China readies to fight safeguard tariffs at WTO

BEIJING/WASHINGTON Tue Jan 19, 2010 7:44am EST

BEIJING/WASHINGTON Jan 19 (Reuters) - Chinese negotiators are likely to try and stave off future safeguard duties against Chinese products when they argue against U.S. tariffs on tyres at a World Trade Organisation panel to be set up on Tuesday.

The duties on Chinese tyres, announced by the Obama administration in September, marked the first time the United States imposed the safeguard barriers that China reluctantly agreed to when it joined the WTO in 2001 [ID:nSP515339].

The WTO panel into the tyre duties coincides with a new dispute between China and U.S. Internet search engine giant Google Inc (GOOG.O). China and the United States are already at odds over the value of the yuan currency, U.S. arms sales to Taiwan and climate change policy. [ID:nTOE60C07A]

A victory for China in the tyre case makes it much less likely such duties will be used against other exports, which keep the Chinese economy humming and its workers employed.

"If the panel rules against the U.S., that will definitely discourage the use of China-specific safeguards," said Brendan McGivern, a partner with White & Case in Geneva.

The special safeguards clause that China agreed to when it joined the WTO had a 12-year limit, leaving it only with short-term concerns.

After 2013, countries would have to enact safeguards against all exporters if they feel imports are hurting domestic industry -- a tariff measure the Bush administration tried with steel in 2002 but was forced to remove in 2003.

The time it will take to fight the case, and then revoke the tariff if Washington loses, means the tyre tariffs will have been in place for most of their original three-year duration.

"I don't think China has realistic expectations that this will result in any meaningful relief," said David Spooner, a lawyer with Squire, Sanders and Dempsey in Washington.

"I think China took this WTO case as a prophylactic to keep the U.S. and other countries from using the safeguard again and to stand up for their rights so they can have a talking point if they win," he said.

China may argue that the United States has weakened the idea that a rise in imports must be the main cause of damage to a domestic industry. Its negotiators could cite a 1974 U.S. law allowing imports to be only one of a number of damaging factors, Spooner said.

NO RAPID INCREASE

Documents submitted by Chinese negotiators in their first request for a panel do not question the legitimacy of the special safeguards, as some commentators at home had argued they should.

"The safeguard clause has always been a source of intense irritation for the Chinese," McGivern said.

"The Chinese say, 'OK, we're stuck with these safeguard rules, we don't like them but if we're stuck with them, you have to meet the minimal standards that are set out'," he said.

Chinese negotiators have argued that U.S. tyre imports were not "increasing rapidly", the condition set out in clause 16.4 of China's WTO agreement.

"First, there's no rapid increase of imports from China from 2007. According to China's customs data, the increase from 2007 to 2008 was 2.2 percent, and the data of the first half of 2009 decreased 16 percent from 2008," they said.

They may also argue the fact that tyre manufacturers, many of whom have plants in China, did not support the tariffs means the imports are not hurting the U.S. industry but are simply a consequence of its restructuring.

The United States did not outline its counter-argument when it blocked China's first panel request. China's second request will be granted automatically, according to WTO procedures.

The defence that shipments are falling will be easier for China to argue because global trade in general declined in 2009.

The producers of carbon magnesia brick, who are preparing to fight a separate safeguard tariff request by U.S. competitors, are also readying their defence based on a fall in shipments.

(Additional reporting by Jonathan Lynn in GENEVA; Editing by Paul Tait)