"Anti subsidy rules are not applicable to non market economy countries,which is the consensus of almost all importing countries.This is also the principle of over a hundred years of trade remedy practice in the United States.".However,with the strong promotion of American industry and the support of some legislators,this principle is currently facing enormous challenges.On December 20,2006,the United States Department of Commerce(hereinafter referred to as the"Department of Commerce")officially accepted the application of NewPage Company of the United States to initiate a countervailing investigation(and an anti-dumping investigation)against the copper coated paper imported from China.Under the trend of the United States,on the one hand,refusing to recognize China's market economic status and constantly modifying rules in an attempt to strengthen anti-dumping measures against China,a very realistic and serious question is before us:Does the United States want to sacrifice the banner of"anti subsidy"?

1、The principle of determining that countervailing measures are not applicable to non market economy countries through administrative and judicial legislation

The US countervailing law was first seen in Section 5 of the Tariff Act of 1897,but the question of whether it applies to non market economy countries was first raised by the 1983 Polish and Czechoslovak carbon steel wire rod countervailing investigation.In this case,the Ministry of Commerce believes that the anti subsidy law does not apply to non market economy countries because the concept of subsidies has no meaning for countries with no market but only central planning.Moreover,as countries and enterprises in non market economy countries are difficult to strictly distinguish or even mix together,subsidies mean that the state subsidizes itself,which is difficult to quantify.Subsequently,in the case of potassium chloride against the Soviet Union and Democratic Germany,the Ministry of Commerce refused to take countervailing action on similar grounds.

Regarding the decision of the Ministry of Commerce,the complainant,Georgetown Steel,was not satisfied and filed a lawsuit against the Ministry of Commerce to the United States International Trade Court.The International Trade Court rejected the ruling of the Ministry of Commerce,arguing that the US countervailing laws are complete and without exceptions,and therefore equally applicable to non market economy countries.At the same time,the International Trade Court also disagrees with the statement of the Ministry of Commerce that it is"difficult to quantify".The Ministry of Commerce refused to accept this and filed an appeal to the Federal Circuit Court of Appeals.After carefully examining the provisions of the United States countervailing law,legislative history,and other factors,the latter believed that the legislative intent of Congress did not apply the countervailing law to non market economy countries.The Ministry of Commerce ruled that the so-called subsidies of non market economy countries did not constitute a"grant"under section 303 of the Tariff Act of 1930,which was not unreasonable,and thus supported the claim of the Ministry of Commerce.This is known as the Georgetown Steel Case(1986),which formed a precedent that the countervailing law did not apply to non market economy countries.

The US industry has also made several countervailing attempts against Chinese imports.As early as in the early 1980s,the Ministry of Commerce issued a public announcement seeking public comment on whether the anti subsidy law was used in non market economy countries and held hearings in an investigation case against Chinese imports of textiles,clothing,and related products.Later,the appeal was withdrawn by the complainant and remained unresolved.In 1991,domestic manufacturers in the United States applied to the Ministry of Commerce for a countervailing investigation against nuts and ceiling fans imported from China,and the Ministry of Commerce ultimately refused to take countervailing measures for similar reasons.So far,the United States has neither taken countervailing measures against China nor against imports from other so-called non market economy countries.

If the above-mentioned rulings and court decisions of the Ministry of Commerce are only administrative and judicial actions,the"Final Rules on Countervailing Measures"promulgated by the Ministry of Commerce on November 25,1998 will officially incorporate this rule into written law.In section 351.503,the Department of Commerce specifically stated that the anti subsidy law is not applicable to non market economy countries-a point upheld by the Federal Circuit Court of Appeal in the Georgetown Steel case-and we are prepared to continue this practice.

This indicates that the non applicability of the anti subsidy law to non market economy countries has already been an"iron law"established by the United States administration,justice,and legislation.

2、Legislative and executive bodies attempt to wield countervailing batons against non market economy countries

The first is the legislative aspect.On July 27th,2005,the United States House of Representatives voted 255 in favor and 168 against the Strengthening of American Trade Rights Act(No.3283)for the second time.Section 3,"Application of the Anti subsidy Law to Non Market Economy Countries",makes the following modifications to the Tariff Law of 1930:(1)Add the words"including non market economy countries"after the applicable objects of Section 701(a)(1);(2)Referring to Article 15.b of the Protocol on China's Accession to the WTO,add"In case of special difficulties in the investigation of Chinese products,adjustments may be made based on conditions and conditions outside China"to section 771(5)(E);(3)Emphasis is placed on ensuring that countervailing actions do not result in double counting.The next day,the same bill was submitted to the Senate.However,because the Senate did not pass the bill in this session of Congress,the"Strengthening American Trade Rights Act"became a"dead law"-it did not take effect.

