Trade barrier investigations in China is devised to counterbalance the negative effect of the foreign acts, policies, and practices that burden or restrict Chinese trade, service, intellectual property and overseas investment[1]. Different from trade remedy investigations such as antidumping, countervailing and safeguard which is ‘defensive in nature’, the Chinese government regards trade barrier investigations as ‘defensive and offensive in balance’[2].

In December 2002, China promulgated its provisional rule of investigations on trade barrier. Two years later, its updated version, the Investigation Rules of Foreign Trade Barrier (referred to as the Rule hereinafter) entered into force. Compared with the provisional one, the Rule clarifies the definition of trade barrier and consequently expands its jurisdiction over trade obstacles as well as investment and intellectual property rights related barriers.

Normally, this kind of investigation is initiated by complaints from the domestic industry or other qualified entities. And in principle, Chinese government has the mandate to self-initiate a probe according to the Rule[3]. A typical investigation has several proceedings, including petition, initiation, questionnaire and response, on the site verification, disclosure and final determination. And the Trade Remedy and Investigation Bureau of the Ministry of Commerce serves as the investigating authority.

So far, China’s investigating authority has only carried out two investigations on foreign trade barriers, one against the Japanese laver import quota policy in 2004 and the other against the U.S. renewable energy policy in 2011.

Since 2001 China access to the WTO, Chinese exports have experienced unprecedentedly exponential growth, and Chinese products and services appeared at every corner of the global market. At the same time, more and more trade barriers encountered by Chinese exports were recorded by the Ministry of Commerce. According to Report on Trade and Investment Environment by Country in 2005, the Ministry of Commerce declared “some partners frequently put up barriers to obstacle Chinese trade and investment and to protect their markets and industries", and “in the future, Chinese enterprises will face increasingly severe trade and investment environment at the international market."

Besides, China expressed concerns about the effectiveness of WTO rules to eliminate trade and investment barriers. WTO and its predecessor GATT have long been working on establishing international rules to regulate administrative measures by members which may influence international trade and investment to promote the formation of an open and fair global trade environment. However, due to the diversity, complexity, concealment of various barriers, and procedurally complex and time-consuming remedy measures under WTO frame to trade barrier, variety of trade and investment barrier in place have not been fully and effectually regulated or eradicated in practice[4].

To address this issue, China intended to establish a barrier investigation mechanism, and strengthen the enforcement of foreign trade law to maintain a fair and reasonable global trade market. The establishment of a barrier investigations mechanism signified the switch of Chinese trade policy from a passive to proactive manner[5].

The legal framework of China’s barrier investigations consists of two major parts.

The Foreign Trade Law, as the top of the hierarchy of rules governing Chinese trade administration, stipulates trade investigations in general. In its amendment in 2004, the brand new chapter 7 authorises the Ministry of Commerce to carry out several types of trade investigations, including trade barrier investigations. Subparagraph (ii) of its article 37 reads as ‘investigations against trade barrier of other country or region’.

Also, to protect intellectual property rights, the Foreign Trade Law directs[6] competent administration body to take proper measures, including the prohibition of the importation of subject imports which was deemed have infringed specific intellectual property rights, to restore the foreign trade order.

Investigation Rules of Foreign Trade Barrier of the Ministry of Commerce provides procedural and substantive rules on how China implements trade and investment barrier investigations. It consists of five chapters, regarding principles, petition, initiation, investigation, measures and miscellaneous aspects of the rules respectively.

The evolvement from 2002’s provisional one to current regulation show the greater ambition of Chinese authority in combating foreign trade and investment barriers by expanding the jurisdiction of this rule from only Chinese goods exports to trade, service, intellectual property and foreign direct investment all covered.

Therefore, Chinese authority could theoretically launch barrier probes against the foreign measures, policies or actions infringing China’s trade, investment and intellectual interests under Chinese law. 

On 25th February 2004, Jiangsu laver association alleged that import administrative measures by Japan government against Chinese laver were inconsistent with relevant WTO rules[7], and had caused unreasonable restrictions and obstacles to export Chinese laver to the Japanese market. Therefore, the petitioners argued that Japan laver quota policy constituted a trade barrier against Chinese law.

