China is to hold talks this week with the United States on its controversial steel safeguard tariffs. A Chinese delegation left Beijing for Washington on Wednesday, said He Ning, director general of the World Trade Organization (WTO) Affairs Department of the Ministry of Foreign Trade and Economic Cooperation (MOFTEC).

The delegation was headed by Shang Ming, commissioner-general of MOFTEC's Fair Trade Bureau for Import and Export.

China hopes the issue can be resolved properly through bilateral talks with the United States, he said in an interview with China Daily.

"If the talks fail to satisfy China, we will not rule out starting multilateral dispute resolution mechanism," he said.

The director general criticized the US action as "evident trade protectionism" which has irritated countries.

On March 5, US President George W. Bush slapped safeguard tariffs of 8 percent to 30 percent on several types of imported steel in an effort to help the ailing US industry.

The tariffs took effect today.

China applied to the WTO to arrange talks with the United States on March 14.

This is the first time that China has turned to the multilateral trading system to resolve its trade dispute with another country since becoming a member last December.

MOFTEC said China is still in the early stages of the procedure and is seeking rightful compensation from the United States.

"But China reserves the right to start the WTO dispute resolution mechanism," said a MOFTEC spokesman.

If the talks fail, US steel tariffs are likely to cause China's first complaint to the WTO.

Zhang Hanlin, a professor with the Beijing-based University of International Business and Economics, said China could rightfully ask the US to increase its imports of other products such as textiles from China or lower its tariffs on these products as compensation for losses incurred on Chinese iron and steel companies by US steel tariffs.

But he suggested that a more likely solution to the issue would be for the United States to lift its steel tariffs after several months.

Some analysts guessed China will retaliate by imposing safeguard tariffs on farm product imports from the US if it is not granted satisfactory compensation.

US farm products are very competitive on the global market and are expected to flood into China after the country's WTO entry, dealing a heavy blow to local farmers.

At a press conference during the fifth plenary session of the Ninth National People's Congress, Premier Zhu Rongji said farmers' incomes were a major concern of the Chinese Government and jokingly proposed a retaliative 30 per cent tariff on soybean imports from the US to protect Chinese farmers.

Although the premier made the remark jokingly, analysts are convinced senior Chinese officials are considering such measures.

But Liang Yanfen, a senior researcher with the Chinese Academy of International Trade and Economic Cooperation - a MOFTEC think tank - dismissed such retaliative measures as impossible for the time being.

"Such measures are irrational and unwise," she told China Daily.

She said the Chinese Government should be more prudent and carefully weigh all possible options before taking any action.

She suggested China should keep a close eye on the development of the issue and wait for other entities such as the European Union to act first.

"China, with only US$350 million annual steel exports to the US, compared with about US$4 billion from the EU each year, should not take the lead in standing against the US," she said.

China exported about 700,000 tons of steel products worth more than US$300 million to the US last year, according to industry estimates.

China is the world's biggest manufacturer of steel but is still a net importer because domestic demand for high-end products far outstrips supply.

The most important thing for domestic iron and steel companies at present is to sell orders at hand and explore new markets, Liang said.

The entities hardest hit by the US steel tariffs include Japan, the EU, South Korea, China, Ukraine, Brazil and Russia.

The Chinese Government immediately voiced its "strong displeasure" with the US decision after the US president's announcement of the tariffs on March 5, condemning it as flouting WTO rules.

"We retain all of our rights within the WTO framework," the Government responded.

MOFTEC reminded the US that China's steel exports to the US make up too small a proportion of the country's total import to damage US industries.

It demanded that the US take that into account when tackling the issue.

"China and the United States are important trading partners and China hopes the issue can be properly and quickly resolved through bilateral talks to avoid damage to Sino-US trade ties," it said.

MOFTEC also urged the US Government to be responsible and take into consideration the great harm its action would do to the international trade order.

China is not alone in its pronounced anger against US steel tariffs and threats to take the dispute to the WTO.

Other US trading partners also reacted negatively to the US decision: the EU lodged formal complaints with the WTO and Japan declared to take similar action immediately after the tariffs took effect.

(China Daily March 21, 2002)