*EPF504 05/23/2003
Excerpt: Trade Official Discusses Chinese Trade Problems, Potential
(International Trade Administration's Aldonas May 22 testimony) (3980)

The U.S. government "aggressively pursues China's compliance with its trade obligations," according to Under Secretary of Commerce for the International Trade Administration (ITA) Grant D. Aldonas.

"ITA's compliance office has initiated and addressed 275 investigations ... which comprises 17 percent of all cases and more than any other country or economic area," Aldonas told members of the House Appropriations Subcommittee on Commerce, Justice, State, the Judiciary, and Related Agencies.

These cases, he explained in testimony May 22, include investigations of possible violation of a multilateral or bilateral trade agreements, other market barriers and unfair trade practices, and commercial disputes where a U.S. company has encountered problems with an existing transaction or venture.

"As trade between the United States and China has grown, the number and complexity of antidumping investigations on products from China has also increased," Aldonas noted.

"Dumping" is defined as a potentially unfair trade practice that can materially injure producers of merchandise in the United States when the import of the same merchandise is at a price below the home-market or a third-country price or below the cost of production.

"U.S. producers have alleged that exporters and/or importers of merchandise from China are actively and intentionally trying to evade antidumping duties. In particular, it has been alleged that Chinese exporters and producers are misrepresenting the country of origin, falsifying invoices, and reporting customs values that are well below market value," Aldonas reported.

He added that relief under antidumping laws in the United States takes the form of a tax collected by the Office of Homeland Security's Bureau of Customs and Border Protection (CBP) after affirmative determinations of dumping and injury have been made by the ITA and the Commerce Department.

Aldonas detailed some of the ways in which the ITA and CBP work together to investigate fraudulent activities, especially dumping and duty-evasion.

"For example, with respect to the anti-dumping (AD) order on imports of garlic from China, CBP developed a system to analyze the trace-metal profiles of garlic to make definitive country-of-origin determinations on garlic imports," he said.

He said ITA has requested, and CBP has agreed to provide, information to assist ITA in applying the trace-metal testing program to other Chinese agricultural products that are subject to anti-dumping orders, such as apple juice concentrate, preserved mushrooms, honey, and crawfish.

Aldonas said the ITA not only helps protect U.S. businesses from harm caused by Chinese unfair trade practices, but also plays a role in China's social development.

"At its root, trade is about human freedom -- the freedom to interact, innovate, and exchange goods and services without interference from the state," he said.

"I want to assure you that we are making a strong effort to promote rule of law, freedom, democracy, corporate stewardship, and human rights through trade with China.... In my view, the Chinese government will be forced to embrace human freedom if it hopes to continue its path of economic growth because human freedom is the engine that drives both growth and innovation," Aldonas concluded.

Following are excerpts from Aldonas's testimony. The full text of Aldonas's testimony is available at:

http://www.ita.doc.gov/media/SPEECHES/0503/aldonas_052203.html

(begin excerpt)

Prepared Testimony of
Under Secretary of Commerce for International Trade
Grant D. Aldonas
Before the House Committee on Appropriations Subcommittee on Commerce, Justice, State, the Judiciary, and Related Agencies

May 22, 2003

Thank you Chairman Wolf, Congressman Serrano, and Members of the Subcommittee for inviting me to discuss the International Trade Administration's (ITA) efforts to ensure an equitable trading relationship between the United States and China.

...

U.S. Efforts to Combat Dumping from China

In China's recent accession to the WTO, the United States preserved the alternate, non-market economy methodology. We negotiated a provision in China's protocol of accession that permits the United States to treat China as a non-market economy and use this methodology through the year 2016 for purposes of antidumping duty investigations and reviews. Thus, we sought to ensure U.S. industries the full relief for a significant length of time from unfair trade from China.

