US and EU may re­sort to more trade bat­tles

China Daily (Hong Kong) - - VIEWS -

When China joined the World Trade Or­ga­ni­za­tion on Dec 11, 2001, it was told that it would be rec­og­nized as a mar­ket econ­omy after 15 years. Un­til now the main play­ers in world trade, es­pe­cially the United States and the Euro­pean Union, have not only de­nied China the mar­ket econ­omy sta­tus but also ini­ti­ated a large num­ber of anti-dump­ing in­ves­ti­ga­tions against Chi­nese prod­ucts and im­posed ex­traor­di­nar­ily high tar­iffs to block their sales.

So now that China has com­pleted 15 years in the WTO, the US and the EU should grant China the mar­ket econ­omy sta­tus. How­ever, the two dom­i­nant trade play­ers seem keen to con­tinue the un­fair game even though China should no longer be sub­jected to the dis­crim­i­na­tory rule.

Since the US and the EU do not see China as a mar­ket econ­omy, they of­ten use pro­duc­tion costs of other coun­tries as ref­er­ence to as­sess whether Chi­nese ex­porters are dump­ing their prod­ucts. For ex­am­ple, con­sid­er­ing the cost of a Chi­nese pro­ducer mak­ing a wash­ing ma­chine is 1,500 yuan ($217.7), it can­not be ac­cused of dump­ing if it sells it in the EU mar­ket for 2,000 yuan. But if in­ves­ti­ga­tors take the cost of pro­duc­tion in Sin­ga­pore, which could be more than 2,000 yuan, as ref­er­ence, then the Chi­nese pro­ducer can face dump­ing charges.

Such a sur­ro­gate coun­try ap­proach may have been in line with the WTO rules un­til Sun­day, but China should now be treated as a mar­ket econ­omy.

Ac­cord­ing to Para­graph (a) (ii) of Ar­ti­cle 15 in China’s Ac­ces­sion Pro­to­col to the WTO, “the im­port­ing WTO Mem­ber may use a method­ol­ogy 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”.

But Para­graph (d), says, “in any event, the pro­vi­sions of sub­para­graph (a) (ii) shall ex­pire 15 years after the date of ac­ces­sion”.

This means the dis­crim­i­na­tory ap­proach should au­to­mat­i­cally ex­pire on Dec 11. But start­ing from 2011, an in­creas­ing num­ber of of­fi­cials and ex­perts from the US and the EU have been in­ter­pret­ing the WTO rules dif­fer­ently, ar­gu­ing that even after the ex­piry of the clause, they are not bound to grant China the mar­ket econ­omy sta­tus and stop us­ing the sur­ro­gate coun­try ap­proach in trade and dump­ing dis­putes.

And last month, US Com­merce Sec­re­tary Penny Pritzker said the time was “not ripe” for the US to grant China the mar­ket econ­omy sta­tus. The US has also been push­ing the EU not to rec­og­nize China as a mar­ket econ­omy.

The US’ in­sis­tence is not sur­pris­ing, es­pe­cially given the ris­ing pro­tec­tion­ism rhetoric in the US fol­low­ing the elec­tion of Don­ald Trump as the next pres­i­dent. Be­sides, if the US grants the mar­ket econ­omy sta­tus to China, the EU will fol­low, mak­ing it much more dif­fi­cult for them to pro­tect their un­com­pet­i­tive do­mes­tic in­dus­tries be­cause they can no longer im­pose high tar­iffs on Chi­nese prod­ucts.

Eight years after the global fi­nan­cial cri­sis, the world is still trapped in low growth. Global trade grew by just 2.8 per­cent year-on-year in 2015, the fourth con­sec­u­tive year when global trade growth was lower than eco­nomic growth. And WTO es­ti­mates that global trade growth may slow to 1.7 per­cent in 2016.

As a re­sult, politi­cians in de­vel­oped coun­tries have sought to soothe the nerves of their anx­ious vot­ers, es­pe­cially in­dus­trial work­ers, by tak­ing a more isola­tive ap­proach to tackle trade chal­lenges. Such a stance is most ev­i­dent in the US, with Trump even threat­en­ing to en­gage in trade war with China if it does not “toe” the line.

The trend of pro­tec­tion­ism, once it rises, will not re­cede eas­ily. There­fore, mar­ket econ­omy sta­tus or not, Bei­jing should be pre­pared for more dis­putes in the fu­ture be­cause even if the EU went against the wish of the US and rec­og­nized China as a mar­ket econ­omy, it will prob­a­bly re­vise its laws to make room for tak­ing other forms of puni­tive ac­tions against Chi­nese goods.

The au­thor is a se­nior writer with China Daily. xinzhim­ing@ chi­


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