On 22nd April, the Ministry of Commerce issued a public notice to commence investigating procedures and notified the Japanese government and enterprises. A week later, the investigating authority circulated questionnaires to the Japanese government and relevant laver enterprises.

On 21st October, the Ministry determined to suspend the investigating procedures and to hold bilateral consultations with the Japanese government.

On 1st March 2005, the Ministry issued its termination notice without any specific determinations on the existence of the subject barrier. The stated reason for the termination decision was that the Japanese government had completely performed its obligations and commitments, revised the subject policy and consequently removed the alleged trade barrier.

The investigating procedure was commenced on 25th November 2011 under the petitions from the chamber and association of Chinese new energy producers and exporters. The petitioners argued that some of the U.S. supportive measures concerning the new energy industry had violated its obligation under WTO, placed unreasonable obstacles to restrict Chinese relevant goods and services from entering the American market. As a consequence, the Chinese renewable energy industry suffered a decrease in the volume of Chinese new energy exports to the U.S. and damaged the competitiveness of Chinese producers.

The Ministry of Commerce, having reviewed the petition, decided to probe into six alleged state-level programs most of which were supportive measures encouraging production and consumption of renewable energy products.

On 24th May 2012, the Ministry released two public notices; one is to extend the investigating procedures, the other to publicise its preliminary determinations. At that point, no consequent measures were applied or recommended.

On 20th August, the investigating authority issued a final determination: all six subject measures were prohibited subsidies under WTO Subsidy and Countervailing Measures Agreement (SCM Agreement). Therefore the concerning measures were inconsistent with the WTO SCM Agreement, and violated Article 3 of GATT 1994. It seemed that the U.S. government did not propose or participate in a bilateral consultation in this case according to the case record. And no subsequent measures were introduced in the final determination.

Article 3 of the Rule provides guidance on the definition of trade barrier and enumerates several features of trade barrier. In brief, in the legislators’ opinion, the trade barrier consists of two main categories. The first category is violation or inconsistency with bilateral, plurilateral economic and trade treaties or agreements, which some experts regarded as ‘law-incompatible barriers’. The second is those measures and practices causing adverse impacts to Chinese exports or services, the competitiveness of Chinese exports or services, or hindering goods or service transports to China regardless of the legality of alleged acts, policies and practices. This category is also dubbed as ‘law-compatible barriers’[8].

Law-incompatible barriers. Subparagraph 1 of Article 3 introduces two kinds of law incompatible barriers, active violation of the treaty and passive inaction to perform the obligation under the international accord. The only criterion, in this case, is the breach of international treaty or agreement by failing to perform expected obligations. Other international trade agreements rather than those between China and the alleged country (or region) are parties cannot serve as a legal criterion to decide the existence of barriers. Whether or not the alleged measure or practice have caused adverse impact to Chinese exports or service, or hindered foreign goods or service exported into China, is irrelevant in this case.

Undoubtedly, from China’s perspective, that measure and practice which positively violates bilateral or multilateral economic and trade agreements or treaties, under Article 3, constitutes a trade barrier. Therefore investigations and consequent remedies should be provided under this case. In the same vein, failure to perform the obligations under bilateral or plurilateral accord so that Chinese legal rights and interests have been damaged gives rise to the other kind of barriers.

In the two precedent practices, the authority determined that the subject measures and practices were all law-incompatible barriers.

Law compatible barrier. In circumstances when the alleged country or region has no bilateral or plurilateral economic and trade treaty with China, or the alleged policy does not qualify as violations or failure to implement the obligation, the alleged policy and measure may also constitute a trade barrier if they have caused adverse impacts on Chinese exports and imports, or to the competitiveness of Chinese goods and services at the international markets.

In a nutshell, measures, policies, and actions that negate Chinese trade rights or interests by creating or maintain barriers may fall under the jurisdiction of China’s barrier investigations regulations.

Article 5 of the Rule sets out the eligibility of petitioners for the investigations. Two groups of a legal and natural persons are entitled to apply barrier probes. The first group is domestic enterprises or domestic industry. The other includes legal entities, natural persons, or other organisations who can work on behalf of the domestic enterprise or domestic industry.