In general, dumping margins in China cases vary from case to case and thus from year to year. For example, the average of the final rates determined in antidumping investigations completed in each year since 1995 is as follows:

Year
1995 1996 1997 1998 1999 2000 2001 2002 2003

YTD All Dumping Rates
85% 43% 45% 147% 47% 46% 92% 42% 83%

Individual Company Rates
18% 30% 30% 145% 30% 36% 55% 25% 73%

As trade between the United States and China has grown, the number and complexity of antidumping investigations on products from China has also increased. Over the past several years, U.S. producers have expressed concern that the Department's regulations and available analytical tools may not be sufficient to handle the novel issues presented in many China proceedings. We have considered those concerns, examined our methodology and interpretation, and responded.

While some concerns raised by domestic producers reflect differences with the Department over interpretations of law or fact, in which case the producers can make use of judicial review, ITA has agreed with many domestic producers. We have taken appropriate actions as a result to ensure that antidumping laws continue to be effectively enforced. For example, U.S. producers have alleged that exporters and/or importers of merchandise from China are actively and intentionally trying to evade antidumping duties. In particular, it has been alleged that Chinese exporters and producers are misrepresenting the country of origin, falsifying invoices, and reporting customs values that are well below market value.

To address these issues, on April 7, I sent a letter to CBP Commissioner Robert Bonner suggesting that we establish an interagency task force for investigating such fraudulent activities. I also asked that we expand some of the activities that CBP is currently undertaking to stem the duty-evasion issue. For example, with respect to the anti-dumping (AD) order on imports of garlic from China, CBP developed a system to analyze the trace-metal profiles of garlic to make definitive country-of-origin determinations on garlic imports. I have asked Commissioner Bonner if it would be possible to apply the trace-metal testing program to other agricultural products that are subject to AD orders, such as apple juice concentrate, preserved mushrooms, honey, and crawfish.

Although CBP data on individual shipments is typically proprietary, CBP has recently indicated that they will provide us with information which we can place on our record to assist us in conducting reviews of subject merchandise that originates in China, even if a respondent claims it originated elsewhere. We are also compiling and analyzing statistics on the trade flows of Chinese exports to identify trade patterns (e.g., a surge in exports from China to a third country, and a corresponding surge of imports from that third country into the United States) that suggest a high possibility of falsified country-of-origin designation, and will share those findings with CBP. We will continue to work with CBP to the extent allowed by law to pursue allegations of fraudulent invoicing and country-of-origin designation.

...

Partnering with CBP to Protect American Interests

The CBP and ITA have a longstanding relationship, as ITA relies on CBP to collect duties and tariffs. However, we are grateful that CBP has proved a willing and excellent partner in all our efforts to directly confront attempts to circumvent our trade laws. In fact, we are working with CBP to discuss issues that have come up regarding the antidumping duty order on fresh garlic from China. We are looking to CBP to help us determine how much and what kind of CBP information the Commerce Department can place on the record during the current garlic proceeding.

Further, we are looking into how the two agencies can share information in an effort to ensure compliance with each agency's regulations. We are researching how best to alert CBP to apparent discrepancies between CBP data and data the Department receives from respondents. We are also discussing, in relation to a "new shipper" review, the difficulties in implementing cash-deposit instructions, invoicing activity, and the eligibility of certain Chinese garlic exporters.

Monitoring and Confronting China Market Access and Compliance

While the focus of this hearing is on imports from China, I know, Mr. Chairman, that you and members of the subcommittee also have a strong interest in our broader market access and compliance efforts in China. ITA, both in China and in Washington, tracks crucial market access and compliance problems to ensure timely engagement and resolution. Cases are classified as information requests, compliance (violation of a multilateral or bilateral trade agreement), noncompliance market access (market barriers other than compliance problems preventing or limiting a U.S. firm or industry sector from market entry or expansion), or commercial disputes (a U.S. company encountering problems with an existing transaction or venture).

