The Dawning of a New Trade Relationship with China

An Expert's View about Trade Agreements in Mexico

Posted on: 6 Apr 2010

Describes the elimination to Antidumping Duties on Chinese goods and Trade Remedies imposed as a result of Trade Negotiations

THE DAWNING OF A NEW TRADE RELATIONSHIP WITH CHINA By Adrian B. Vazquez 1 Vazquez Tercero y Asociados Antidumping duties (ADDs) by México against China have been the source of major discussion given the extent of their scope and amount. Most of these measures have been eliminated. Origin and Problems faced by ADDs on China. Faced with pressure to stop Chinese imports that threatened to injure important sectors of the Mexican manufacturing industry, Mexico set exaggerated levels of ADDs for a broad range of Chinese products during 1993-1994. ADDs were set for Chinese imports of almost all of the tariff headings on footwear, textiles, garments, toys, bicycles, handtools, electronics and chemicals, with duties that reached 1105%. Almost three thousand items of the Import Tariff Schedule were affected by such measures. The measures aimed at closing the Mexican market to China. The World antidumping system had not seen to that date the establishment of such a broad ranged measure. México was able to set ADDs on China in such a broad and discretionary manner because the latter was not a GATT member. Superficial injury examinations were conducted and ?non-market economy? treatment was applied, which allowed for extremely high ADDs. Chinese exporters did not participate in the investigations, and were applied with ?best facts available?. 2 After this first ADD package of 1993-1994, other more specific goods were added, also with high levels of protection. Measures against Chinese products had been reviewed every five years. Such reviews were allegedly based on WTO rules, given that as of December, 2001 China?s accession to the WTO was accepted, allowing but also forcing Mexico to clean-up unjustified ADDs. As regards the number of goods subject to ADDs, China is the country against whom México has imposed the largest number and, especially, the highest duty amounts. This has given rise to a distortion in trade given that many importers incur in circumvention or transshipment practices, or obtain judicial relief in order to avoid payment of ADDs. Trade between México and China. In general, Chinese imports were not stopped. On the contrary, they grew with greater diversification. They went from less than 400 million USD in 1993 to close to 30 thousand 1 Partner at Vázquez Tercero y Asociados, a firm of attorneys and economists that specialize in trade and customs law; he is the current Chairman of the Foreign Trade Commission of the Mexican Institute of Public Accountants; Mexican Chair of the Antidumping Committee of the United States-Mexico Bar Association, and has been named as one of the top five trade attorneys in Mexico by several international publications, including Chambers and Partners. Adrian was counsel to the toy, juvenile and bicycle domestic industries during the trade negotiations with China. 2 Strollers, brass locks, lighters, stoneware, steel valves, pencils, candles, etc. 1 million USD in 2007. In fact, China mainly exports to Mexico light manufactures and 3 increasing quantities of goods that were subject to AD measures . The year 2007 alone represented a trade deficit for Mexico with China of almost 25 thousand million USD, especially since Mexico has not achieved greater exports to China or the adoption of measures that mitigate the increasing trade unbalance. ADDs against China did not achieve development of protected domestic industries. These 4 demonstrated poor performance, much like the Mexican manufacturing industry , thereby facing losses in market share and employment, as well as the closing of factories. Peace Clause between México and China. China?s Accession Protocol to the WTO provided that all measures adopted by Members in a ?manner that is incompatible? with WTO principles, must be ?eliminated gradually or treated in accordance with the conditions and terms mutually agreed, as provided by 5 Annex 7?. Such document contains the list of 21 measures set by Mexico against China , and provides that such measures would not be subject to WTO principles during the six years following China?s WTO accession. Such Reservation was known as the ?Peace Clause?. The Peace Clause gave rise to several questions: Was the Mexican Government obligated to ?eliminate? the AD measures prior to December 11, 2007, or could they be amended through WTO compliant reviews? Was the Protocol breached by maintenance of such measures beyond December 12, 2007? Would China ever recur to WTO/DSB actions? Answers to such questions are theoretical today. México?s trade representatives announced publicly that ADDs against China did not comply with its WTO obligations, and also, that it would self initiate reviews of the measures given that the end of the Reserve fully justified examination of the need to 6 maintain ADDs , but China demanded immediate compliance. On the opposite side, the domestic industry seriously questioned Mexican trade representatives. The Trade Remedy Negotiation. In late December, 2007 and in early 2008, México looked to negotiate an ?extension? to the ADDs and, therefore, seeking China not to initiate WTO consultations. China of course claimed that Mexico?s sole remedy was to immediately eliminate the AD measures. In turn, Mexico offered to fully eliminate over half of the AD measures, maintaining the rest until their expiration term, but China responded by asking for greater sacrifice and certainty that the measures would not be extended once again if they reached a settlement. 