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Apparel Industry Alert - The End of Quotas: What Chinese Companies Can Do to Prepare for US Trade Actions

June 12, 2008

On May 29, 2008, Steptoe attorneys Eric Emerson, Tom Trendl, and Ying Huang addressed the members of the Chinese Chamber of Commerce for the Import and Export of Textiles in Shanghai .  Steptoe was invited by the Chamber to advise Chinese companies on preparing for possible trade actions. The Chamber is the trade association of the largest textile and apparel manufacturers in China .  

During the three-hour presentation, Steptoe provided attendees with an overview of US trade remedy laws (antidumping and countervailing duty proceedings as well as the Section 421 China safeguard provision).  The remaining portion of the presentation was devoted to discussing the steps that Chinese manufacturers should begin to take to prepare for possible trade remedy proceedings. 

Among other measures, Chinese companies can prepare for an antidumping investigation by:

  1. Developing sufficient evidence to prove de jure and de facto lack of government control to ensure that the company qualifies for “separate rate” status.
  2. Reviewing financial statements for issues that could increase potential dumping liability.
  3. Evaluating the availability of and accuracy of product-specific cost of production information.
  4. Considering ways to reduce the cost of production as calculated by the US Department of Commerce in an antidumping proceeding, e.g., increasing purchases of inputs from market economy countries, reviewing possible allocation methodologies, examine supplier affiliation issue.
  5. Reconciling sales journals to the trial balance, and the trial balance to financial statements.
  6. Testing the availability and accuracy of product-specific and customer-specific sales data.
  7. Evaluating sales practices and impact on dumping liability and modifying those practices so as to reduce potential dumping exposure.

Chinese companies can begin preparing for a countervailing duty case by:

  1. Reviewing financial statements for any benefit conferred by federal, provincial or local government or a state-owned enterprise. Benefits to look for include loans, grants, reduced utility rates, and tax refunds.
  2. Reviewing the programs already found by the Department of Commerce to be countervailable subsidies in prior cases for applicability to the company.
  3. Reviewing the list of 73 subsidies prepared by the National Council of Textile Organizations for applicability to the company.
  4. Refraining from making any statements indicating a receipt of subsidy.
  5. Reviewing financial statements for issues that could increase potential countervailing duty liability.

Because US importers are required to pay all antidumping and countervailing duty liability, it is in the interest of all US importers to ensure that your Chinese suppliers are taking steps to prepare for the possibility of these trade actions.  If you have any questions, or if you would like to obtain a copy of the Steptoe presentation (in Chinese or English), please feel free to contact Eric Emerson or Tom Trendl.