ITA aggressively pursues China's compliance with its trade obligations. ITA's compliance office has initiated and addressed 275 investigations under these four categories of cases, which comprises 17 percent of all cases and more than any other country or economic area. [I am pleased to report that 247 of those concerns and requests have been closed.] Among our successes in 2002, China proposed restrictions on foreign express delivery providers, which threatened to roll-back several of China's services commitments. We worked with the office of the U. S. Trade Representative (USTR) and other agencies to persuade China to eliminate excessive registration requirements, weight and rate restrictions for U.S. providers, and commit to the separation of the regulatory and operational functions of the major Chinese delivery provider.

Since the fall of 2002, ITA and USTR have worked to prevent China's implementation of a proposed technical standard that would restrict U.S. fertilizer exports. In late 2002, China agreed to delay the standard indefinitely and ITA took advantage of the opportunity to organize a meeting of experts from both sides to discuss the scientific concerns of the issue in detail. We continue to engage the Chinese on this issue. We have also been discussing with the Chinese an import ban for used equipment. Following working level exchanges in the fall of 2002, Chinese authorities revisited the ban and notified the WTO of draft measures on the importation of used equipment. We have transmitted the measures to industry for comment and we remain active on the issue.

We are continuing to actively work on 15 cases (8 compliance, 3 market access, and 4 information requests) and are monitoring another 12 cases. These cases have been opened based on inquiries from U.S. companies or monitoring activities conducted by ITA staff in Washington and China. In each instance, a team is pulled together from a number of ITA agencies and coordinates with USTR and the State Department. Within 10 working days of the case being opened, the team initiates contact with interested parties from industry while our officers in China began developing the relevant in-country facts. The team analyzes the information and determines a strategy. Team members regularly engage their Chinese counterparts, raising the issue through senior U.S. government officials where appropriate.

Because of the importance of China's market to many U.S. industries, ITA also dedicates resources to helping U.S. companies gain market access and ensure that China is living up to its WTO commitments. Through out Trade Development unit, we have experts who provide specialized, industry-focused policy support that helps create new market opportunities and enables industry to capitalize on those opportunities. Our industry experts accomplish this through formal bilateral dialogues with several Chinese agencies, particularly those covering key industry sectors that show promise for U.S. exports to China.

In addition, the Commerce Department has demonstrated expertise in assisting other countries to develop their commercial legal systems. Through our Commercial Law Development Program (CLDP), we have trained lawyers, judges, and government officials throughout Eastern Europe, the former Soviet Union, in Africa and elsewhere in Asia to promote commercial law. And we would like to do the same in China.

Effective programs can help China efficiently implement its market opening concessions, which means greater market access for U.S. firms. Other nations -- Japan, the EU member states, Canada -- all have substantial programs in place. As a practical matter, the Chinese are faced with choices: do they adopt a U.S., an EU, a Japanese, or another approach to regulation and the rule of law? Though all these systems may be WTO-compliant, China's utilization of the U.S. approach to matters like standards will benefit U.S. firms.

Expanding Opportunities in China

Mr. Chairman, I believe this topic plays into a broader concern that both you and the Bush Administration share: fostering trade and access to foreign markets as a means to promote growth, prosperity, rule of law, and freedom. The President has expanded our trade operations in countries throughout the world, particularly in China, to facilitate this effort. Under the auspices of the U.S. and Foreign Commercial Service (US&FCS), we have in China the largest delegation of any country in the world of what I like to refer to as our "commercial diplomats." We divide our staff in mainland China into five sections (Beijing, Shanghai, Guangzhou, Chengdu, and Shenyang), and we have another office in Hong Kong.

On the mainland of China, there are more than 90 personnel working to assist American businesses as they pursue business in China and manage trade problems in key industry sectors. More specifically, there are 15 US&FCS Officers, 2 Market Access and Compliance (MAC) Officers, 2 IA Officers, 1 Business Industry and Security Officer, as well as 13 American contract employees and 59 foreign national Chinese employees. We have 17 additional staff members in Hong Kong.

