The Future Of Trade With China:A Two-Way Street?

Tuesday, December 1, 2009 - 01:00

Editor: Would each of you tell our readers about your backgrounds in international trade, and more specifically in dealing with China, before you joined King & Spalding and your current portfolio with the firm.

Kaplan: I was in charge of import administration at the U.S. Department of Commerce for over three years, and I had the opportunity to administer over 500 anti-dumping and countervailing duty cases, including a large number of subsidy cases. I also handled the administration's negotiation of legislative changes in the dumping and subsidies area. I was a senior partner at Hale and Dorr for thirteen years. When that firm merged with Wilmer Cutler in 2004, I moved to King & Spalding because of a client conflict issue, and it has been a very happy experience.

While at Commerce I was involved in some of the first antidumping cases against China. We also developed the factors of production methodology for non-market economy antidumping cases and that became part of major trade legislation.

Editor: Chris, please tell our readers a little bit about your background.

Cloutier: As an undergraduate at the University of Michigan, I spent a semester in England and then a full year at a Japanese university. At George Washington Law School, I worked in Japan during my first summer and spent another semester in Tokyo. Starting in 1999, I went to work at another law firm where I focused on Japanese and NAFTA matters until 2002, when I was hired by the U.S. Department of Commerce to open an office in the U.S. Embassy in Beijing to work on issues relating to China's accession to the WTO. I had learned Chinese characters in Japan, so learning Mandarin in Beijing was easier than it could have been. I stayed until late 2005, when I returned to private practice with King & Spalding, where I spent a good part of my time working on China-related issues.

Editor: In an earlier article in this newspaper, you talked about the Coated Free Sheet Paper case ("CFSP"), the first countervailing duty ("CVD") action by the U.S. Commerce Department against imports from China. Please remind our readers what that was about and bring us up to date.

Kaplan: It was really a landmark case that opened the door to the United States application of the CVD law to China and other non-market economies. There have been 23 countervailing duty cases against China since then. The advantage of a CVD case is that you can have a decision in as little as six months. If successful, the case results in the imposition of a tariff at the border to offset subsidies on goods coming into the United States. Another of my partners, Joe Dorn, and Chris have also brought the first CVD case against Vietnam.

Cloutier: Similar to China, Vietnam is a centrally planned economy. In the mid to late 1980s, the Department of Commerce had declined to use the CVD law against Communist countries because of a perception that it was difficult to identify subsidies. In the CFSP case, we were able to demonstrate to Commerce that it could identify subsidies in modern China. In the Vietnam case, we similarly argued that Commerce could identify subsidies in that market as it now exists.

Editor: Given the increased trade between the United States and Southeast Asia and China, is this a major part of your practice?

Kaplan: Yes. After the CFSP case, we also brought the second China CVD case, which involved circular welded pipes. Subsequently, we've worked on several others related to textiles, off-road tires, and other paper products. Subsidies have become a significant area of discussion between the two governments. As we speak, I am in Geneva working with the United States government to respond to a related WTO case that China has filed against the U.S. We have a large team over here from the United States Trade Representative's office and Commerce working on this case, and we expect to have a result sometime this coming winter.

Editor: Is this related to the tariffs that were recently imposed on tire imports from China?

Kaplan: No, those were passenger tires. The current WTO case involves off-road tires. But we do think that the passenger tire tariff was an appropriate use of Section 421, which is different from the CVD or anti-dumping statute, to deal with import surges from China. As part of its accession to the WTO, China agreed that the United States and other countries could impose such short-term safeguards.

Editor: What else are you working on?

Kaplan: We have a lot of Section 337 cases that relate to unfair importation of products that infringe United States intellectual property rights. I'm working on a major case for a United States semiconductor company against Samsung, whose imports, we believe, are infringing our patents. That is a major international trade issue. Another issue where we represent a variety of clients is the rules negotiation at the WTO, specifically, how the new rules relating to trade remedies will be written as part of the Doha Round. I am the chairman of the lawyers group that is advising the United States on how U.S. industries think those rules should be improved.

Cloutier: A big part of our practice is assisting U.S. companies that are respondents in foreign jurisdictions. Last year, for example, we were involved in cases in Brazil, Mexico and Australia, among others. We've also done nearly a dozen cases in China. Perhaps most interesting among these is China's first countervailing duty case against the United States, which is ongoing and involves a U.S. steel product. In recent days China has initiated three joint anti-dumping and countervailing duty cases involving exports from the United States in apparent response to the Tires 421 decision. This follows from work I did when at the U.S. Embassy in Beijing, where one of my primary tasks was to help U.S. companies that were subject to Chinese anti-dumping proceedings. China's use of its anti-dumping law really took off after it joined the WTO.

