Monday, July 27, 2009

The Korea-EU FTA postponed to September - the "Duty Drawback" controversy

by M. Ulric Killion

In an earlier blog (Killion, Korea, EU conclude FTA talks), the announcement of the conclusion of the Korea-EU FTA was perhaps premature. As earlier announced, "Korea and the European Union Monday declared the conclusion of more than two years of negotiations for a free trade agreement. The landmark deal to scrap tariffs for an annual US$106 billion (S$155.2 billion) trade within five to seven years is expected to take effect as early as the first half of next year, following a formal signing and ratification. The announcement was made by President Lee Myung-bak and Swedish Prime Minister Fredrik Reinfeldt during their summit in Stockholm. Sweden holds a rotating presidency of the 27-member European Union. The leaders hailed what would be the biggest free trade accord for both sides. . ."

The Korea-EU FTA postponed

According to Business Week (2009), "An agreement between the EU and South Korea worth billions of dollars has been put on hold after politicians balked at trade conditions."

"The EU and South Korea have been negotiating the free trade agreement for approximately two years. The deal is expected to eliminate duties worth €1.6 billion for European exporters of goods and create addition opportunities worth €1.9 billion, according to the European Commission" (Business Week, 2009).

As for now, the proposed free trade agreement between the EU and South Korea, which most analysts expected to boost mutual trade ties currently worth over €70 billion, due to continuing debates on key issues will be put on hold until September.

Key issues causing a postponement are "rules of origin that establish the level of permissible foreign content in products and so-called duty drawbacks that allow for reimbursement of tariffs under certain conditions."

Earlier in March 2009, Europe's carmakers announced that they will "fight until the bitter end" to derail a 100 billion euro ($125.4 billion) free trade agreement between the EU and South Korea unless the bloc's trade chief addresses their concerns (Reuter UK, March 4, 2009).

The auto industry is the one most vocal opponents against finalizing the Korea-EU FTA. Renata Goldirova (Business Week, 2009) writes: "Carmakers have been staunchly opposed to the EU signing up to what they describe as "unacceptable demands" by Seoul. "This is a damaging development for all European manufacturing industries, including the automotive industry, which is a very strategic sector for the EU," Ivan Hodac from the Brussels-based European Automobile Manufacturers Association (ACEA) said.

Under the current proposal, South Korean manufacturers would be able to purchase 45 percent of car components from low-cost countries such as China and claim the duties back when the vehicles are shipped to European markets. "This would significantly distort competition," Mr. Hodac argued. "Chinese radios in Korean cars will through this mechanism enter the EU at zero percent duties, while the EU companies will continue to pay 14 percent when importing the very same radios."

The Duty Drawback

As for defining a duty drawback, it is generally "a key regulatory measure that involves full or partial refund of paid import duties, when the imported merchandise is destroyed, exported, or consumed as a raw material to produce an exported material. Most countries offer duty drawback incentives with the primary goal of assisting domestic manufacturers to compete in foreign markets" (Hong-Choon Oh, 2005). In terms of the WTO rules, as a general rule a duty drawback scheme is non-actionable so long as the payment is not in excess of the levies actually paid on inputs.

In other words, "Duty drawback schemes, which typically involve a combination of duty rebates and exemptions, are a feature of many countries' trade regimes. They are used in highly protected developing economies as a means of providing exporters with imported inputs at world prices, thus increasing their competitiveness, while maintaining the protection on the rest of the economy" (Ianchovichina, 2002).

As concerns the duty drawback in the proposed Korea-EU FTA, the fear of the EU, though the drawbacks are not in violation of the WTO rules, is that the tariff refunds will not only create a precedent for future free trade agreement negotiations, but also invoke similar demands by other countries in the future. Hodac earlier warned that, "This deal could set a precedent for further free trade agreements with India, Japan and China which would hugely damage Europe's economy" (Reuters UK, March 4, 2009). In response, Brussels has proposed a transition period of three to five years to allow the EU's auto sector to adjust, while EU carmakers and/or ACEA want this transition period extended to at least nine years.

Due to the global financial crisis, the EU's auto industry, which employs about 2.3 million people and another 10 million in related sectors, fears that production could fall by at least 15 percent this year. As of July 14, actually, "Car output in Europe is likely to fall by a quarter this year as government handouts to car buyers fail to halt a major slump, EU car makers said Tuesday" (AP, 2009). Their Korean counterpart, South Korea's auto industry, has also been hit by the global economic downturn with leading carmaker Hyundai earlier planning to cut production at domestic plants by 25 to 30 percent in the first quarter, while Kia, another carmaker, is also expecting to cut output.