Perhaps Congress's actions stimulated the Commerce Department,whose position change is also very intriguing.In early 2005,the United States Audit Office submitted a report on the initiation of the countervailing procedures against China to the Senate Appropriations Committee and the House of Representatives Fundraising Committee.However,when commenting on the draft report of the National Audit Office,the attitude of the Ministry of Commerce also puzzled the National Audit Office.The Ministry of Commerce believes that:(1)it is not accurate to say that there is no clear legal authorization to apply countervailing measures to China,but it should be understood that the law does not explicitly prohibit the application of countervailing measures to China;(2)The statement that the Ministry of Commerce does not accept countervailing claims against China is incorrect.In fact,the Ministry of Commerce has not received such applications since 1991;(3)Accepting a countervailing application does not mean that the Ministry of Commerce must"upgrade"China to a market economy country.The Ministry of Commerce also stated that if it receives a countervailing application against China,it will scrutinize it as carefully as it handles applications against other countries.Here,the tendency of the Ministry of Commerce to guide and encourage the US industry to file countervailing claims against China has been exposed.

Officially inspired by this hint and encouragement,on October 31,2006,NewPage Company of the United States filed an application with the Ministry of Commerce and the International Trade Commission to initiate anti-dumping and countervailing investigations against coated paper imported from three countries,including China,Indonesia,and South Korea.On November 20th,DOC decided to launch a countervailing investigation against the imported coated paper from China.Specifically,the Ministry of Commerce has initiated a review of 10 possible subsidy projects for China's coated paper industry and related enterprises based on the application of NewPage:(1)subsidy projects;(2)Policy loans;(3)Tax incentives for encouraged industries such as paper;(4)"Two exemptions and three reductions in half";(5)Reduction and exemption of income tax for foreign-funded enterprises in some regions;(6)Reduction or exemption of local income tax for"production type"foreign-invested enterprises;(7)Reduction and exemption of local income tax for export-oriented foreign-funded enterprises;(8)Reduction and exemption of enterprise income tax on profit reinvestment of export-oriented enterprises;(9)Debt to equity swap;(10)Subsidies for inputs such as raw materials.

Although the Ministry of Commerce has not made a clear statement,it has also stated in its case filing announcement that it will extensively seek opinions during the investigation process.However,the Ministry of Commerce cited the views of NewPage to prove the legality and rationality of its investigation:(1)In the Georgetown Steel case,the Federal Circuit Court of Appeal did not prohibit the Ministry of Commerce from initiating anti-dumping investigations against non market economy countries;(2)Section 303 of the Tariff Act of 1930,applicable to the Georgetown Steel case,has already been amended,and the new law provides a clearer definition of subsidies;(3)As China's current economy is far from the situation of the non market economies at the time of the Georgetown Steel case,the Ministry of Commerce should have no difficulty in assessing and quantifying subsidies from non market economies such as China;(4)China's accession to the WTO has promised to accept the application of countervailing rules to it.

On December 15,2006,the Ministry of Commerce issued a notice inviting the public to submit written comments within 30 days on whether the anti subsidy law applies to China.

3、Comments from all parties:The fierce debate has just begun

Before the prescribed deadline,the Chinese government,Chinese responding enterprises,American industry organizations,relevant enterprises,and law firms submitted 44 comments,and nine U.S.senators also wrote to the Secretary of Commerce.

The Fair Trade Bureau of the Ministry of Commerce of China(hereinafter referred to as the"Fair Trade Bureau")submitted a 28 page comment on behalf of the Chinese government.The commentary mainly elaborates on seven propositions:(1)The Ministry of Commerce has not obtained legal authorization to initiate countervailing investigations against countries such as China,which are recognized as non market economies;(2)Even with the so-called authorization,the Ministry of Commerce has established a rule that does not apply countervailing measures to non market economy countries-the Ministry of Commerce may not modify this binding 1998 countervailing rule without the legislative procedures stipulated in the Administrative Procedure Law;(3)Applying countervailing measures while continuing to treat China as a non market economy country will lead to a double calculation of domestic prices;(4)As the Ministry of Commerce has previously acknowledged that it is impossible to calculate subsidies for non market economy countries,unless the Ministry of Commerce can resolve this"impossible"issue,the Ministry of Commerce shall not initiate countervailing procedures against non market economies,including China;(5)The Ministry of Commerce must terminate the countervailing investigation on Chinese coated paper,as any changes to the Ministry's 20 year practice and methods can only be applied to subsequent procedures,not retroactively;(6)The way the Ministry of Commerce sought public comment violated the procedural provisions of the Tariff Act of 1930;(7)In the absence of new rules,launching countervailing investigations against non market economy countries violates Article 14 of the WTO Countervailing Agreement.To this end,the Office of Fair Trade requires the Ministry of Commerce to:(1)refrain from taking countervailing actions against non market economy countries until Congress takes legislative action;(2)Formulating new countervailing rules after final legislative authorization;(3)Immediately terminate the countervailing procedures for the coated paper case;(4)Refuse to initiate a countervailing investigation against any non market economy country until relevant legislation and rules are amended.