In March 2002, the Department of Commerce established a Trade Facilitation Office in Beijing to support and coordinate compliance activities in both Beijing and Washington and to act as an "early warning" system. The staff has developed relationships with American companies and associations doing business in China, Chinese trade associations, and Chinese government officials responsible for foreign trade issues. It also has participated in a number of technical assistance exchanges designed to improve Chinese understanding of WTO trade remedy and subsidy obligations, including educating Chinese firms exporting to the United States on their responsibilities in responding to antidumping inquiries from the Department of Commerce. More such exchanges are planned.

We also have augmented our staff working on China in MAC's Trade Compliance Center and in the China office. ITA's China office has grown from 7 (2000) to 18 persons (2003) thanks to increased budget appropriations beginning in FY 2001. This office is tasked with the job of monitoring China's compliance with its WTO commitments, coordinating technical assistance to China, promptly addressing trade problems, and promoting new trade opportunities for U.S. exports.

Working in the Field to Improve Opportunities and Access in China

As you can tell, ITA has dedicated an increasing share of our resources to ensuring China meets its WTO obligations and U.S. companies gain the market access to which they are entitled. I believe this is proving effective. In 2002, U.S. sales to China jumped 15 percent, the largest increase we had with any of our major trading partners. This trend is continuing in 2003, as January-February exports to China increased 31 percent. ITA will continue to provide a number of vital programs and services to facilitate increasing levels of exports to China.

US&FCS recently launched a region-wide program called "Asia Now" designed to attract more U.S. exporters, and specifically more small and medium-sized enterprises (SMEs) to Asia, including China. It features coordinated efforts in the areas of exhibitions, research, and client recruitment. The Embassy Commercial section has initiated a "Breakfast with China" program in which an officer of the US&FCS will host a videoconference discussion with clients of the U.S. Export Assistance Centers (USEACs) and others to discuss commercial realities, WTO issues, and export opportunities. Commercial officers and other ITA staff conduct extensive outreach via speaking engagements organized by the USEACs. During a 30-day period in October-November 2002, the Senior Commercial Officer for China spoke at 10 seminars in the U.S. This month, the China Office has organized a similar number of seminars on changes in China's standards regime - a key issue for companies seeking to introduce their products in China. The China Office and Trade Information Center (TIC) are coordinating a pilot seminar called "Doing Business in China: What Your Small Business Should Know." This will be accompanied by a more targeted series on intellectual property rights (IPR) protection and augmented through an initiative that includes the production of a "toolkit" by the commercial section to provide practical information for protecting IPR in China. The US&FCS has recorded a web cast for U.S. exporters to China and published a brochure called "Contact China" as a guide to key organizations in China. This is complemented by information on web sites maintained by the US&FCS, China Office, and Trade Information Center. In conjunction with the ITA Olympic task force, US&FCS distributes a newsletter to more than 3,000 firms providing information on commercial opportunities associated with China's hosting of the 2008 Summer Olympics.

As a result of these numerous and significant outreach efforts, the ITA staff in China produced a recorded 217 export successes valued at almost $4 billion. Thus far in FY 2003, our commercial officers have recorded 138 export successes valued at more than $2.5 billion.

Additionally, ITA's Advocacy Center works with our US&FCS officers to help our companies combat the aggressive and, at times, questionable practices employed by other governments and companies to secure international government contracts. In addition, the Chinese procurement process is still politicized and contracts are often implicitly linked to concessionary financing, promises of technology transfer, less rigid export control laws, or promises of financial aid. The Advocacy Center marshals the resources and authority of other U.S. government agencies so that companies have a more competitive edge and can confront these international trade concerns.

The Advocacy Center has assisted in a number of wins in China. In October 2002, Secretary of Commerce Don Evans participated in a ceremony witnessing the signing of eight business agreements involving the petrochemical, telecommunications, energy, and consumer goods industry sectors. The U.S. companies represented were ExxonMobil, Motorola, Lucent Technologies, Nortel Networks, Ericsson Wireless Communications, and Axens North America. Once implemented, the total value of these commercial transactions will exceed $4 billion. GE was also recently awarded two major contracts: a $2.5 billion aircraft engine contract for newly designed and built regional aircraft and a $900 million contract to supply gas turbines for installation in power plants that will be erected along the proposed West-East Gas Pipeline.