As for the EU, the proposed lower barriers to trade and investment with South Korea is of critical importance, because it represents the first of such a pact in Asia. Nonetheless, according to Hodac, the proposed FTA that ends the 10 percent EU import duty on Korean-made cars is "totally unbalanced." From Hodac's perspective, "What is being offered to us has no balance whatsoever. Under the deal the European market is completely open and they [Korea] will get the benefit. Even with the measures that will be taken on our side, we don't believe the Korean market will be open to us."

As for the EU auto market, in 2009, the EU actually imported about 600,000 Korean-made cars. However, the ACES projects, as a consequence of the terms of the proposed Korea-EU FTA, a rise from about 150,000 to 200,000 per year. It is especially for this reason that EU carmakers are the loudest opponents against the proposed Korea-EU FTA. EU carmakers perceive the proposed trade agreement as detrimental to the EU auto industry, while at the same time allowing their Korean counterparts to take advantage of "duty drawback."

Under the mechanism of the so-called "duty drawback", Korean carmakers enjoy the benefit of being able to import cheap components from China, while having all import duties paid on these parts reimbursed if, and once, they are exported in cars destined for an EU market. This also presents the issue, at least from the perspective of Mr. Hodac and the ACES, of the problem of the rules of origin that establish the level of permissible foreign content in products.

EU carmakers, more specifically, are grumbling about a duty drawback enjoying an economic value that is worth between 300 and 500 euros per vehicle to a Korean manufacturer (Reuters, UK, March 4, 2009).

Moreover, in the context of South Korea, and the effect of duty drawback on export promotion, there is strong empirical evidence demonstrating a positive effect of export subsidy in terms of duty drawback on export supply. Thus, in the context of Korea, as one study demonstrates, "the efficiently managed duty drawback system may contribute to export promotion significantly" (Mah, 2007). A consequence that may offer small hope for Brussels' suggestion that, "It is a very political question for South Korea and although we would like to see duty drawbacks phasing out, you have to make a political choice at some point" (Business Week, 2009).


M. Ulric Killion, Korea, EU conclude FTA talks, July 17, 2009.

Renata Goldirova, Brussels divided over Korean trade deal, Business Week, July 23, 2009.

EU car makers expect 25 pct output drop in 2009, AP, July 14, 2009.

Jai S. Mah, The effect of duty drawback on export promotion: The case of Korea, Journal of Asian Economics, Vol. 18, Iss. 6, Dec. 2007, 967-73.

Copyright © Protected - All Rights Reserved M. Ulric Killion, 2009.

Friday, July 24, 2009

China request WTO panel on US imports of poultry

On June 25, 2009, and as previously mentioned (Killion, US ban on Chinese poultry – US House Committee proposes to extend import ban), in response to the United States and the European Union, on June 23, 2009, filing complaints with the WTO over Chinese restrictions on the export of key industrial raw materials, China announced the filing of its own challenge to a US ban on the imports of Chinese poultry. Lying at the heart of the controversy is US legislation affecting poultry imports from China.

The US Ban on Poultry

On June 18, 2009, the US House Appropriations Committee approved legislation, for the fiscal year ending September 30, 2010, establishing appropriations for the operation of the U.S. Department of Agriculture. The legislation, more importantly, included a provision precluding the use of any of the funds appropriated under legislation for FY 2010 for establishing or implementing a rule allowing mainland China poultry products to be imported into the United States. The legislation for FY 2010 parallels provisions earlier included in the appropriation bills for both FY 2008 and FY 2009 (Killion, US ban on Chinese poultry – US House Committee proposes to extend import ban; Hong Kong Trader, 2009).

On July 20, 2009, the WTO Dispute Settlement Body (DSB) considered first-time panel request by China on the issue of US measures affecting poultry imports from China, however, the request was blocked by the United States.

DS392: US — certain measures affecting imports of poultry from China

At the Dispute Settlement Body meeting on 20 July 2009, China introduced its request for a panel (WT/DS392/2) to examine US measures affecting poultry imports from China. China said that on 11 March 2009, the US President had signed the US Omnibus Appropriation Act of 2009 into law. China pointed out that Section 727 of the Act states that "none of the funds made available in this Act may be used to establish or implement a rule allowing poultry products to be imported into the United States from the People's Republic of China". This resulted in a complete ban on the import of poultry products from China into the US, China said, thus violating various WTO rules.

