Wall Street Journal (Feb 5, 2010)

China Complains to WTO about EU Tariffs

Petition against Antidumping Duties on Shoes Extends Fight against What Beijing Says Is Unfair Protectionism

By JOHN W. MILLER

China filed a complaint against European Union shoe tariffs at the World Trade Organization on Thursday, as Beijing continued its legal assault on what it says is unfair Western protectionism.

China's exports have been growing since the 1990s, particularly after the country joined the WTO in 2001. Eight years later, China passed Germany to become the world's top exporter. That status comes with a price: China is now the leading target for protectionist measures, according to Global Trade Alert, an independent monitor.

As the fitful economic recovery has put some domestic jobs and profits at risk, the EU and the U.S. have sought to stem the flow of Chinese imports with special duties. Added to existing tariffs, the duties are meant to make Chinese goods too expensive for consumers to afford.

China isn't taking the restrictions lying down. From a new office near WTO headquarters in Geneva, Beijing is playing hardball. It is paying top dollar to engage premium counsel, some trade lawyers say.

In September, China reacted to President Barack Obama's tariffs on tire imports with a complaint against the U.S. China has also put restrictions on imports of U.S. poultry and auto parts.

Early Friday, China's Commerce Ministry said it had made a preliminary decision to impose antidumping duties on some U.S. chicken products from Feb. 13, the eve of the Lunar New Year, China's biggest holiday.Companies named in the statement include Pilgrim's Pride and Tyson Foods Inc.

The ministry, which said an investigation showed imported chicken products from the U.S. hurt China's chicken industry, said all parties now have 20 days to submit comments for further review. The investigation was announced in September after the Obama administration imposed the tire duties.

In the EU case, China is taking on one of the most important tariff increases ever levied, which has taken a bite out of its expansive shoe industry. The 16.5% tariffs are antidumping duties, meant to punish goods that are sold below cost and hurt the sales of domestic producers.

The EU duties were inaugurated in 2006 and extended for 15 months in December 2009. At the same time, shoe imports from Vietnam were hit with a 10% tariff.

The duties "violate WTO rules and undermine the legitimate rights and interests of Chinese businesses," Commerce Ministry spokesman Yao Jian said.

The EU dismissed the complaint. "Antidumping duties are not about protectionism," said spokesman John Clancy. "They are about fighting unfair trade." The measures, he said, were imposed only on "evidence that dumping of Chinese products has taken place and that this is harming the otherwise competitive EU industry."

After threatening in December to take the tariffs to the WTO, China filed the formal papers Thursday.

The EU now has 60 days to offer a compromise. If none can be found, a three-judge panel will rule on the Chinese complaint's merits.

The EU will be asked to prove that companies making shoes in China—many of them European—benefited from tax breaks, low-interest loans and other subsidies that allowed them to sell shoes in Europe below cost, and that the low price of those shoes hurt EU manufacturers.

China has a good chance of prevailing in the case, a number of trade lawyers and analysts say.

The EU tariffs were passed after fierce lobbying by Italy on behalf of its domestic shoemakers. Italy traded votes in other debates with EU members in exchange for support for the tariffs, EU officials say.

If China wins, the EU would have to suspend the duties or face retaliatory trade restrictions against EU exports to China, such as pharmaceuticals, automobiles and wine.

A Chinese victory in the case would "give a clear enough message that a radical overhaul for the EU antidumping system is a matter of priority," says Nikolay Mizulin, a Brussels-based trade lawyer at Hogan & Hartson LLP.