The domestic enterprise appears to be a qualified petitioner in both groups. Domestic producers or a group of domestic producers have two options in this case, either apply on its or their own or represent the domestic industry to file a petition. Without requirements of representativeness of Chinese industry, domestic enterprises initiatively on its initiative seem to be the economic and convenient approach to apply. In the two precedents, all the petitioners were associations or chambers of Chinese producers and exporters.

Another concern is the lack of identification of natural persons as eligible petitioners. Since the movement of natural persons constitutes one of the major parts of trade-in service, and natural persons could often be substantially and independently involved in goods trade, it is reasonable and justifiable to have natural persons entitled to file barrier petitions. In the future, there may be cases filed by natural persons against service, intellectual and exports barriers.

The other prerequisite of being qualified applicants is that the Rule requires the intended enterprises or industry shall have direct linkages with the production and supply of service associated with alleged barriers. There is no detailed explanation of the direct linkage between the potential petitioner and the production and operation of the product or service in the provision. Some expect that producers or exporters of the products and services whose trade were affected by the alleged measures were directly linked to the measures. In the same vein, upstream and downstream enterprises could also meet the threshold because they are closely tied to the production of the product impacted by the measures under the investigations. Other interested parties who would like to resort to the Rule shall, as a rule of thumb, prove the direct linkage with the products or service under consideration.

Importantly, any organisation who would like to apply to barrier investigations on behalf of domestic industry might have to demonstrate the standing in the first place. However, there is no specific guidance on the representativeness of domestic industry in both the Rule and the practice. In the Japan laver quota policy investigation, the authority applied the standing rule similar to those in Antidumping Regulation and Countervailing Regulation，by examining the output of the petitioner and its output ratio to the total production of the laver in China[9]. In the U.S. renewable energy policy case, the mere fact that petitioners, either chamber or association of Chinese new energy producers, had member companies who were manufacturers and exporters of Chinese renewable energy products，satisfied the authority that chambers and associations met the standing requirement and stood as qualified and eligible petitioners[10]. In the investigation, the authority did not examine the production of petitioners or its ratio to total output. It is assumed that it is considered no standing issue at all by not even mentioning the issue in the determination. After reviewing the Rule and the leading cases, it could reasonably assume that not every standing issue could be under consideration in the investigations by the authority. If it’s been considered, similar standards to those in Antidumping Regulations could be most likely applied in procedures.

In practice, the Ministry normally checks the accuracy and adequacy of the petition at hand. First, the petitioner shall satisfy the authority as to the accuracy of the evidential materials submitted to the authority. If not, a false description or invalid evidential materials could result in the refusal of the petition by the authority. Then, the petitioner shall guarantee, to its best, to furnish all evidential materials substantiating the existence of the alleged measure or practice, and the adverse impact caused by that measure and practice. In the circumstances that the petitioner cannot provide adequate materials, a well-prepared document shall be provided in explaining the failure reasons.

Within 60 days after the acceptance of the petition and relevant materials, the Ministry of Commerce shall review the petition and determine whether to initiate the investigation or not. In case the intended petition does not meet the requirements of accuracy and adequacy, or the alleged measure or practice does not constitute a barrier at all, the authority shall notify the petitioner with a written letter explaining the refusal reasons.

The Rule stipulates that the authority will collect evidence through a questionnaire, on the spot verification, hearings and in some cases, technician and expert consultancy. But the Rule is silent on how the interest parties and even the public make their opinions known to the authority, let alone to provide a positive and substantive contribution to the investigation.

It is debatable whether the Ministry and the Rule provide ample opportunity for investigation participants to defend their interests in investigating procedures. In practice, the public and even the participants have limited sources and approaches to know the essential facts on which decisions will be based, and to place their comments and evidential materials in the case record.