China stated that, since at least 2007, the US had entirely closed the door to China's poultry products through a number of annual omnibus appropriation acts and a series of related measures. China also said that the US Congress was currently in the process of formulating a new appropriation act and that certain Congress members were still insisting on inserting new discriminatory provisions to restrict imports of poultry products from China.

Consultations with the US were held on 15 May 2009 but failed to settle the dispute, hence China's request for the establishment of a panel.

The US expressed disappointment that China had chosen to proceed with a panel request. The US said that, in line with the Agreement on Sanitary and Phytosanitary Measures (SPS), the US permits imports of poultry products from all countries for which a determination of equivalence has been made. In this dispute, the US said, China challenged the way in which the US was responding to China's request for a determination of equivalence. The US said that its authorities were working together to ensure that the response to China's request for determination of equivalence was based on an objective, science-based consideration of all the relevant evidence in a way that was consistent with the agreements. According to the US, there was no basis for the claims made by China in its panel request.

The US also said that the measure identified by China would, by its terms, expire at the end of the current US fiscal year on 30 September 2009, and that a public debate was underway in the US Congress as to what conditions, if any, should be attached to the use of appropriated funds in the next fiscal year with respect to the import of poultry products from China. The US concluded by saying that it was not in a position to agree to the establishment of a panel at the present meeting. (After the conclusion of this DSB meeting, China requested a special meeting of the DSB to consider its panel request for a second time. A meeting has, therefore, been convened to take place on 31 July 2009.).


WTO: 2009 News Item, 20 July 2009, Dispute Settlement, China, Canada request panels;

M. Ulric Killion, US, Europe charge China with WTO violations,, June 27, 2009.

The Hong Kong Trader, House Committee Proposes to Extend Import Ban on Chinese Poultry, July 3, 2009.

Copyright © Protected - All Rights Reserved M. Ulric Killion.

Saturday, July 18, 2009

World Bank: 2009 global growth forecast

by M. Ulric Killion

Overview: A new report from the World Bank warns that the globe is entering a new era of slower growth. The World Bank’s new Global Development Finance Report, for 2009, looks at the prospects for an end to the world-wide downturn…and the long-term effects it will leave behind; Source: World Bank.

According to the new analysis by the World Bank, which is the annual Global Development Finance (GDF 2009) report, as concerns the global economy: "Global output falling by 2.9 percent and world trade by nearly 10 percent; accompanied by plummeting private capital flows, likely to decline from $707 billion in 2008 to an anticipated $363 billion in 2009." As the world enters what appears to be an era of markedly slower economic growth, according to the World Bank's GDF 2009 report, released today or on June 22, 2009, which "updates the outlook for the global economy, and explores the broad approach that will be necessary to chart a worldwide recovery."

"Extraordinary measures by governments around the world have helped save the global financial system from complete collapse, but the economic recession in the real sectors persists," said the World Bank's Justin Lin, Chief Economist and Senior Vice President, Development Economics. "To break the cycle, we need bold policy measures, including restoration of domestic lending and global capital flows."

[The World Bank, as announced in its GD 2009 report, also found that] "Governments have, in general, 'walked their talk' through monetary policy changes, fiscal stimulus, and guarantee programs to shore up the banking industry. However, a great many challenges remain, and concerted global action remains critical while the crisis is still underway" (World Bank, 2009; GDF 2009).

The World Bank, as in accordance with its newly released Global Development Finance report, is predicting that the world economy will shrink by 2.9 percent and warning that a drop in investment in developing countries will increase poverty. "Global trade is expected to plunge by 9.7 percent this year, while total gross domestic product for high-income countries contracts by 4.2 percent, the bank said. It said economic growth in developing countries should slow to 1.2 percent — but excluding relatively strong China and India, developing economies will contract by 1.6 percent"(Agencies, 2009).

"Economic damage to developing countries "has been much deeper and broader than previous crises," warned the report, issued Sunday in Washington. . . 'To break the cycle and revive lending and growth, bold policy measures, along with substantial international coordination, are needed,' the World Bank said. Investment and other financial flows to developing countries plunged by an estimated 39 percent in 2008 to $707 billion, the World Bank said. It said foreign direct investment in developing countries is projected to drop by 30 percent this year to $385 billion.

