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December 8, 2009

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Exporters fear trade row to escalate

YANG Xianghong, a senior official at Hunan Valin Steel Co, has been in low spirits of late, even though China's improving export outlook is a welcome sign of an industrial recovery.

What's worrying Yang is the average 13.2 percent in punitive duties that the United States is seeking to impose on imports of China-made pipes used in North American oil wells.

Valin, a major domestic producer of the pipe, still ships a huge amount of the pipe to the US, although its exports to that market decreased nearly a third last year because of the global financial crisis.

"Businesses valued at millions of yuan will be affected if the US authorities impose the tariff, even though the weight of exports to America is dropping in our overall portfolio," Yang said. He declined to reveal the exact figures.

The US Commerce Department issued a final ruling last month allowing the imposition of countervailing duties ranging from 10.36 to 15.78 percent on China-made pipes. The duties would impact more than US$2.7 billion of products, making it the biggest trade conflict between the two countries in terms of value.

The department's decision has been sent to the US International Trade Commission, which will examine the "perceived harm" of Chinese pipe imports on American companies. The commission's final decision is scheduled to be announced on January 7.

China can appeal any adverse ruling to the World Trade Organization.

However, Chinese pipe exporters are already feeling the sting because the US Customs and Border Protection has begun collecting a cash deposit or bond on pipe imports due to the Commerce Department ruling.

The move has set off alarm bells in other Chinese industries that fear they may be the next if the trade conflict escalates. Hopes that President Barack Obama's recent visit to China would be an olive branch to mend the rift have mostly been dashed.

Since September, the US has decided to impose special tariffs on imports of Chinese tires and steel pipes, and has started an anti-dumping investigation related to China-made paper. China has denied the allegations in all cases.

Media reports in China have denounced the US actions, saying the tariffs promote protectionism and encourage labor unions in the US to launch new complaints against an array of Chinese products, including clothing.

Sun Lijian, a finance professor at Fudan University, said he believes the US actions are part of a concerted strategy to try to force China to accelerate the appreciation of the yuan.

"The US does not acknowledge China's market status because China's currency-exchange system hasn't been fully liberated," Sun said.

In the case of the pipes, the US Commerce Department accused the Chinese government of subsidizing products by selling manufacturers "very cheap" raw materials, according to Yao Jian, a spokesman for China's Ministry of Commerce.

The US used prices in other countries as a reference point for determining what was "very cheap," ignoring pleas to consider China's domestic prices in its equation, Yao said. The Obama administration has also been accused of pandering to its electoral base of blue-collar workers in a time of high unemployment.

China has insisted that faster reform of its foreign-exchange regime would place its nascent financial industry at risk of deep shocks.

Unfair demand

"If the financial industry collapses, it will put the whole country's economic order in danger," Sun said. "That scenario would be a big blow to the world economy."

Premier Wen Jiabao last week rebuffed calls for greater flexibility in the Chinese currency at a summit with European Union leaders.

"Some countries demand faster appreciation of the Chinese currency while practicing trade protectionism against developing countries," Wen said. "Such views are aimed at stifling China's development, and are unfair.

"We will maintain the stability of the renminbi at a reasonable and balanced level," the premier said. "Faced with the present complex economic conditions, we must appropriately handle trade friction and not engage in trade protectionism."

Wen singled out the US, denouncing its actions against Chinese exports.

When the Obama administration announced its surprise decision to impose punitive tariffs on imported Chinese tires in late September, some analysts predicted the trade row would remain a minor skirmish between two of the world's biggest economies.

They argued, at the time, that any escalation of trade disputes to levels that would threaten the strategic relationship between the nations was highly improbable.

Wang Qing, an economist at Morgan Stanley who was in that camp, said he's not so certain of that argument now. He declined to comment on the current trade friction.

Millions of Chinese exporters don't have the luxury of waiting to see what happens.


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