# **1 Introduction**

China’s entry into global markets has had an important effect on the rules of the world trading system. After close to fifteen years of negotiations that began under the General Agreement on Tariffs and Trade (GATT), China was finally granted membership in the World Trade Organization (WTO) in 2001. While China’s accession to the organization was heralded as a significant achievement for trade policy negotiators, its terms of accession introduced new allowances for existing members to deviate from historic and core GATT/WTO principles. In particular, the commitment that members adhere to the fundamental rules of _reciprocity_ and _most-favored nation_ (MFN) treatment, the second of which is also referred to as _nondiscriminatory_ treatment across trading partners, was substantially weakened through the introduction of a newly available “China safeguard” import-restricting policy instrument. A political justification for the new safeguard was that China’s export capacity threatened to disrupt established trade patterns. Furthermore, an unprecedented statutory trigger for use of the import restriction is the phenomenon of “trade deflection,” i.e., where a different country’s imports from China surge _because of_ a first country imposing its own trade restriction that shut Chinese exports out of its market.

This paper empirically investigates whether there is historical evidence that the imposition of discriminatory import restrictions on Chinese trade _deflected_ Chinese exports to third markets during its pre-accession period. Since the discriminatory China safeguard was not in use during this period, we address the question by matching data on Chinese exports to 38 destination markets to a new dataset of discriminatory antidumping measures imposed on China by two of its most important trading partners. To the best of our knowledge, this is the first paper to investigate whether Chinese exports have been deflected to alternative markets when hit with discriminatory trade restrictions. Prior research investigating related questions has found evidence of such trade deflection; nevertheless, the prior evidence has not investigated Chinese exports, as it has been limited to the examination of exports from other countries and/or is focused on specific industries.<sup>1</sup> WTO members created a “Transitional Product-Specific Safeguard Mechanism” that can be used against imports from China until 2014 under Section 16 of China’s terms of accession (WTO, 2001). Many characteristics of the new China safeguard are at odds with core WTO principles and estab-

> 1In work motivated by the EU’s 2002 global safeguard policy on steel which invoked a similar concern over trade deflection emanating from the U.S. steel safeguard (EU, 2002), Bown and Crowley (2007) find substantial evidence that the imposition of administered import-restricting trade policies against Japanese exports led to export surges to alternative markets. Durling and Prusa’s (2006) investigation of global exports from the hot rolled steel market provides some evidence for trade deflection, as does Debaere’s (forthcoming) investigation of the shrimp market in response to the EU’s discriminatory revocation of GSP status for Thai exporters.

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