Until the promulgation of the Foreign Trade Law,　there had been no legal grounds for China engaging trade disputes with other countries. The Foreign Trade Law lays down a provision for dealing with trade disputes with other countries. Article 7 of the Law provides that “[I]n the event that any country or region applies discriminatory prohibition, restriction or other like measures against the People’s Republic of China in respect of trade, the People’s Republic of China may, as the case may be, take counter-measures against the country or region in question.”
　　Article 40 of the Anti-Dumping and Anti-Subsidy Regulations　further provides that “[b]ased upon actual circumstances, the People’s Republic of China may adopt corresponding measures against any country or region adopting discriminatory anti-dumping or anti-subsidy measures against its exports.”
　　The statutory provisions give China leeway to restrict foreign imports for indefinite periods in engaging trade disputes.
　　2. Case Studies
　　As China’s trade surges,　China has scuffled with its major trade partners. The United States, European Union, South Korea and Japan all have encountered disputes with China.
　　A look at how China approached to these disputes would not only shed light on the Chinese practice in trade dispute settlement, but also help predict how China will behave regarding the WTO dispute settlement mechanism after its WTO accession.
　　a. China-US dispute of textile transhipment
　　This is a case where the dispute was settled with China’s making concessions.
　　China is the third largest supplier of imported textile and apparel products in the United States, after Mexico and Canada. Textile exports account for 10 percent of the overall Chinese exports to the US.　In February 1997, China and the United States concluded an agreement on textile trade.　Under this four-year agreement, the US promised to raise quotas for Chinese textile imports in exchange for Chinese promises to reduce tariffs and non-tariffs barriers to US textile imports and to crack down on transhipments. However, on 5 May 1998, the US announced it would impose punitive charges of US $ 5 million for exporting textiles to the US via third countries to escape quotas. China responded that the US was in violation of the bilateral agreement by unilaterally deducting the quotas, vehemently accusing the US of “wantonly breaking” the accord. Interestingly, the Chinese did not resort to retaliation. Instead, it tightened the enforcement of the rule against transhipments.

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