the EU," says anunidentified official in the MOC Treaty and Law Department. "The ruling hasreinforced the confidence of WTO members in the WTO rules and the multi-lateral trading system. This is not only a victory for Chinese industry but forthe WTO rules as well," the official says.

Breaking up a "DiscriminatoryMarriage"

China is the world's largest makerof carbon sLeel fastener pieces, such asscrews, nuts and bolts. The EU is oneof the world's biggest markets for thepieces.

According to Wang Lei, partner ofGaopeng & Partners - PRC Lawyerswho participated in the entire process ofthe case, the greatest significance of thecase is that the EU must amend its Anti-dumping Basic Regulation on separatetax rates, which was enforced in 1996,especially Section 9 (5), otherwise theEU will encounter China's trade repri-sal, one authorized by the WTO.

The EU is the WTO member thathas launched the most anti-dumpinginvestigations into Chinese products.Section 9 (5) has resulted in Chineseenterprises sustaining unfair treatmentfor a long period of time, and the coreof this trade war lies in that section. Ac-cording to WTO rules, since the pricesof export commodities are different, allenterprises involved in anti-dumpingappeals should be charged a separate.tax rate.

However, by identifying China as anon-market economy, the EU has col-lected heavy anti-dumping duties fromChinese enterprises in cases where theyhave failed to meet five extra standards.Wang Lei draws an analogy:a man anda woman can get married once theyreach legal age, however, there are someextra conditions that govern the choice,such as they must have stable jobs, andboth of their annual salaries must reacha certain amount. The made-in-Chinanuts and bolts that are "married" to theEuropean market are encountering justsuch an embarrassment.

On November 9, 2oo7 the EuropeanCommission decided to initiate an anti-dumping investigation on Chinese steelfasteners. In January 2009 the EUimposed anti-dumping taxes rangingfrom 26.5 to 85 percent on all Chinesefasteners.

On July 31, 2009 China filed a com-plaint with the WTO, which subsequent-ly ruled that the EU's measures werediscriminatory, and this happened to beChina's first WTO contest with the EU.

On December 3, 2010 the WTO ex-pert panel released a verdict that sup-ported China, denying all claims on the issue of a separate tax rate, as wellas part of the claims on fastener anti-dumping measures.

The EU appealed on March 25 thisyear. China's appeal was lodged onMarch 3o on the remaining issues thatdid not win initial support from the ex-pert panel.

On July 15, the appellate body ofthe WTO ruled in favor of China in itscase alleging the EU is illegally taxingsteel fasteners of all sizes. During thenext 6o days, the EU decides whetheror not to make a further appeal. If thecase is accepted as lost, the EU has toadjust its duty on these products andits method of conducting anti-dumpinginvestigations.

Growth During "War"

Gem-Year Industrial Co., Ltd., a mag-nate producer of carbon steel fastenersin China, received an EU questionnairein September 2007, requiring the com-pany to make a rebuttal in the anti-dumping case. "We had only a few daysto prepare the materials due to this tightschedule," recalls Tu Zhiqing, chairmanof the board of Gem-Year. The staff hadno choice but to work overtime and thematerials they prepared "cluttered upa whole desk" according to a companyspokesperson.

Actually, it is not only one enterprisethat was involved in this anti-dumpingtempest from Europe. At that time,the total amount of revenues for theChinese enterprises involved reachedUS $76o million. Enterprises in ZhejiangProvince alone involved US $320 mil-lion and enterprises in Jiaxing City in-volved US $97 million.

Since Jiaxing and the entire ZhejiangProvince represent a large share ofChina's exports to the EU, these areaswere the worst hit by this investigation.

More than 100 enterprises in theprovince lodged a collective appeal, ac-cording to Chen Guanda, vice secretary-general of Zhejiang Province FastenerImport and Export Association.

"The scope of fasteners containsmany products. If this time they wonthe case involving screws, nuts andbolts, then next time they would smashour entire fastener industry base with avictory in this ease," says Yang Fengdanfrom Jiaxing City Fasteners Import &Export Manufacturers Association.

Statistics from the Department ofCommerce of Zhejiang Province showthat from 2001 onward when Chinajoined the WTO, to 2010, the provinceencountered 492 cases of internationaltrade friction involving nearly 3o coun-tries and regions, entailing US $11.5o7billion. Nearly 7o percent of anti-dump-ing cases against China and 3o percentof the implicated funds were related toZhejiang Province.

Since 2004, Gem-Year has set a strat-egy that no matter what kind of anti-dumping appeal is lodged, the companywill defend itself without exception.

In recent years, Tu Zhiqing has gonethrough various appeals made by dif-ferent countries and regions such asCanada, the U.S., Russia and Mexico.In his opinion, the appeal process in theEU is the most difficult one. In order todeal with the EU's anti-dumping inves- tigation on fasteners, he went to Europefour times to defend the company. "Un-fortunately the result was not that satis-fying," says Tu.

Since Gem-Year's exports to the EUaccounts for only five percent of thecompany's total sales, compared to itsproactive expansion of the domesticmarket, doing duty on the EU's anti-dumping activities is not a big deal.

However, not all the enterprises arelucky enough to evade the EU's dev-astating trade blows, such as JiaxingZhengying Hardware Co., Ltd., a com-pany that set the EU as its target exportmarket. "Just as we obtained stable or-ders, the unexpected 'trade storm' madeus shut down for three months, conse-quently our exports descended by 90percent that year," says Zheng Jianping,chairman of the board.

Only Zheng knows whether China'svictory is good news or not. Althoughthe company has tapped new marketsin Russia during the past two years, itsentire export profile suffered a drasticdecline. For example, their 2010 per-formanee only accounted for 20 percentof the previous year's level. As for thesituation this year, Zheng believes thecompany can only eke it out.

According to Yang Fengdan, aboutone third of the enterprises in Jiaxingwent bankrupt waiting for a resolution,leaving the rest in the red or payingtheir own way.

Favourable Case

Efforts made by Jiaxing FastenersImport & Export Manufacturers Asso-ciation and Zhejiang Fastener Importand Export Association elevated theirresponse to the EU's "discriminatorymarriage" to a national concern.

On July 31, 2009, when China filed acomplaint with the WTO, Chen Yusong,officer from the Department of Treatyand Law, the MOC got on the ease andwas engaged all the way. According tohim, after the MOC received the ap-peal drafted by the Chinese companiesand associations they discussed it withseveral governmental departments.On July 31, 2009 China filed a formalcomplaint with the WTO, which subse-quently ruled that the EU's measureswere discriminatory.

"China was not a WTO memberwhen Section 9 (5) was enacted, but thisunfair treaty is still imposed on Chinaeven though it has now become a WTOmember state," said Chert. What thecompanies have learnt from this ease isthat a class action response is essential."Though we suffered a loss initially, webegan to understand that only by band-ing together with other companies couldwe protect our rights," says Sun Shaobo,deputy director general of the Bureauof Fair Trade for Imports and Exportsfrom the Department of Commerce ofZhejiang Province.

The victory benefits a broad range ofcompanies, especially those enterprisesthat had heavy anti-dumping taxesimposed under Section 9 (5). Based ontheir success, many companies may beable to reverse previous verdicts.