The continued integration of China into the global economy, combined with its increasing willingness to initiate complaints and investigations in trade disputes, will lead to rising demand for legal expertise in international trade and the WTO
During the US election campaign in 2008, President Obama said "America and the world can benefit from trade with China. But trade with China will only be good for you if China itself plays by the rules and acts as a positive force for balanced world growth."
This warning to China has been followed by an increase in international trade disputes between the US and China, both between governments and individual enterprises. Since China only joined the WTO in 2001, law firms here have not had sufficient time to develop quality international trade practices. This lack has become an opportunity for international law firms to provide representation to key Chinese parties during international trade disputes.
Sharp increase in disputes
There has been a marked increase in international trade disputes emanating from China in the past six months. One reason for this upward surge could be the global financial crisis. The economic climate makes trade disputes "more likely," according to Jeffrey Neeley, partner with US firm Barnes/Richardson. "Since companies in the US and other jurisdictions are looking for a competitive advantage, using trade remedies can provide a WTO-consistent means of obtaining protection from Chinese products," he says.
The global financial crisis has also seen economies attempt to protect their industry from strong global competition. "Historically, when the global economy is depressed, there is a surge in trade remedy cases," says Eugene Lim from Baker & McKenzie. "This is because anti-dumping, countervailing and safeguard proceedings are means for domestic industries to protect themselves from competing imports. This shows the tension between ensuring that domestic industries are shielded from the adverse effects of the GFC and preventing the greater goals of free trade from being sacrificed at the altar of protectionism."
In addition, the credit crunch has led to a renewed difficulty for many companies to fulfill their contractual obligations. This struggle is two-sided: not only are companies less able to meet their obligations, but many are unable to allow delayed payments or defer litigation because of the financial climate. "Many companies have breached their trade contracts because of financial problems and market fluctuations, which has brought a dramatic rise in international trade disputes and litigation in China," says Jin Yulai, managing partner at Shanghai Kai-Rong.
The change in US administration has also been cited as a reason for the increased number of trade disputes, since President Obama had taken a strong stance on trade with China during the election campaign. "I suspect that some of these cases - particularly the case filed against off-road tyres - resulted from the domestic [Chinese] industry believing that the Obama administration would take a harder line against Chinese imports," says Eric Emerson, partner at Steptoe & Johnson.
Fighting back
The other discernable change in trade disputes has been the willingness of China to initiate complaints and investigations. In the past, China had been the subject of many trade disputes, and forced to respond at the WTO and other bodies. But, recently, China has been listed as an appellant for more and more cases. Local firms attribute this development to a newfound confidence within Chinese government and businesses in their trade policies.
"We can see the Chinese government more willing to engage in trade disputes now, and I believe this is driven by two reasons," says Jin. "China is becoming more and more familiar with the WTO rules and has gained a lot of experience in dispute settlement from past cases. The Chinese government is also becoming more and more confident in dealing with these disputes."
In April 2009, the government filed a WTO complaint over a US ban on poultry imports from China, which is the fourth it has filed since 2001. The willingness of China to bring cases before the WTO and challenge US and other foreign enterprises in international litigation is seen as a "natural progression" by Lim. "China is starting to mature as a global economic power and a member of the WTO," he says. "China is seeking to enforce its economic and trading interests within the framework of the WTO. This shows that China is a responsible member of the international trading community and is willing to abide by WTO rules."
China may also have realised that its hesitancy in challenging foreign states at the WTO or other international trade commissions was not discouraging reciprocal attacks. "As time went on, the Chinese government realised that the US continued to be aggressive in its pursuit of cases at the WTO and that China's lack of counter-actions was having no effect," says Neeley. "Thus, the Chinese government has now begun to look more closely at violations of WTO obligations by the US and has begun to pursue such actions."
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