Eastern Europe and Central Asia have been hit hardest and the region's gross domestic product is expected to plunge by 4.7 percent this year, the bank said. . . GDP in Latin America and the Caribbean should shrink by 2.3 percent this year before rebounding to expand by 2 percent in 2010, the report said. In the Middle East and North Africa, growth is expected to fall by half this year to 3.1 percent, while that of sub-Saharan Africa will drop to 1 percent from an annual average of 5.7 percent over the past three years, the bank said. East Asia should post a 5 percent expansion, supported in part by China's stimulus-fueled growth, the bank said" (Agencies, 2009). 

In the specific context of developing countries (or economies), the GDF 2009 projected that developing countries should  grow by about 1.2% in 2009, which is after 8.1% growth in 2007 and 5.9% growth in 2008. If one excludes the economies of China and India, according to the GDF 2009,  then "GDP in the remaining developing countries is projected to fall by 1.6%, causing continued job losses and throwing more people into poverty. Global growth is also expected to be negative, with an expected 2.9% contraction of global GDP in 2009" (Sober Look, 2009).

World Bank cuts 2009 global growth forecast, Agencies, June 23, 2009.

Copyright © Protected – All Rights Reserved M. Ulric Killion, 2009.

Post-Subprime Crisis: China Banking and GATS Liberalization

China Financial Research Network
所属专题: 银行和金融机构专题——银行和金融机构
Post-Subprime Crisis: China Banking and GATS Liberalization
M. Ulric Killion
Shanghai International Studies University 更新时间:2009-06-24 摘要:
The Article first presents a brief history or survey of some of the earlier problems that associate with China's banking and financial institutions. The Article then addresses specific problems, in the context of the rules, procedures, and practices of the banking and finance sector, which widely range from non-performing loans, to China's money market and interbank lending business. These problems also directly associate with the liberalization of the banking and finance sector of the economy, and the requirements of both the WTO rules and China's WTO Protocol on accession. The Article also briefly explores the US sub-prime mortgage crisis and its contagion effect throughout the world, including the Asian region. In the context of China and the subprime crisis, the Article summarizes some of the problems that associate with China banking and financial institutions, by focusing on the policy implications of the history of banking and finance in China, and what this means in terms of both WTO compliance and greater liberalization of banking and financial institutions, especially pursuant to the WTO GATS, as service industries. All of this, eventually, allows for the presentation of certain conclusions concerning China banking and finance in the new era of a global subprime crisis. 点击收拢摘要全文
关键字: China, banking, finance, WTO, GATT, GATS, Subprime-crisis, Interbank-lending
论文类型: 工作论文

M. Ulric Killion: Post-Subprime Crisis: China Banking and GATS Liberalization (2009-06-24) [2009-06-27].CFRN 工作论文, Available at CFRN:

Thursday, July 16, 2009

Zhejiang Xinan Chemical Industrial Group v. Council (EU) - Dumping - Imports of glyphosate originating in China - Market Economy conditions

by M. Ulric Killion 

Photo: Zhejing Xinan Chemcial Industrial Group - Introduction - Silicone Factory - Xinanchem-Corporate Culture.

On June 17, 2009, the Court of First Instance of the European Union rendered a decision, in the case of Zhejiang Xinan Chemical Industrial Group Co. Ltd v Council of the European Union (Case T‑498/04), setting aside a Council Regulation, being Article 2(7)(b) and (c) of Regulation (EC) No 384/96, denying Market Economy Treatment (MET) to Zhejiang Xinan. In this respect, the judgment established a landmark decision. This is because the court's decision is the first instance of a Community Court annulling a Council Regulation due to a manifest error of assessment on the part of the Community Institutions; namely, both the Commission and the Council of the EU, as concerns the controversial subject-matter of MET.

The relevant legal text, being Article 2(1) to (7) reads:
2. Article 2(7) of the basic regulation lays down a special rule for imports from non-market economy countries. . .
The requisites for the granting of MET essentially necessitated a mainland Chinese company demonstrating five (5) criteria. MET is typically denied to companies unable to demonstrate that business decisions (i.e., prices, costs, etc.) are reached free of what is characterized as "significant State inference." In this respect, Community Institutions demonstrate a reluctant to grant MET to those companies evidencing significant (and even in some cases only significant minority) State shareholdings.

