Protectionism and disputes 'will rise'

Arnoud Willems, a partner at US law firm Sidley Austin LLP, is filled with excitement these days after successfully helping Chinese shoemakers win an anti-dumping case. His clients will be compensated with millions of dollars in tax refunds.

"This is the best visible achievement I have made so far," said Willems, who is based at the law firm's Brussels office and has been representing Chinese clients in trade disputes against their European competitors since 1995.

At the beginning of this month, the European Court of Justice annulled anti-dumping duties the EU slapped on Hong Kong shoemakers Brosmann Footwear HK Ltd and Risen Footwear (HK) Co Ltd and Guangdong shoemakers Seasonable Footwear (Zhongshan) Ltd and Lung Pao Footwear (Guangzhou) Ltd.

This has led to the likelihood that another 400 to 500 Chinese and Vietnamese shoemakers, which have been paying 16.5 percent of revenues in anti-dumping duties since 2006, may win lower rates of duty. Willems said that since 2006 the shoemakers had paid more than $1 billion in such duties.

"Other shoemakers may request the EU to undertake individual assessments after the ruling, although the EU courts may argue that the cases are too many for it to handle," said Willems, urging the EU to treat the Chinese shoe exporters fairly.

Compared with Willems, Robert MacLean, a partner with the law firm, Squire Sanders LLC, has not been so lucky representing Chinese bicycle producers, which have been forced to pay anti-dumping duties since 1993. The measures were extended twice and the level of the duty increased in 2005. Following an expiry review investigation that ended in October, the EU extended anti-dumping duties of 48.5 percent on Chinese bicycles and bicycle parts until 2016.

"The long duration of the measures in place has shown that the European Union's bicycle manufacturing industry is one of the industries most protected in the EU," said MacLean.

In the latest expiry review investigation, few Chinese exporting producers actively responded. MacLean said the reason behind the lack of interest shown by Chinese companies in defending their cases resulted from bad experiences in previous review investigations. Another factor that deters individual Chinese producers from volunteering their cooperation is what they consider to be the unfair mechanism of expiry review investigations.

The EU does not regard China as a full market economy and it often uses anti-dumping measures when the prices of imported Chinese goods are lower than its local products.

Although Chinese and European leaders pledged to refrain from trade protection measures earlier this month at a summit in Beijing, industry insiders warned that Chinese exporters are expected to face an even tougher reality in the European market.

The problems are two-fold. One is that Europeans, because of fiscal austerity measures, have lowered demand for goods. The other is that European authorities are planning to resort to stricter trade defense measures to protect their internal market.

"Although we don't want to see this, protectionism will rise and the number of trade disputes related to Sino-EU trade will increase," said Willems.

As a lawyer who has represented Chinese clients over many years, Willems is sympathetic to Chinese exporters who are dealing with a "complicated" system of trade laws in English or other languages but not in Chinese.

As the sovereign debt crisis worsens in Europe and trade volumes grow, Willems does not expect the situation for exporters to improve. He said: "The more trade we have, the more disputes we will encounter."

He regards this as a huge challenge for Chinese companies. "Growing Chinese companies are rising to the challenge and requesting fair treatment, but the European court just ignores them simply because of the rising number of cases and limited handling capacity," said Willems.

On the European Commission's website there are currently 34 ongoing trade defense investigations listed from the beginning of 2011. Of that total, 20 involve Chinese companies.

Many other cases are undergoing court proceedings. MacLean is now working on behalf of the Chinese coated fine-paper industry against the EU.

"This case includes both anti-dumping and the first EU anti-subsidy case against China," said MacLean, who is also representing the largest Chinese exporter in the case involving stainless steel seamless pipes and tubes.

MacLean said the current crisis is very likely to increase trade tensions between EU and China as European industries operate in an increasingly negative economic environment and feel the need for protection.

"We have seen a trend of China retaliating against the EU," said MacLean. "The combination of these two events suggests that frictions will probably intensify rather than calm down in the foreseeable future."

Although vowing to encourage imports, a reliable source from European Commission has emphasized the importance of restoring the confidence and stability of the European economy at a time of crisis by "bringing back" productive investments to European territory from other economies. It will also adjust the European economy by capitalizing on real economic activities.

This means a likely decrease in imports or more trade disputes with emerging economies such as China.

Some observers say anti-dumping investigations and increased duties are not in the interests of European importers and retailers. Stuart Newman, legal adviser of the Brussels-based Foreign Trade Association, has for years criticized the EU's anti-dumping measures for their lack of transparency and predictability.

The EU was also blamed for a lack of access to suitable information and the inauspicious timing of actions taken by the European Commission. "We have not seen much improvement by the EU in the anti-dumping system over the years," said Newman, whose organization represents EU retailers and importers.

Newman also said his association has concerns that more anti-dumping investigations are being opened against Chinese importers. Newman predicted that as imports from China continue to increase, there will be more requests for protectionist measures from unprofitable EU industries.

In addition, the economic prospects of the eurozone and the extended EU are not good, but China is nonetheless under pressure to maintain its export activity. Newman said the EU will likely move systematically against Chinese countervailing subsidies.

"This mix of circumstances will likely trigger more trade defense cases and the World Trade Organization dispute settlement proceedings from both sides," said MacLean.

MacLean said the Chinese are hard-working and great traders and he has enjoyed cooperating with Chinese exporters, notably those who are larger, well-organized and intensely focused on certain markets and products.

"But it is not easy to defend Chinese trade interests before the EU institutions while market economy status is still unobtainable," said MacLean. "We don't have access to confidential data."

As a result, MacLean said as a lawyer, in many cases, he is obliged to operate in the dark and try to best the EU institutions by focusing on procedural errors.

"So we are looking forward to the day when China will be accepted as a market economy country," said MacLean. "Or the day when EU lawyers will have broader access to investigation data in order to defend Chinese clients more effectively."