The Advocacy Center is currently working with the Trade Promotion Coordinating Committee to develop an aggressive Early Project Development program for China. In addition, the Center is working with SMEs to assist them with the problems they face in the Chinese market. I anticipate that the Advocacy Center will continue to make inroads in helping American companies secure government contracts in China. The Center is currently working on 20 active requests in China. These cases represent $14 billion of business for American companies, covering aerospace, telecommunications, oil and gas, infrastructure, healthcare, and the environment.

...

Connecting Trade, Human Rights, and Rule of Law in China

Finally, Mr. Chairman, I want to discuss a topic that I know is of particular concern to you. I would also like to recognize all of you, and particularly the Chairman, for your attention to this issue: human rights issues in China.

President George W. Bush and his entire Administration share your concerns that these rights are infringed upon by the government of the People's Republic of China. As the President said during his historic state visit to China last year, "China's future is for the Chinese people to decide, yet no nation is exempt from the demands of human dignity." He also reaffirmed and expressed to the Chinese President that the United States expects the Chinese people to be "free to choose how they live, how they worship and how they work."

I am proud to serve President Bush and this nation in a position from which I have the opportunity to work to make this vision a reality. Herbert Hoover, who served as the first Secretary of Commerce before being elected President, once said, "Free speech does not live many hours after free industry and free commerce die." The inverse is equally true. With free commerce comes free expression, and with free expression comes pressure on governments to protect the freedoms we enjoy. I believe that trade is firmly embedded in the foundation of a democratic and free nation, and we are working to plant the seeds for both by expanding trade and the opportunities it represents for citizens throughout the world.

At its root, trade is about human freedom -- the freedom to interact, innovate, and exchange goods and services without interference from the state. Amartya Sen, a Nobel Laureate in economics, concluded in Development as Freedom that the basis for all economic development is human freedom, including the freedom from any limitation on human potential. The expression of human freedom through trade gives workers limitless possibilities for sharing the product of their toil with the outside world. It allows companies to expand, increase employment, and innovate, providing people greater economic security, stability and opportunity.

Furthermore, commerce is one of the primary means by which members of a society build the bonds of common trust and faith, which in turn allows a society to function and create the institutions and framework that sustain freedom and basic human rights. Nations that seek to fully realize the benefits of trade must ensure that their domestic infrastructure sufficiently supports free commerce. As a result, they work to enact a strong rule of law, democratic institutions, independent judiciaries, reliable regulatory agencies, dependable law enforcement, and efficient banking and social services. These improvements, in turn, encourage transparent regulatory bodies, a sound tax and pensions base, fiscal responsibility, privatization, competition, and improvements in education and health care.

I want to assure you that we are making a strong effort to promote rule of law, freedom, democracy, corporate stewardship, and human rights through trade with China. As a practical matter, China's move to join the World Trade Organization (WTO) represents a fundamental decision to pursue a higher standard of living and greater economic growth through trade. In my view, the Chinese government will be forced to embrace human freedom if it hopes to continue its path of economic growth because human freedom is the engine that drives both growth and innovation.

...

China Represents Challenges But Also Opportunities

Mr. Chairman, recent events have reaffirmed our belief that we still have much work to do to instill liberty and freedom in the hearts of some nations. But we recognize that every nation must trade, and trade can make a significant contribution by encouraging greater openness and greater freedom as steps toward greater democracy.

I hope that my testimony today has conveyed the Bush Administration's commitment and efforts to enforce the laws Congress has enacted, as well as our commitment to promote not only a fair and equitable trading relationship, but also increased levels of openness, freedom, hope, and opportunity in China. Again, I want to thank you for holding this hearing. I appreciate frequent consultation with Congress as this dialogue provides an opportunity to fully explore the challenges and opportunities inherent in our relationship with China.

I look forward to your questions.

(end excerpt)

(Distributed by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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