In regard to the issue of "significance State interference", the Court of First Instance wrote:
67. The Council contends that 'significant State interference' within the meaning of the first indent of Article 2(7)(c) of the basic regulation does not require the institutions to assess whether the State has interfered in individual business decisions if the State itself takes such decisions or prevents them from being taken. It is sufficient to establish that the State exercises significant control over the exporter in the PRC.

68. In that regard, the Council states that the PRC is still a non-market economy country in which only a few companies operate according to market economy conditions. It therefore submits that it is sufficient, in order to establish that the State participates in business decisions, to establish that the State participates with a significant weight in the overall decision-making of the company. That may take various forms, including participation in shareholder and board meetings.

69. In the Council's view, if the State controls a company, it also interferes with its decisions, even if it does not 'meddle' or 'tamper' with individual decisions or 'contaminate' them, as Audace requires. In that case, the decisions of the company are State decisions taken by virtue of the general control it exercises and that will necessarily apply to the categories of decisions covered by the first indent of Article 2(7)(c) of the basic regulation. Thus, in the Council's submission, if the holding of shares by the State gives rise to State control, it also leads to State interference which is, by definition, significant.

70. The Council contends that, under the first indent of Article 2(7)(c) of the basic regulation, State interference and arm's length prices are two different issues and the verification that prices and costs reflect market values is not the sole aim of the MES determination. As is apparent from the use of the conjunction 'and' in the wording of the first indent of Article 2(7)(c) of the basic regulation, an exporter must demonstrate two separate facts: first, that its decisions are made in response to market signals and, second, that its decisions are taken without significant State interference. The Council argues, consequently, that evidence of the prices of particular transactions is irrelevant to the question of State influence and declines to address the arguments that the applicant has devoted to that question in its application.
In other words, in the case of Zhejiang Xinan Chemical Industrial Group Co. Ltd v Council, during anti-dumping proceedings involving glyphosate, pursuant to Regulation 1683/2004, the Council rejected the MET claim of Zhejiang Xinan, a Mainland Chinese agrochemical producer. The Council specifically rejected the MET claim of Zhejiang Xinan because it found that the company was under State control (i.e., "significant State interference"). The rationale of the Council is Zhejiang Xinan's wide dispersion of majority non-State owned shares, in conjunction with State actually owning the largest block of shares. Adding to the consensus of Zhejiang Xinan being under State control is a board of directors appointed by the State's shareholders with the majority of those directors being either State officials or officials of State-owned Enterprises (SOEs). Thus, the Council found that Zhejiang Xinan was subject to "significant State interference", and denied its eligibility for MET. Notwithstanding a finding of "significant State interference", the Council also announced that it could deny MET by virtue alone of the State being "able to take such decisions or prevent them from being taken."

A problematic of the Council's decision is that it effectually denied MET eligibility to all State-controlled companies. In the context of Mainland China, the decision of the Council, in practice, excludes MET eligibility to "state-owned enterprises (Guoyou qiye) (SOEs), such as, joint state-state enterprises (Guoyou lian ying qiye), enterprises directly under Central Government (Zhongyang zhi shu qiye), and urban collective-owned enterprises (Chengzhen jiti qiye)" (Killion, 2006).

The Court of First Instance did not agree with the Council and wrote:
90. Thus, more particularly, in the context of a non-market economy country, the fact that a company established in that country is State-controlled may raise doubts as regards the question of whether the State exceeds the role of a normal shareholder which respects the rules of the market and whether the company's management is sufficiently independent of the State to be able to make decisions concerning prices, costs and inputs autonomously and in response to market signals reflecting supply and demand. In addition, it is clear from the first indent of Article 2(7)(c) of the basic regulation, in the words of which decisions of firms are 'made', that the Community legislature specifically required that the concerned undertaking's decision-making process be free from any significant State interference. Thus, it is for the company to show that its decisions on prices, costs and inputs are made independently, based on considerations typical of a market economy, namely, in particular, the maximising of profit, and that they are not influenced by considerations peculiar to the State. The taking of independent decisions on commercial grounds is, generally, a characteristic of the private sector and, consequently, it is legitimate for the Community institutions, in the exercise of the wide discretion they enjoy in that domain, to take account, in their examination of the evidence produced by the exporter concerned, of the fact that the undertaking concerned is State-controlled.