Editor: Can you give our readers an example of what some of your U.S. clients are seeking in the Doha round?

Kaplan: We think presumptions should be applied that there is injury to U.S. industry when there are very high margins of dumping or subsidization. Now, in order to win these cases, you not only must show dumping and subsidies, you also must show actual injury through elaborate hearings at the International Trade Commission. We think where the dumping margin or subsidy is very high, say 20 or 30 percent, there should be a presumption that injury is occurring, and one should not have to go through an expensive process at the International Trade Commission.

Editor: Do American law firms tend exclusively to represent either U.S. petitioners or foreign company respondents?

Kaplan: There's not a direct split in the bar. A large number of firms work on both sides of the issue. At King & Spalding, we tend to represent U.S. companies as petitioners here and as respondents in foreign cases.

Editor: You mentioned Brazil, Mexico and Australia, as well as the Asian countries. Is there is a growing sophistication with respect to trade law in other legal systems?

Cloutier: Normally, we work together with local counsel who are by and large tremendously sophisticated. Where we can add value is by communicating in real-time with the client and leveraging the expertise we've accumulated through decades of trade cases in the United States and around the world. An interesting aspect of trade law is that almost all national laws are based on WTO agreements, so the rules from country to country tend to be pretty similar, meaning that we can jump right in.

Editor: Have you been involved in India?

Cloutier: We are currently involved in one Indian trade remedy proceeding and regularly advise clients on India-related matters, although as I mentioned generally we work through Indian counsel.

Kaplan: I represented a U.S. semiconductor company whose intellectual property was being infringed in India. With local counsel, we filed a "mask work" protection case under an Indian statute that essentially protects the blueprint of a semiconductor design. Every member of the WTO is required, under the TRIPS agreement, to have a mask works statute. We got a very positive result in that case.

Editor: Please comment on the apparent rebound in the Chinese economy and the future.

Kaplan: There's a lot of skepticism regarding Chinese statistics, which tend to track the targets set out in the five-year plans of the Communist Party. Are they actual measures, or simply a demonstration that the leaders and Party in China want to show that they met plans? China's economic model is carefully controlled and built around the model of export at all costs, all the time, at any price, as long as there is subsidy money to fuel the engine. China has about a trillion dollars of trade surplus savings. If you have that kind of money to prime the pump, you can put it into the economy very fast to deal with unemployment. I think that model is very disruptive to the rest of the world economy, but as long as you practice it, and no one is able to stop you, it's successful in generating artificial growth within one economy at the expense of others.

Editor: Has WTO membership changed the way China approaches their export-driven strategy?

Cloutier: WTO membership has been a tremendous boon for Chinese industry. Membership gives the country what used to be called "most favored nation" tariff rates that, for almost everything, are negligible. In return, China was required to open up certain aspects of its economy. The introduction of foreign competition has benefited everybody in China, including the Chinese-owned industries that have had to improve their performance. There's little doubt that WTO membership has been great for China.

Editor: Any progress on the Doha Round?

Kaplan: I think that it's hard to see a solution to Doha in the short term, because it's harder to do trade agreements in periods of economic difficulty. There's also a question of whether there's the political will around the world to do another trade agreement. It's only been a little over ten years since the Uruguay round was completed, which made enormous changes in the rules of world trade. I think the beginning of the Doha Round was a little premature because the benefits and the complexities of the Uruguay Round really had not worked themselves out yet.

Editor: Will that mean we will see more bilateral or regional trade agreements?

Kaplan: By default there will be greater emphasis on bilateral trade agreements, but there appears to be no interest in Congress in moving these agreements right now.

Cloutier: Some countries in Southeast Asia are working on bilateral or regional trade agreements that seem to be moving ahead faster than Doha, so the trend is toward agreements between a smaller number of countries.

Kaplan: I was really speaking about the United States, but in other areas and countries there's much greater progress on these bilateral agreements. Trade overall is increasing and that's a very good thing. The question for the U.S. is whether trade has caused dislocations, particularly for the manufacturing sector. There's no reason that China should be selling products in the United States at very low prices and undercutting U.S. producers. One example is the paper industry. A lot of paper is shipped from China to the United States and it's not because of low labor costs. The proportion of labor costs in paper is very, very small - under ten percent. The cost of shipping is much greater. China has no pulp at all; most of their pulp is shipped from Brazil or elsewhere to China, then the paper is made there and shipped to the United States. The U.S., on the other hand, has incredible forests and pulp supplies. The Chinese are able to sell paper to the United States only because they have a very subsidized economy. So, until we deal with those kinds of problems, particularly as it relates to trade with China, I think it's going to be hard to see a big movement forward in free trade.

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