3 Through mechanisms such as ?exclusive product? for toys, as well as judicial orders. 4 Manufacturing exports enjoyed great dynamics until 2000. It was lost during this decade, except for sectors such as the automotive and electronic. 5 At the end of 2007, only 15 groups of measures prevailed. ADDs subject to the Peace Clause related to 953 tariff items, but in practice refer to an infinite range of products. 6 The World?s AD system had never faced the challenge of conducting simultaneous reviews for such a large number of products, including new examinations of dumping and injury in order to cure inconsistencies with WTO rules. All 15 ADDs reviews were initiated before December 11, 2007. 2 After four negotiation rounds in Beijing, México offered to eliminate ADDs on 749 tariff items, and maintenance of a certain level of protection for sensitive goods that represented 204 items. Each of Mexico?s industries would need to make its own sacrifices of products or industries. At the same time, the level of protection on sensitive goods would have to be reduced substantially and gradually until complete elimination during a period of 4 years. The Trade Remedy Agreement and the Implementation. Finally, on June 1, 2008 the Governments of China and Mexico signed a Transitory Agreement on Trade Remedies, whereby Mexico accepted elimination of ADDs on 953 tariff items that were imposed on China prior to December 11, 2001. In exchange, Mexico would be able to impose trade remedy measures on China regarding 204 tariff items that are deemed ?sensitive?. The measures would vary depending on the relevant sector between 60% and 350%, and would have a phase out calendar until their complete elimination on December 11, 2011. Mexico committed to having the new regime in force no later than October 15, 2008. The Trade Agreement was ratified by the Mexican Senate during an extraordinary session held on June 20, 2008. On October 8, 2008 the President published the Decree that approves the ratification, and on October 13, the Enactment Decree was published. On October 14, 2008, the Minister of the Economy published in the Federal Official Gazette the Agreement that implements temporary transition measures on the importation of several goods from China. The Agreement calls for its entry into force as of October 15, 2008, with expiration on December 11, 2011 (the ?Implementation Agreement?), as well the publication of 15 Final Determinations that conclude ADDs reviews on imports from China. Through the foregoing publications, ADDs were eliminated on goods from China classified under 953 different tariff headings, and trade remedy measures were established in the way of ad valorem duties (%) on 204 tariff items. Pursuant to the provisions of the Trade Agreement, the new trade remedies shall be applied in four different stages; the first begun on October 15, 2008, and shall end on December 11, 2008. The remedy duties will be phased out during annual periods that shall run from December 12 of one year to December 11 of the next, and shall finally expire on December 12, 2011. The new trade remedies are independent from the Import Duty, and substitute ADDs solely for the 204 tariff items listed in Exhibit 1 to the Implementation Agreement published by the Ministry of Economy. The remaining 749 tariff items that experienced elimination of ADDs shall continue subject solely to the Import Duty. The Implementation Agreement provides for certain mechanisms to exempt payment of the trade remedy measures or even exceptional treatment for certain tariff items, such as those that relate to toys, shoes and strollers, among other goods. The existence of dissent with the new measures is foreseeable. This may come from both domestic manufacturers that are unsatisfied with the elimination of the ADDs, and from importers that will almost certainly seek ways to contest them, including submission of Amparo (Constitutional challenge) suits. Regardless of any possible setbacks, the fact that Mexico has completely opened to trade with China is evident. However, the question remains: can the Mexican industry compete against subsidized imports? 3
Posted: 06 April 2010

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