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A U.S. law firm defends two Russian steel companies before a Chinese agency in a complex international “anti-dumping” case brought by China’s government-owned steel company — and wins. It may be, to paraphrase the ancient philosopher Lao-Tzu, just the first step on a journey of a thousand miles. But to Kermit W. “Butch” Almstedt and his law firm, O’Melveny & Myers, a Sept. 11 victory in Beijing was a sign that China’s Communist leadership is serious about gaining entry to the World Trade Organization (WTO). “I think they really took the initiative, and you really have to give them credit for it,” says Almstedt, an O’Melveny partner and lead overseas counsel for the two Russian steel companies in the proceeding before China’s Ministry of Foreign Trade and Economic Cooperation and the State Economic and Trade Commission. “For a Western law firm to come out with these kinds of results from this kind of forum is a significant victory.” Almstedt says that the victory by O’Melveny’s Shanghai office on behalf of two Russian steel companies — Novolipetsk Iron & Steel Corp. and Viz Stal Co. Ltd. — was the first time a foreign defendant has prevailed in an anti-dumping trade case under China’s new “adversarial-type, Western-style legal proceedings.” After the two one-day hearings before the two China trade agencies, Almstedt says, the trade ministry eliminated the 43 percent preliminary tariff imposed on Viz Stal and reduced Novolipetsk’s preliminary tariff from 11 percent to 6 percent. The tariff decision will remain in effect for five years. Since the mid-1990s, China has been enacting new foreign-trade laws to convince other countries that it is ready to open its markets to the West and become a full member of the WTO. Among the legal changes was China’s decision to adopt the WTO’s anti-dumping code, which requires a meaningful, adversarial-style appeal hearing for foreign companies being hit with punitive tariffs for allegedly selling products at below-market prices. A U.S. Commerce Department spokesman, who asked not to be identified, says that the department’s Import Administration Office monitored the case but concluded that it’s too soon to judge the significance of the ruling. “The Chinese right now are just developing their anti-dumping laws. In our view, this case also involves Russia, which itself is not a WTO member,” the spokesman says. Legal experts — while saying that the case is an important step for China’s entry into the international economic community, and a signal victory for O’Melveny — agree that the long-term significance of the trade ministry rulings remains difficult to gauge. “It’s definitely a positive step, and very rare, to have a Chinese arbitrator rule against the government steel company,” says Greg Mastel, a China expert and the director of the global economic policy project at the New America Foundation, a Washington, D.C.-based think tank. “But I also don’t want to suggest that this means the problems have been resolved. It’s encouraging, but this can be a long, long march.” Five anti-dumping cases have been filed against foreign countries since China adopted the WTO legal code in 1997, Almstedt says. The first case, against Canadian newsprint exporters, was won by China; the second case involved Russian steel companies, including the two represented by O’Melveny. Three other cases, involving other foreign exports, are awaiting decisions. At issue in the steel dispute were complex pricing questions involving the highly specialized “silicon steel,” which is used in manufacturing steel electric transformers and for other large energy projects, Almstedt says. With China pushing to expand and modernize its electric and other industrial infrastructures, he explains, such steel is in high demand, and exporters are eager to meet the demand. Between 1997 and 1998, Almstedt says, the People’s Republic of China used 750,000 metric tons of silicon steel, about 40 percent of it produced by Wugang Group, the Chinese government steel concern. Almstedt says one sign that O’Melveny’s Russian clients got a fair hearing at the Ministry of Foreign Trade and Economic Cooperation is that several other Russian companies, which were represented by other lawyers and used different pricing arguments, had tariffs sustained of up to 62 percent. “This will likely force them out of the market,” he adds. WHAT IT TOOK O’Melveny, which has the largest China practice of any U.S. law firm, needed a wide array of personnel to win the case. Representing the two Russian steel companies, Almstedt says, meant having lawyers and support staff fluent in Russian and in Mandarin, the Chinese dialect that is used in official work. Almstedt, who works in O’Melveny’s Washington, D.C., office, traveled to Beijing for the hearings and oversaw the Shanghai litigation team headed by two lawyers from the firm’s Shanghai office, Mark Ho and Mou Rong. The team also had to retain Chinese local counsel who were not associated with O’Melveny to work with the litigation team in the hearings, another requirement of China’s legal system. Interestingly, China’s media has not mentioned the Russian companies’ victory in the steel case. Instead, the Xinhua news service focused on those Russian companies against which the trade ministry upheld the preliminary tariffs, describing the case as a win for China and the Wuhang Group. A spokesman for the Chinese Embassy in Washington, D.C., said that he had no comment on the ministry’s ruling. The embassy’s international trade and legal counselors also declined comment. Mastel of the New America Foundation calls China’s lack of history with an adversarial type of judicial proceeding “an enormous problem.” “China is really just emerging from a system of Communist control,” he says. “A system of judicial review is a relatively new idea for the Chinese.” James V. Feinerman, the James M. Morita Professor of Asian Legal Studies at Georgetown University Law Center and director of the center’s Asian law and policy studies, explains, “This is an area in which China is acting by itself to make things happen, and that is a good thing. But you can win very often before an arbitrator, and then you can’t get enforcement. The problem may be that [the Russian companies] won the battle but lost the war.” Almstedt says that he remains optimistic about the trade ministry case’s import for foreign companies wishing to enter the colossal Chinese trade market, though he says he has no illusions about the effort needed to win such cases. “It was a good start and a very interesting case,” Almstedt says. “It was great to hear the lawyers who had spent a year on this case arguing the briefed issues and see that they impressed the Chinese officials who, in fact, reacted to them.”

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