General Motors is concerned that the Ministry of Commerce may misuse countervailing measures.General Motors believes that if the Ministry of Commerce believes that an industry in a non market economy country has developed enough to be considered a part of a market economy for countervailing purposes,then the industry should also be treated as a market economy in anti-dumping investigations.The American Steel Structure Association accused the Ministry of Commerce of not recognizing China as a market economy country on the one hand,but on the other hand,promoting countervailing measures as a bad attempt to"have both fish and bear's paw",which is neither fair nor legal,and expressed opposition.

New Page believes that the US countervailing law is fully applicable to China,as there is no provision in the 1879 law not to apply to non market economy countries,and subsequent amendments have not added such exclusions.Moreover,the Georgetown Steel case does not prohibit the Ministry of Commerce from conducting a countervailing investigation against Chinese imports.In addition,the WTO Countervailing Agreement and the Protocol on China's Accession to the WTO indicate that WTO members can apply countervailing measures to China.In response to the argument that Congress was aware of the applicability of the countervailing law to China,New Page cited the provisions of the Permanent Normal Trade Relations Act granted to China by the United States Congress-granting the Ministry of Commerce additional funding to"strengthen anti-dumping and countervailing measures against Chinese imports"-indicating that Congress had recognized the need to take countervailing measures at that time.In addition,New Page also pointed out that changes in legal,economic,and other factors since the Georgetown Steel case have made it appropriate and necessary to take countervailing measures against China.For this reason,New Page requires that a countervailing investigation be applied to China.

American industry associations that have acted as plaintiffs in past anti-dumping cases against China,such as the United States Furniture Manufacturers'Legitimate Trade Commission,the Southern Shrimp Alliance,the Fresh Garlic Manufacturers'Association,and other organizations that have prejudiced against"Made in China",such as the American Federation of Labor Unions and Industry Unions,the American Forest Paper Industry Association,and the American Iron and Steel Association,have also submitted comments and requested the Ministry of Commerce to initiate a countervailing investigation against China.In addition,nine senators,including Collins,Snowe,Mikulski,Voinovich,Bayh,Durbin,Sessions,Cochran,and Schumer,also wrote to the Minister of Commerce,claiming that the countervailing law itself does not prohibit the application of countervailing measures to any country,and that Chinese subsidies harm the interests of American manufacturing,farmers,and workers,urging and supporting them to initiate a countervailing investigation against China.

4、Author's comments

As pointed out by the United States Audit Office,the Department of Commerce needs to overcome at least two obstacles in launching a countervailing investigation against non market economy countries.First,the Department of Commerce must obtain a clear authorization from the United States Congress to allow countervailing laws to apply to non market economy countries.At the same time,the Ministry of Commerce must revise its anti subsidy rules.The attempt by the Ministry of Commerce to initiate countervailing procedures from the coated paper case without congressional authorization or amending its countervailing rules is not only contrary to domestic legislative procedures in the United States,but also suspected of violating the WTO's principle of predictability.Secondly,the Ministry of Commerce must overcome technical barriers-how to identify and quantify subsidies from non market economy countries,and ensure that there is no double counting when conducting anti-dumping and countervailing measures simultaneously.

"The Ministry of Commerce has changed its position over the past 20 years and rashly initiated the countervailing procedures against China regardless of legal risks,which is the result of pressure exerted by the US political and industrial circles.".Rather than trying to pioneer the countervailing measures against China in the coated paper case,the Ministry of Commerce hopes to vigorously promote and strengthen restrictions on Chinese imports and ultimately better appease the US Congress and industry,which are angered by the expanding trade deficit with China.

In any case,given the serious imbalance in the development of bilateral trade,Chinese companies may have to prepare for stronger trade boycotts,including countervailing actions.

(Gaopeng & Partners)

(This article has been published in the 2007 issue of the WTO Economic Guide.)

(This article is translated by software translator for reference only.)