Steel Antidumping Tariffs: The Issue of Surrogate Countries

Steel Antidumping Tariffs: The Issue of Surrogate Countries
Sung “Chris” Lee
Vol. 37 Associate Editor
Vol. 38 Online Content Editor

Low steel prices have been driven by Chinese steel glut: China is dumping steel globally to get rid of the massive excess supply. As China shifts away from growth driven by the manufacturing industry, it is flooding the worldwide steel market with its excess capacity. China plans to cut some of the excess capacity by 100 to 150 million tons as part of an effort to restructure its economy, but it did not specify the deadline.[1] 

The steel industry is in a state of turmoil, as steel manufacturers continue to bleed with losses. And among them, European manufacturers—including ArcelorMittal and Tata Steel—have taken the biggest hit. With steel sectors in European countries, including the UK, at the brink of collapse, steel manufacturers are now pleading for a tariff on Chinese steel imports.

But so far, the response from various European governments have been meek. Europe has imposed 13% tariffs on Chinese imports as a remedial measure, but this is criticized as a toothless measure.[2] The proposed tariff on Chinese steel imports have similarly been condemned as a “slap in the face” for the UK steel industry.[3] On February 8th 2016, Ministers from France, Italy, Germany, and Poland have written to the European Commission calling for quick introduction of stronger antidumping measures.[4]

As Europe braces for stronger stance, China’s Ministry of Commerce fought back saying that the anti-dumping claims should be put to the World Trade Organization (“WTO”).[5]  The Ministry spokesman said that the WTO members should fulfill their treaty obligations and not use “surrogate countries” to pursue anti-dumping claims.[6]

Surrogate Country System and NME Status

Since the 1970s, antidumping measure have been used frequently as a remedy against unfair competition. Since the establishment of the WTO in 1995, 4,230 antidumping initiatives have arisen.[7] China has been the primary target of antidumping proceedings in the last two decades.

These antidumping measures have been brought against China because of the non-market-economy (“NME”) status of China.[8]   NME status was imposed on China by WTO Accession Proposal in 2001 because its market was controlled or manipulated by the government. According to the theory of free trade, domestic prices of products in a NME country cannot reflect the normal value in the “ordinary free trade” as required by the WTO regulations.[9] Thus, in an antidumping proceeding involving a NME country, the importing county is empowered to use the price of a third party, or a “surrogate country”—nominated by the company initiating companies of the importing countries—to show the comparable price in calculating the normal value.[10] Using the Surrogate Country System methodology has lead to more determinations of dumping.

But it is unclear whether China will remain an NME country. Paragraph 15(d) of China’s Accession Protocol provides that the subparagraph 15(d)(ii)—provisions that give China’s NME status—shall expire in 2016, or 15 years after the date of China’s accession.[11] The prevailing view is that this clause can be construed as an automatic shift of China’s status as NME to Market Economy.[12] However, a respected commentator has challenged this saying that paragraph 15(d) only provides for the expiry of subparagraph 15(a)(ii); according to his interpretation, China’s status is still left at the discretion of the importing Member according to its domestic laws.[13]

Interpretation of China’s accession protocol will determine China’s status. If China is no longer found as a NME country, importing countries will not be able to adopt the Surrogate Country System on China.

Conclusion

Europe’s antidumping claims hinges on the issue of Surrogate Country System. Before 2016, antidumping investigations yielded favorable results for the initiating countries. But from 2016 onward, it may be more difficult to prove antidumping determination against China. And it is more uncertain, under the current conditions, whether Europe can and will raise higher tariffs on steel under its WTO obligations.


[1] See China to Cut Steel, Coal Production as Part of Restructuring, The Economic Times (Feb. 9, 2016), http://articles.economictimes.indiatimes.com/2016-01-25/news/70065369_1_crude-steel-baosteel-coal-production.

[2] See Proposed Tariff on Chinese Steel Imports a ‘Slap in the Face’ For UK Industry, Energy Voice (Feb. 9, 2016), https://www.energyvoice.com/other-news/100321/proposed-tariff-on-chinese-steel-imports-a-slap-in-the-face-for-uk-industry/.

[3]  See European Steelworkers Blame China for Steel Crisis, Slam Weak EU Action, China Topix (Feb. 9, 2016), http://www.chinatopix.com/articles/76111/20160203/europe-china-steel-crisis-eu.htm.

[4] See Alan Tovey, British Steel Sector at Risk of Impending Collapse, The Telegraph (Feb. 9, 2016), http://www.telegraph.co.uk/finance/newsbysector/industry/12145916/British-steel-sector-at-risk-of-impending-collapse.html.

[5] See Aly Song, China Says EU Should Take Steel Dumping Claims to WTO, Reuters (Feb. 9, 2016), http://www.reuters.com/article/us-china-steel-eu-idUSKCN0VF0AM.

[6] Id.

[7] https://www.wto.org/english/tratop_e/adp_e/AD_InitiationsRepMemVsExpCty.pdf.

[8] Yanni Chen, The Surrogate Country System for WTO Antidumping Investigations against Non-market-economy Countries: China as an Example, (Feb. 8, 2016), https://tspace.library.utoronto.ca/handle/1807/42729.

[9] Id.

[10] Id.

[11] Weijia Rao, China’s Market Economy Status Under WTO: Antidumping Laws After 2016, 5 Tsinghua China L. Rev. 152-53.

[12] Id.

[13] Id.