91. However, State control, as established in this case, is not, as such, incompatible with the taking of commercial decisions by the undertaking concerned in keeping with market economy conditions and, in particular, does not mean that its decisions on prices, costs and inputs are based on considerations unrelated to an undertaking operating under such conditions.
Then there is the June 27, 2009 landmark decision of the Court of First Instance of the European Union, which wholly rejected the Council's findings and rationale. This is because, according to the Court of First Instance, the litmus test of "significant State interference" must premise on action by the State that is such as to render a company's decision, ultimately, incompatible with market economy conditions.

The Court took issue with the effect of the Council's decision, which would have effectually presented a blanket denial of all State-own companies to MET. In other words, the single factor of State control is insufficient to demonstrate "significant State inference." The Community Institutions when considering cases (i.e., on a case by case basis) must consider actual business practices, such as on a case by case basis decisions such as price, costs, etc. The Court went as far as to rule that there would be significant State interference, when and only when the State exceeded the role of a normal shareholder in a market economy. The Court is drawing a line between those business decisions promoting government objectives, as opposed to those decisions pursuing profit maximization. Given these criteria and standards, a company cannot be denied MET solely because it is State-controlled.

The Court also denied the Council the means to circumvent its decision by employing the vehicle of export restrictions. According to the Court of Fist Instance:
(14) Moreover, it was established that the Government of the PRC had entrusted the China Chamber of Commerce Metals, Minerals & Chemicals Importers and Exporters (CCCMC) with the right of contract stamping and verifying export prices for customs clearance. This system included the setting of a minimum price for glyphosate exports and it allowed the CCCMC to veto exports that did not respect these prices.

(15) Consequently, after consulting the Advisory Committee, it was decided not to grant [MES] to [the applicant] on the basis that the company did not meet all the criteria set in Article 2(7)(c) of the basic regulation.'
A problem in this case is the Council not taking into consideration evidence that the company presented, which shows, as a practice, that no exports of glyphosate have actually been vetoed, nor even vetoed when prices were below the minimum price. For this reason, the Court also specifically found that the Community Institutions wrongfully disregarding this evidence relating to exports restrictions; thus, the Community Institutions made a manifest error of assessment. Zhejiang Xinan, more specifically, presented evidence demonstrating that the mechanism in question was not actually imposed by the State, but rather constituted prices set by glyphosate producers, who were members of the CCCMC; a consequence, at least according to the Court, that did not entail any actual restrictions on the applicant's exports.

[According to the Hong Kong Trader, (European Court judgment invites radical overhaul of "market economy" treatment process, July 10, 2009)]: "The Court of First Instance's judgment is novel insofar as it has made some inroads into the hitherto unassailable margin of discretion afforded to the Community Institutions by the Community courts as concerns the determination of MET. The practical implications of the judgment for exporting producers in mainland China (and interested parties in Hong Kong) will be significant. The Commission will have to undertake a revision of its existing fact-finding practices and thus a considerably greater assessment of how a company's decisions on prices, costs and inputs are taken. Paradoxically, this could mean a far more burdensome (though fairer) fact-finding procedure to be conducted at the on-the-spot verifications of MET claims at exporting producers' premises in mainland China.

In view of the judgment's radical stance on the Community Institutions' fact-finding process in comparison with the Community courts' hitherto more conservative decisions on MET-related appeals (for example, Shanghai Excell M&E Enterprise Co. Ltd v Council reported in Business Alert-EU Issue 08/2009), Hong Kong's business community may question whether this decision at first instance will be allowed to stand or whether the Community Institutions are currently mulling over the possibilities of an appeal. In any event, as noted above, the judgment is all but certain to provoke a more burdensome MET process for exporting producers in order that future MET determinations by the Community Institutions can withstand the heightened Court scrutiny."


Official Journal of the European Union, C 057, Volume 48, 5 March 2005; 2005/C 57/60, Case T-498/04: Action brought on 23 December 2004 by Zhejiang Xinan Chemical Industrial Group Co., Ltd against the Council of the European Union, 35.

Ulric Killion, Modern Chinese Journey to the West: Economic Globalization and Dualism (2006).

Copyright© Protected - All Rights Reserved M. Ulric Killion, 2009.