The first inconvenience is the lack of access to case records. On the one hand, there is no similar provision like interested parties’ definition coded in trade remedy regulations. Hence, people or enterprises who believe they bear direct or indirect interests in the investigation have no way to be directly involved in the process on its face. On the other hand, case records seemed restricted from being accessed by the public. Similarly, there are no legal obligations to investigating authorities to release case records to the public. In the first case, the Japan laver quota policy probe, people had no clue what kind of specific information was in the hand of the authority and the determination to rely on. Because case records of concurrent antidumping investigations can be reviewed online or physically visited at the office of the Ministry of Commerce, the difficulties of accessing barrier investigation records seemed to reflect the reluctance of the authority to release case records for the public’s reference. In the latter case, the U.S. renewable energy policy probe, transparency appeared to be remarkably improved. As repeatedly requested by the U.S. government, the authority not only directly exposed relevant records to the U.S. government but also release a catalogue of case records on its official website. And both the provisional and final determination outlined core information of case records and responded comments on some key issues.

The interesting parties may have difficulties providing comments as well. Besides questionnaires, the Ministry would collect relevant information from government officials and experts via public hearings theoretically. Since no public hearing was held in the previous two cases, the possibility of submitting comments by hearings remains unclear. The public or organisations who would like to be involved in the investigation are not entitled to participate in the investigation by the Rule.

When a specific participant of the investigation refuses to provide information, as the U.S. government did in the renewable energy policy case, the authority would have no choice but to rely heavily on the evidential materials from its opponents to conclude the probe.

Normally, the investigation shall be concluded within six months after the date of initiation. While in special circumstances, the investigation may be extended to no more than three months. Therefore, the Rule articulates that the duration would nevertheless last longer than nine months.

Interestingly, the duration of a case may theoretically be far longer than six months or 9 months （after extended） when the suspension proceeding was introduced into the procedure. During an investigation, the Ministry of Commerce may decide to suspend the probe when the alleged country is committed to, within a reasonable period, cancellation or adjustment of subject measure and practice, or provision of adequate compensation, or performance of obligations under economic and trade agreements and treaties. The reason for suspension may lie in that the authority would leave enough time for the alleged country to remove subject measures or the adverse impacts. For that, the duration of the suspension seems quite flexible, and the authority may wield its discretion to determine the duration of suspension on a case-by-case basis. In the Japan laver quota policy case, the Ministry of Commerce commenced the investigation on 22nd, April 2004. And before six months after initiation notice entry into enforcement, on 21st October 2004, the authority publicly suspended investigating procedure. On 1st March 2005, the Ministry of Commerce announced to terminate the probe. The whole time span of the case lasted almost 11 months, significantly longer than six months (in this case, no extension of investigation has been decided and applied).

The investigating scope often resides as one of the core issues of an investigation. It appears that no restriction in the Rule to prevent the authority to extend the investigating scope to other measures or practices, similar to practices in the countervailing investigation of incorporating newly-alleged subsidy programs into the ongoing investigation. In the Japan laver quota policy case, the petitioner and Japanese government raised arguments on the scope of laver examined. Along with the processment in the laver industry, there lies dried laver, baked laver, and seasoned laver. And the originally alleged laver quota policy had no relation with the baked laver. During the investigation, the Ministry of Commerce decided to integrate the baked laver issue into the consideration, and the Japanese government agreed to include the baked laver issue in the following consultations[11].

Similar to other administrative decisions, the determination of barrier investigations and its resultant measures would normally be subject to administrative reconsideration and judicial review by the People’s Court within sixty days after the issuance of the administrative order or the public notice.

More interestingly, in the bilateral resolution of the laver quota policy case, the Chinese government and the Japanese government agreed on an annual session regarding the sanitary, trade and production of the laver products. In a sense, this could be considered an informal annual review of the implementing measure.

As a rule, the Ministry of Commerce shall determine whether subject measures and practices constitute a trade barrier under Chinese law and as a consequence, taking appropriate measures. The Rule authorises three kinds of measures and actions.

The immediate approach is bilateral consultation. In the Japan laver quota policy probe, Chinese and Japanese governments had held three rounds of bilateral consultations and finally reached a bilateral solution. Both governments afterwards agreed to set up a working mechanism and hold regular sessions, annually, to facilitate the laver trade between the two countries. The topics covered by the mechanism are not limited to the investigated quota policies, but also issue such as the latest developments of the regional and global industries, changes in relevant import regulations, and requirements of importing inspection. From the example of the laver dispute between the two countries, it is reasonable to assume the bilateral consultation approach is top of the preference by the Chinese Government.

