In the midst of escalating trade protectionism and an uncertain economic recovery, Chinese exporters will continue to face further trade friction in the second half of 2013 and 2014, according to PwC China’s international trade and customs team.
More conflicts in terms of involved trade value and an increase in trade remedy cases from the emerging markets are also anticipated, PwC says.
Trade relations between China and both the US and EU have cooled, leading to investigations and the imposition of trade barriers including, but not limited to, anti-dumping levies.
China’s Ministry of Commerce said in 2012, that 21 countries launched a total of 77 trade remedy investigations with the total amount involved worth about $27.7 billion against China. This is an increase of 11.6% in the number of investigations and an increase of 369% in value compared with 2011.
Meanwhile, the rapid rise in disputes with emerging market economies has posed a threat to China’s economy. Last year, these countries launched 54 trade remedy probes against China, making 70.1% of the total.
“Both developed countries and emerging markets are taking action to restrict imports and encourage their own exports,” says Damon Paling, PwC China Trade and Customs Partner. “These trade protectionism policies are often enforced amid a severe economic downturn. Chinese manufacturers and exporters should respond more proactively to disputes and investigations through revisiting business models and restructuring supply chains.”
“Besides market barriers and potential administrative nuisance, trade protectionism often results in eroding profit margins. While we are all well aware of the current scrutiny and remedies that are impacting the solar and telecom sector in China, the issue of trade protectionism impacts a much wider scope of sectors and covers all overseas markets,” Paling says.
According to PwC’s experiences, Chinese manufacturers and exporters usually encounter two kinds of difficulties during trade remedy investigations: ensuring the comprehensiveness and accuracy of questionnaire responses within limited time, and managing adequate preparation work for the on-site verification.
Answers to the Market Economy Treatment (MET) questionnaire or the Anti-Dumping (AD) questionnaire are requested by overseas authorities during the initial investigation phase.
Substantial data needs to be discussed, adjusted and allocated with the original copy of receipts submitted in order to meet strict accounting requirements.
If data is submitted in different formats and is inconsistent, overseas authorities will treat the data as unreliable. This will negatively impact the determination of the MET status and the opportunity to obtain a lower anti-dumping rate.
Once the Chinese manufacturer or exporter is selected for on-site verification, officials will begin an in depth face-to-face review to verify the accuracy of the financial data provided. It is critical to verify data sources, collection methods and prepare proper explanations for any inconsistencies.
In addition to preparing proactive responses to an investigation, meticulous planning is crucial to mitigating risks before an investigation is initiated. Best practices include making a self-assessment of dumping risks, understanding export measures and the overseas market environment, and exploring alternative export models, if needed.
“A lack of innovative technology and manufacturing forecasting capabilities remain a weakness to some Chinese companies, contributing to an increase in trade friction,” says Elton Huang, PwC China Domestic Market Initiatives (DMI) Tax Leader. “The gap between Chinese products’ technical parameters and international standards still exists. Blind investment in production capability without proper forecasting mechanisms only leads to overcapacity.”
"Having low-cost products is no longer a competitive advantage considering growing labour costs in China. Both manufacturers and exporters should scrutinise the export market and develop new product mixes to become more competitive on a sustainable level. This is the long-term solution for Chinese enterprises to deal with trade friction and maintain a strong export market share," Huang says.