China has launched a one-year anti-dumping investigation into European-made potato flour, in apparent response to the European Union's weekend announcement of an anti-subsidy investigation into Chinese-made coated paper.

China's Ministry of Commerce said that the coated paper investigation marked the first time China has faced an anti-subsidy investigation from Europe, possibly indicating an escalation of trade tensions by a partner that has historically been less confrontational than the US.

The investigation request from a European industry association followed immediately upon a US decision on March 3 to impose preliminary countervailing duties on coated paper from China and Indonesia.

"It is easy for the EU to build on that ruling," said lawyer Fu Donghui, managing partner at Allbright Law Offices in Beijing, who specialises in China-European trade disputes.

The EU has no clear laws regarding the anti-subsidy duties against countries that are not deemed market economies, he said, whereas the United States changed its regulations in order to begin bringing such cases, he said.

"It's relatively convenient, relatively conservative, and it involves a lower cost for the plaintiffs," he said.

In a statement posted over the weekend on the Chinese Ministry of Commerce website (mofcom.gov.cn) spokesman Yao Jian said the investigation amounted to discrimination against Chinese products and went against the rules of the World Trade Organisation.

"The European Union's investigation sends a wrong message of protectionism to the world," Yao said.

In apparent retaliation, the Ministry of Commerce on Monday announced a one-year anti-dumping investigation into potato flour from Europe. It will conclude on April 18, 2011.

Coated paper

A European association of fine paper manufacturers, representing over 25 per cent of EU fine paper output, requested the investigation on March 4, the Official Journal said.

The anti-subsidy probe, announced in the EU's Official Journal on Saturday, follows a separate anti-dumping investigation into coated paper launched two months ago. Coated paper is used in books and magazines.

The journal cited preferential loans by Chinese state-owned banks and government-backed loans and interest subsidies for forestry programmes.

After the American decision to impose coutervailing duties ranging from 3.92 to 12.83 per cent, Asia Pulp & Paper (APP), one of the largest paper producers in Asia and a major exporter of coated paper from both countries, said it would fight the duties.

The US manufacturers have argued to the Commerce Department that the level of the Chinese yuan, which they say is undervalued against the dollar, represents a further subsidy.

China previously fought US duties against coated paper at the World Trade Organisation, but the case was dropped after the US International Trade Commission found that American manufacturers had not suffered injury from the imports and blocked the final duties.

Yao called on the EU to solve trade frictions with China through negotiation and cooperation, because the two sides are important trade partners. – Reuters