The second choice is to refer to multilateral dispute settlement. So far, none of the Chinese precedent investigations resulted in WTO dispute settlement mechanism or other international arbitration institutions[12]. However, the final findings of the trade barrier investigations could be probative evidence in other trade investigations. A stimulating example is the US — Renewable Energy (DS 510) complained by India to DSB. In Indian’s request for consultations，the main allegations and supporting evidential materials were, in large part, transplanted from Chinese findings of the U.S. renewable energy policy cases. Obviously, as its findings could be used in WTO dispute settlement procedures by other Members, China could use its allegation and request for consultations on its trade barrier findings in the same way.

The last one refers to ‘other proper measures’, a term articulated in the Regulation. Some speculate that suspension of the application of concessions or other obligations under international economic and trade agreements concerns may be an example of this kind of measure, similar to the cross-retaliation mechanism in DSU of WTO. In a similar vein, China is open to wield other trade and investment administrative tools as a consequent measure to offset the adverse impacts of the alleged barriers. This approach may also cover special duties, such as AD and CVD duties. In the final determination of the U.S. renewable energy policy case, the Ministry of Commerce determined all subject programs constituted prohibited subsidies under the SCM Agreement. It seems that the authority did not rule out the possibility to launch a countervailing investigation against American renewable energy products based on the determination at hand. And if a positive determination is reached, China may levy countervailing duties on imported American solar products.

It is clear that China’s government, from the legislative body to investigating authority, attaches great importance to WTO consistency of the Rule and the practices.

From the legislative perspective, the Rule regards the violation of bilateral and multilateral economic and trade treaties and agreements as the major criterion to distinguish between a trade and investment obstacle. Furthermore, the legislator tried not to use ambiguous terms like unreasonable, unfair in the definition of the subject barrier, and attempt to restrict the investigating authority’s discretion to avoid overly arbitrary interpretation and enforcement of the Rule. Because Chinese trade and investment treaties, to a large extent, are established on a WTO-centered basis, it is reasonable to assume that WTO consistency enjoys top preference in this legislation.

From the practical side, the investigating authority shall terminate an ongoing probe when alleged measures, policies and practices are put into accordance with the bilateral and multilateral treaties and agreements. In other words, WTO consistency, for both alleged foreign acts and Chinese investigations, is the highest policy goal in trade and investment barrier probes. Once an alleged violation of the international economic and trade treaty disappeared, the Chinese authority would immediately drop the case.

Further, even in choosing the conclusion measures, bilateral solution and WTO Dispute Settlement Mechanism stand as the preferred option by the Chinese government.

From these three aspects, we can conclude that WTO consistency is paramount in China’s barrier investigations.

Regarding trade and investment barrier investigations, China has established a complete structure of rules and made several enforcement attempts. Chinese trade barrier laws and practices were featured WTO consistency and applied in constraint manners and limited occasions. Although the Rule has much to be improved, such as due process and transparency principles, the implementation of the Rule was carried out in a balanced and non-aggressive way.

What might be about China’s trade and investment barriers investigations and measures in the future? It is true China has few applications of its trade barrier regulations in the past years. However, it is unreasonable to conclude that China is reluctant to enforce its barrier investigations regulations in the future. A more realistic application may occur when intellectual property infringement is caused by imports. As IP disputes appeared more frequently, the possibility of enforcing IP section of trade law arises accordingly.

Some concerns that China may take unilateral measures by trade barrier investigations. The Chinese government does have the mandates authorised by Chinese laws and regulations to take unilateral measures to counteract the effects and impacts of foreign trade policies. Article 47 of Foreign Trade Law stipulates that China has the right to suspend or terminate its performance of relevant obligations in compliance with relevant treaties and agreements. And article 33 of the Rule authorises the Ministry of Commerce to take proper measures, which could be regard as that encompass unilateral countermeasures to diminish or minimise the adverse impacts of the concerned measures and practices. However, unilateralism is not a usual option of China’s trade policy and legal practice. On various occasions, Chinese official statements opine that maintaining a multilateral trade mechanism is the top priority of Chinese trade policies. In my opinion, the possibility of Chinese unilateral trade measures is  remote for now.