Commentary: Dumping: China Strikes Back

But in its cases against Corning and others, Beijing isn't simply out for revenge

At first glance, it looks like a typical case of tit for tat. On June 18, Washington set anti-dumping margins of up to 198% on a slew of Chinese manufacturers for allegedly selling bedroom furniture in the U.S. at less than the cost of production. That same day, China's Commerce Ministry announced a preliminary antidumping finding of its own -- against Corning Inc. (GLW ) -- assessing a 16% penalty on its sales of fiber-optic cables. A final ruling is due in 18 months.

China accusing Corning -- the inventor and dominant seller of optical fiber -- of unfair trade practices? That sounds rich. Judging from the torrent of cases filed against its producers globally each year, China is the world champion of dumping. In the U.S. alone, Chinese exporters have been found guilty in nearly all of the 58 complaints against them since 1987. What's more, critics say China undervalues its currency, lavishes cheap credit on manufacturers, has biased courts, and suffers from an abysmal record of protecting intellectual property. In Beijing in mid-June, U.S. Commerce Secretary Donald L. Evans said he is "concerned about the finding against Corning." Consultant Michael R. Wessel, a member of the U.S.-China Economic & Security Review Commission, a bipartisan congressional panel often critical of China, says such dumping suits are "a dangerous game for China, because they can inflame Congress." Corning says it will continue to contest the case.

So is Beijing unfairly targeting American companies to get back at the U.S. for the furniture ruling and a similar decision on color televisions in April? Actually, the jury is out. The complaint against Corning was filed last July, well before the furniture and TV rulings, and also involves a Japanese and two Korean suppliers. Indeed, most of the 27 antidumping cases filed by China since 1997 have been against Japanese and Korean exporters. Although there are plenty of complaints about inconsistency and poor transparency, U.S. lawyers say Chinese officials have been surprisingly professional in handling dumping cases. "They are still feeling their way around the fine points of the law, but generally they're following accepted practices and World Trade Organization rules," says Thomas R. Graham, an attorney representing Dow Chemical Co. (DOW ) in two pending cases.

At the least, Beijing appears to be no less fair than Washington, which free-trade advocates accuse of using dumping suits as protectionist weapons. China has thrown out several big cases because its producers couldn't prove they were damaged. In September, 2002, for instance, Archer Daniels Midland Co. (ADM ) won a dumping case involving lycine, an animal-feed additive. Also, Beijing sometimes compromises on final duties, suspending cases if exporters agree to hike their prices -- something the U.S. rarely does. Dow hopes to strike such deals in cases on chloroform and the chemical ethanolamine, where it has been hit with preliminary tariffs of 45% and 59%.

Perhaps more surprising: So far, no U.S. companies have publicly complained of losing commercial secrets as a result of Chinese investigations. As in the U.S., companies that fight dumping cases in China must open their books to government auditors to prove they aren't selling below cost. Fearing such data will leak to Chinese rivals, some don't even contest cases there. But in the lysine suit, two Chinese auditors spent a week in the U.S. poring over ADM's records on its prices, what it pays suppliers, and its production costs. "They are the most sensitive data we have, and there was tremendous anxiety," says attorney Warren E. Connelly, who represented ADM. "But the Chinese were quite competent. I was impressed."

All this doesn't necessarily mean there's no ulterior motive behind the Corning action. Despite being the technology leader, Corning has sparred with Beijing for years over access to China's huge telecom market. Also, Beijing has aggressively promoted its own fiber-optic makers, who are reeling from the global telecom crash. And Washington fought Chinese efforts to sell optical fiber to Iraq and Afghanistan's old Taliban regime.

This makes the Corning case all the more important as a barometer. If the final ruling is a sham, China-bashers will be justified in crying protectionism. But if it's based solely on the evidence, and the process is open, it could be a sign China is maturing as a responsible trader with respect for the rule of law.

By Pete Engardio

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