The wealth of Hong Kong stands on a firm foundation laid down by industry and trade. To enhance cost competitiveness, however, most Hong Kong manufacturers have relocated their production facilities to the Chinese mainland, making the mainland by far the most important production hinterland for Hong Kong. Hong Kong's manufacturing sector is supported by around 60,000 factories and over 10 million workers on the mainland. The US, for its part, is Hong Kong's second largest export market after the mainland. Against this background, US trade measures against mainland goods are likely to affect the interests of Hong Kong exporters.

While the US economy is expanding at a healthy pace, slow growth of manufacturing jobs continues to be a serious concern. To complicate matters, the US has recorded growing trade deficits with China, particularly in the past few years. Although a report by the US Congressional Budget Office points out that the increase in imports from China only reflects a shift of imports from other Asian countries rather than an increase in total imports, some members of the US public may still associate the loss of manufacturing jobs with growing imports from the mainland. This perception, aggravated by the elimination of textile quotas since 1 January 2005, is leading to an increasing use of US trade remedy measures against Chinese products.

Within this setting, the Research Department of the Hong Kong Trade Development Council (HKTDC) published a report in June 2004 entitled "A Review of US Trade Measures and their Implications for Hong Kong Exporters". Owing to the positive response of the public to this report, this updated version has been prepared to assist Hong Kong companies to keep abreast of the latest regulatory developments in the US, while refreshing their understanding of a wide variety of trade remedy measures at the disposal of the US government.

Major US Trade Remedy Measures

Purpose and Type of Measures

Similar to those in other parts of the world, the purpose of trade remedy measures in the US is twofold. On the one hand, they are used to protect the domestic industry from an influx of imports. While proof of unfair trade practices by foreign countries is required to invoke some measures (e.g. anti-dumping and countervailing duties), such grounds are not applicable to certain other measures (e.g. safeguards). On the other hand, trade remedy measures may be employed to enhance the market access of US companies/products to foreign countries. Typical examples are "Special 301" scrutiny and "Section 301" investigation.

Among various trade remedy measures, Hong Kong manufacturers face greater challenges from anti-dumping (AD) duty and textile and apparel safeguards, which are likely to be invoked more frequently in the US.

Anti-dumping Duty

AD orders provide relief from the adverse impact of imports sold at "less than fair value" in the US market. The relief is granted in the form of extra duties on the dumped product. For the purpose of anti-dumping investigations, the Chinese mainland is considered to be a non-market economy (NME) in which the government controls pricing and production decisions. Against this background, the US selects the prices of inputs and the expense and profit percentages experienced in a "surrogate" market economy to determine a theoretical price that would be charged on the mainland if the mainland were a market economy.

In the coming years, AD actions will likely remain the weapon of choice. What makes AD actions so attractive is the fact that they are predictable for the petitioning industry and highly efficient in shutting down foreign suppliers. In fact, the mere filing of a case can be disruptive, simply because US importers suddenly become unsure of the ultimate cost of their purchases, which means that long-established sources of supply could suddenly become interrupted. In turn, that danger may prompt US buyers to switch suppliers.

Textile and Apparel Safeguard

This measure is contained in China's World Trade Organisation (WTO) accession protocol, which allows the US (and other WTO members) to restrain imports of textiles and clothing of China origin in the form of quotas if these imports are causing market disruption, thereby threatening to impede the orderly development of trade in these products. The textile safeguard will be valid through 31 December 2008.

Currently, textile and apparel safeguards appear to pose the greatest challenge to Hong Kong exporters of textile and clothing for at least two reasons. First, as the safeguard actions invoked in 2003 and 2004 illustrate, the standard of proof for establishing "market disruption" under the China textile safeguard appears to be quite low. Second, precedents were set by invoking this safeguard successfully in December 2003 (on knitted fabrics, cotton and man-made fibre brassieres, and cotton and man-made fibre robes and dressing gowns) and in October 2004 (on cotton, man-made fibre and wool socks).

Main Suggestions for Hong Kong Exporters

Understanding and Monitoring US Trade Remedy Measures

Hong Kong exporters are advised to strengthen their understanding of US trade remedy measures, including their operation and timelines, so as to plan ahead for any changes which might affect their business. Over the near term, textile and apparel safeguards are expected to be a major threat. The basic requirement is therefore to monitor the possible textile and apparel categories likely to become subject to a safeguard action. Since it takes time for the US government to process a safeguard petition, Hong Kong exporters can respond properly in the interim to minimise disruption.

Preparing for Anti-dumping Allegations

Far and away the most frequent measure with which all Chinese products will be confronted in the coming years is AD action. Companies that take a proactive stance in dealing with AD investigations can gain a competitive advantage in the US market. Prior to the initiation of an AD action, companies can perform self diagnostic evaluations to ensure that their practices are not indicative of any type of dumping practices. If an anti-dumping proceeding has been initiated, Hong Kong exporters should participate in the investigation to reduce the adverse effect of the action. A separate AD rate will be available to an exporter who submits an application (currently by means of a Section A request) to the US Department of Commerce. Seeking assistance from an experienced law firm is deemed advisable for completing the questionnaire, making application and submitting information. To lower or eliminate the adverse effect of an existing AD order, the exporters concerned may take advantage of several procedural opportunities, such as administrative, new shipper, sunset, changed circumstances and scope reviews.

This new report is available at TDC's Retail Outlets. It can also be purchased through the TDC Bookshop section in the TDC's trade portal: info.hktdc.com.