Mar­ket econ­omy treat­ment should be ex­tended to China

China Daily (Canada) - - LIFE -

The ques­tion of whether theUnited States and Euro­peanUnion will ex­tend to China the treat­ment of a mar­ket econ­omy has be­come in­creas­ingly prom­i­nent as Dec 11 ap­proaches, be­cause this date marks the end of the 15-year pe­riod after China’s ac­ces­sion to theWorld Trade Or­ga­ni­za­tion.

China’s treat­ment after 15 years ofWTO mem­ber­ship and whether or not it is given mar­ket econ­omy sta­tus are two dif­fer­ent is­sues, but they are es­sen­tially the same, be­cause in its for­eign trade, whether or not other coun­tries ex­tend China mar­ket econ­omy sta­tus lie in whether they will use the prices and costs in China as the cri­te­ria when­ever there is an anti-dump­ing and anti-sub­sidy in­ves­ti­ga­tion launched against its com­modi­ties. If mar­ket econ­omy method­olo­gies are used for de­ter­min­ing nor­mal value there is no sig­nif­i­cant dif­fer­ence to it be­ing con­sid­ered a mar­ket econ­omy.

Para­graphs (a) and (d) of Ar­ti­cle 15 of theWTOpro­to­col on China’s ac­ces­sion ex­plic­itly de­scribe such sce­nar­ios, and mean that after De­cem­ber, method­olo­gies other than amethod­ol­ogy based on Chi­nese costs and prices can­not be used for the de­ter­mi­na­tion of nor­mal value in anti-dump­ing in­ves­ti­ga­tions con­cern­ing goods orig­i­nat­ing in China.

The Ar­ti­cle has four para­graphs: The first cov­ers price and cost com­par­i­son method­olo­gies in dump­ing in­ves­ti­ga­tions, the se­cond the cal­cu­la­tion of ben­e­fit in sub­sidy in­ves­ti­ga­tions, the third with no­ti­fi­ca­tions to theWTO, and the fourth ad­dresses the sta­tus or na­ture of China’s mar­ket.

Para­graph (a) stip­u­lates that: “In de­ter­min­ing price com­pa­ra­bil­ity un­der Ar­ti­cle VI of the GATT 1994 and the Anti-Dump­ing Agree­ment, the im­port­ing WTOmem­ber shall use ei­ther Chi­nese prices or costs for the in­dus­try un­der in­ves­ti­ga­tion or a method­ol­ogy that is not based on a strict com­par­i­son with do­mes­tic prices or costs in China based on the fol­low­ing rules: (i) If the pro­duc­ers un­der in­ves­ti­ga­tion can clearly show that mar­ket econ­omy con­di­tions pre­vail in the in­dus­try pro­duc­ing the like prod­uct with re­gard to the man­u­fac­ture, pro­duc­tion and sale of that prod­uct, the im­port­ingWTO mem­ber shall use Chi­nese prices or costs for the in­dus­try un­der in­ves­ti­ga­tion in de­ter­min­ing price com­pa­ra­bil­ity; (ii) the im­port­ing WTOmem­ber may use amethod­ol­ogy that is not based on a strict com­par­i­son with do­mes­tic prices or costs in China if the pro­duc­ers un­der in­ves­ti­ga­tion can­not clearly show that mar­ket econ­omy con­di­tions pre­vail in the in­dus­try pro­duc­ing the like prod­uct with re­gard to man­u­fac­ture, pro­duc­tion and sale of that prod­uct”.

Para­graph (d) stip­u­lates that: “Once China has es­tab­lished, un­der the na­tional la­wof the im­port­ingWTOmem­ber, that it is a mar­ket econ­omy, the pro­vi­sions of para­graph (a) shall be ter­mi­nated pro­vided that the im­port­ing mem­ber’s na­tional law­con­tains mar­ket econ­omy cri­te­ria as of the date of ac­ces­sion. In any event, the pro­vi­sions of sub­para­graph (a)(ii) shall ex­pire 15 years after the date of ac­ces­sion. In ad­di­tion, should China es­tab­lish, pur­suant to the na­tional la­wof the im­port­ing WTOmem­ber, that mar­ket econ­omy con­di­tions pre­vail in a par­tic­u­lar in­dus­try or sec­tor, the non­mar­ket econ­omy pro­vi­sions of para­graph (a) shall no longer ap­ply to that in­dus­try or sec­tor”.

These clauses of theWTOpro­to­col in­di­cate that from Jan 1 of next year, after 15 years of China’s ac­ces­sion toWTO, oth­erWTO mem­bers should not con­tinue to use the “sub­sti­tute na­tion” method when con­duct­ing an an­tidump­ing and anti-sub­sidy probe against China, ir­re­spec­tive of whether or not they rec­og­nize China and its in­di­vid­ual in­dus­tries as hav­ing mar­ket econ­omy sta­tus, and only China’s prices and costs should be used as ref­er­ence.

Since theUS and Euro­pean coun­tries signed theWTO pro­to­col at the time of China’s ac­ces­sion, they are obliged to ful­fill the in­ter­na­tional com­mit­ments they made 15 years ago, al­though it is up for them to de­cide whether to rec­og­nize China such a sta­tus.

There are now strong in­cen­tives within both theUS and theEUnot to ful­fill their com­mit­ments. In the con­text of their cur­rent ac­count bal­ance of pay­ment con­tin­u­ously wors­en­ing, both theUS and the EUhope to pre­serve the “sub­sti­tute na­tion” price sys­tem. OnMay 12, the Euro­pean Par­lia­ment over­whelm­ingly voted against ex­tend­ing China mar­ket econ­omy sta­tus. Of the 73 anti-dump­ing mea­sures cur­rently taken by theEU, 56 are tar­geted at im­ports from China. Euro­pean pro­tec­tion­ists are cit­ing this as an ex­cuse to deny China its mar­ket econ­omy sta­tus, so that they can keep Chi­nese goods out­side the door and pro­tect lo­cal em­ploy­ment. The sen­ti­ment is the same in theUS.

As a lead­ing im­porter, China has means at its dis­posal to coun­ter­act some coun­tries’ re­fusal to give China nor­mal mar­ket econ­omy treat­ment. But China knows that pro­tec­tion­ism and trade re­tal­i­a­tion are not the best way to re­solve trade dis­putes among coun­tries. So, while theUS and the EU should know and weigh the price they­may have to pay if they in­vite pro­por­tion­ate coun­ter­mea­sures from China, the lat­ter is urg­ing theUS and EU to ex­tend to it mar­ket econ­omy treat­ment even if they fail to for­mally grant it the mar­ket econ­omy sta­tus.

The au­thor is a re­searcher at the In­ter­na­tional Trade and Eco­nomic Co­op­er­a­tion In­sti­tute of the Min­istry of Com­merce.

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