What Did We Learn From the Aokang Anti-dumping Verdict? Not so Much.

November 21, 2012

Last week, the European Court of Justice (ECJ) handed down a verdict in favor of Aokang Shoes, a Chinese company from Wenzhou that had been pursuing the anti-dumping case in the EU for the past six years. As you can see from the ruling, this is insanely technical legal jargon, and not something you want to tackle without a bottle of scotch at your side. I wasn’t planning on any commentary for two reasons: I’m not familiar with EU law in this area, and there wasn’t anything obviously interesting/extraordinary about the case.

But the number of news articles in the state press here, as well as a Xinhua Op/Ed advice column, made me rethink my decision.

However, let me first say that any victory by a Chinese company abroad is a healthy indicator that PRC firms are becoming more comfortable with overseas legal systems and business practices. These companies should be encouraged to participate in these disputes, and to the extent that some of these articles from state media were designed to light a fire under domestic enterprises in this regard, I think that’s a good thing.

But wait a second. These articles were run in English state media, like China Daily, Xinhua, Global Times, and CCTV. If the point was to educate local companies about their legal options abroad, why so much attention in English? One simple explanation might be that this is a foreign trade story, so it makes sense to run it in English. But I also suspect that there was a subtle cheerleading aspect to all this (i.e., we won! And we can win again in the future!).

I have a limit when it comes to certain kinds of rhetoric, and stuff like this goes way past:

On Tuesday, the spokesman for China’s Commerce Ministry, Shen Danyang said that the victory has three big positive impacts on international trade.

“First of all, it has distinguished right from wrong. The EU Court of Justice’s verdict has ruled that the European Union has not treated Chinese firms fairly when it carried out the anti-dumping investigations. In the past, the EU did not admit it was unfair, unequal or discriminating towards Chinese enterprises. So the verdict has drafted a clear line between right and wrong. Secondly, it has given out a warning to the EU, which limits the EU’s scope to abuse anti-dumping measures. Thirdly it set out good example for Chinese enterprises to protect their own rights through legal actions,” Shen Danyang said.

I’ll go along with point #3, but this “right vs. wrong” rhetoric is ridiculous. China and the EU are not at war; this was an anti-dumping case, a kind of dispute that is unfortunately all too common. For a company to win an appeal in an anti-dumping case does not exactly mean that the EU was slapped down by an angry court weary of “abuse.” I read the ruling and didn’t see this as a Manichaeian┬ástruggle. Maybe that’s just me.

Which leads me back to this Xinhua Op/Ed, which starts off just fine by introducing the case and explaining why the result sets a good example for other Chinese enterprises. Fair enough, and I agree. But this confused me:

This victory is particularly significant now, as the EU and the United States have launched a series of anti-dumping investigations into Chinese solar panels and other solar products.

Yes, these disputes are ongoing and high profile. But what does the Aokang case have to do with them? Is the author of the Op/Ed worried that Chinese solar manufacturers will not pursue their rights in these cases? I seriously doubt it. Too much at stake in this market sector for these charges to simply be ignored. And let’s face it, if the government wants these companies to pursue these claims, it doesn’t need to make its case out in the public in Xinhua (in English).

Aokang won its case, so other companies can do the same. Sure. But why have so many Chinese companies not bothered to do so in the past? Here’s Xinhua‘s explanation:

In theory, Chinese companies involved in export businesses do not lack professional legal advice from lawyers, but they still need to better understand the laws of other countries and learn how to more effectively apply them in their own defense.

Concerns for costly input into human resources and the uncertainty of winning lawsuits have dissuaded Chinese companies from embarking on potentially long journeys through the legal process.

Mostly true. Cost and lack of familiarity are important reasons why Chinese firms have failed to pursue foreign legal claims. I would also tack on to that list cultural/business factors, such as lack of transparency and inexperience. I know quite a few foreign trade lawyers who have told me scary, and amusing, stories about representing Chinese enterprises in trade cases. The problem is not lack of lawyers, but not knowing how to work with them.

And finally, we have this little nugget:

But companies need to recognize that only by legally defending themselves can they avoid facing similar accusations in the future and expand into even bigger markets.

This presupposes that these companies are being unfairly targeted, partially because they have not fought back in the past. It’s the victim mentality which is all too prevalent in state media. I guess the idea here is that once these companies stand up for themselves, the EU and other foreign governments will become less aggressive in imposing anti-dumping duties.

Um, no. I don’t think it works that way. Yes, trade disputes can be influenced by politics. But that doesn’t mean that there is a master plan out there for dealing with Chinese companies that will be revised if a few PRC firms decide to file appeals. That’s a funky conspiracy theory.

The lesson from the Aokang case? Same one I tell my foreign clients who have China disputes: if you use the legal system, you might win. If you don’t, you’ll definitely lose. Any other rhetoric should be ignored.