As trade friction increases in a globalizing world and fears of a “trade war” roil export-oriented Chinese industries, it is important for Chinese firms selling overseas to plan ahead about how to defend themselves in the event of trade conflict.

Chinese firms are often less ready to defend their access to overseas markets than are Western firms, which have years’ more experience operating internationally. The more sophisticated PRC firms know that some trade conflict is inevitable, even between friendly nations with robust trading relationships. The firms best prepared to defend themselves will win and maintain access. For years, Chinese exporters have faced a variety of barriers – from protectionist product standards to limits on bidding for government contracts. In this article, I would like to focus on attacks under the anti-dumping and countervailing duty laws, such as the EU and US cases against Chinese solar panels, ceramic goods, steel, and other products.

Dumping is defined as a form of international price discrimination, by which an exporter sells items into a foreign market at lower prices than it sells them in its home market or below its cost of production. As complex as such a comparison is, it is made more complex because Western nations view China as a non-market economy and thus, at least for the time being, disregard Chinese costs and prices when making a dumping calculation. This is what happened in the US solar panels case, where the US authorities used Thailand as the surrogate for China, remarkable Nevertheless, Chinese exporters can prepare for anti-dumping actions against them by carefully monitoring their own costs and prices, as well as those in the countries most often used as surrogates for China, and undertaking audits of their own behavior to try to limit possible duty exposure. For example, certain types of products should not be exported without careful consideration of the risk that their prices may be compared with those of higher-quality merchandise, possibly resulting in large anti-dumping duties.

At the same time, companies should also develop scenarios for possible management of their supply chains in ways that would allow them to avoid the harshest effects of anti-dumping. Companies also need to keep in mind their exposure to countervailing duty cases, which examine financial contributions they may have received from the Chinese government or governmental entities. Government assistance can take many forms, from cash grants to tax breaks to below-market loans to cheap land. Companies need to think strategically about how acceptance of governmental financial assistance may expose them to countervailing duties when products they produce are exported from China to overseas markets. This is particularly important because subsidies are deemed to benefit merchandise for the entire useful life of a product – which is often 10 years or more – and so countervailing measures are hard to get rid of (unlike anti-dumping measures which can be reduced, for example, by altering company export pricing). So if a company prepares strategically, its ability to avoid duties is heightened, and its opportunity to gain commercial advantage over its competitors is significantly greater.

Richard Weiner is a partner with the law firm of Sidley Austin LLP, specializing in international trade issues. He is representing Chinese solar panel firms in the US and EU anti-dumping and countervailing duty investigations, the largest such cases ever filed against Chinese exports. The opinions expressed here are his own. He may be reached at rweiner@sidley.com.