Wednesday, July 15, 2009

US ban on Chinese poultry – US House Committee proposes to extend import ban

by M. Ulric Killion

How Obama’s Tariff on Tires escalate China-U.S. trade Frictions? | CEOWORLD Magazine: "The Obama Administration will impose new import tariffs on tires from China, Beijing announced it was launching anti-dumping and anti-subsidy investigations targeting U.S. poultry and American-made cars;" Photo source, 2009.

China launched the first World Trade Organization case against the administration of President Barack Obama on Friday, challenging a U.S. ban on Chinese poultry. Beijing said Washington was violating a number of global commerce rules by preventing Chinese chicken parts from entering the U.S. market. Its request for consultation kicks off a 60-day consultation period, after which it can ask the WTO to launch a formal investigation. The WTO can authorize sanctions against countries failing to comply with trade rules, usually after years of litigation. In Washington, Deborah Mesloh, a spokeswoman for U.S. Trade Representative Ron Kirk, said the administration viewed the WTO procedure as a “… constructive mechanism to allow trading partners to resolve their differences.” China and the United States banned each others’ poultry in 2004 following an outbreak of bird flu. China lifted the ban after a few months and complains Washington refuses to do the same; Source: PoultryMed, 2009-China challenges U.S. ban on its poultry, April 18, 2009. 

The Background

On June 23, 2009, and as mentioned in an earlier blog (Killion, Sino-US trade, China export restrictions, protectionism and "Buy-China" requirements, July 11, 2009), the United States and the European Union filed complaints with the WTO over Chinese restrictions on the export of key industrial raw materials, such as coke, bauxite, fluorspar, magnesium, silicon metal, yellow phosphorus and zinc. The heart of the controversy are allegations by both the US and EU that China failed to reduce its export tariffs and raise quotas on these industrial raw materials, and that China's export restrictions created an unfair advantage for Chinese industries.

China's immediate response, as announced by China's Ministry of Commerce (MOC), is that the policy of limiting exports of these raw materials intends to protect the environment and natural resources; therefore, China's policy is in accordance with the WTO rules (Bloomberg, 2009). China, more importantly, also responded by announcing on June 25, 2009 the filing of its own challenge to a US ban on the imports of Chinese poultry (WSJ, 2009).

The US Ban on Poultry

On June 18, 2009, the US House Appropriations Committee approved legislation, for the fiscal year ending September 30, 2010, establishing appropriations for the operation of the U.S. Department of Agriculture. The legislation, more importantly, included a provision precluding the use of any of the funds appropriated under legislation for FY 2010 for establishing or implementing a rule allowing mainland China poultry products to be imported into the United States. The legislation for FY 2010 parallels provisions earlier included in the appropriation bills for both FY 2008 and FY 2009.

[On July 3, 2009, The Hong Kong Trader, House Committee Proposes to Extend Import Ban on Chinese Poultry, reported]: "While mainland China is not eligible to export to the U.S. poultry products that are slaughtered in domestic establishments, the Food Safety and Inspection Service issued a final rule in April 2006 allowing processed poultry products from China to be imported into the U.S. if they are processed in certified establishments from poultry slaughtered in certified slaughter establishments in other countries eligible to export poultry to the U.S. Among other things, the regulation requires that those poultry products be subject to re-inspection at the pertinent port of entry for transportation damage, labelling, proper certification, general condition, accurate count, defects and microbiological contamination. However, no mainland Chinese facilities have yet been certified to export processed poultry products to the U.S. and Congress has continued to block any such facilities from being certified.

According to various reports, China recently requested the establishment of a WTO dispute settlement panel to examine allegations that these restrictions violate multilateral rules. China requested consultations with the U.S. on this issue in April but the two sides have not reached a mutually acceptable agreement. China's request for the formation of a panel will be considered at the 20 July meeting of the Dispute Settlement Body. While theU.S. has the ability to block this request, that action would probably only delay the establishment of the panel by a few days or weeks.

Reportedly, House Appropriations Agriculture Subcommittee Ranking Republican Jack Kingston (Georgia) is trying to amend the appropriations bill language on mainland Chinese poultry to avoid a protracted and possibly losing battle with China at the WTO. Such an amendment would require the FSIS to commit to conduct audits and on-site reviews and enhance its inspection capabilities at U.S. ports of entry before allowing that agency to move forward with the implementation of the rule allowing poultry shipments from the mainland" (Hong Kong Trader, July 3, 2009).

Copyright © Protected - All Rights Reserved M. Ulric Killion, 2009.