Politics over market economy must end
But the protocol does say that “in any event” WTO members may not use the analogue country method against Chinese exports beyond the 15-year transition period.
Whether or not the Unites States and the EuropeanUnion will honor the commitment they had made when China acceded to theWorld Trade Organization 15 years ago will become a touchstone for theUS and the EU leaderships’ credibility.
In Section 15 of the Accession Protocol of China to theWTO, signed by all members including theUS and China in December 2001, they agreed a 15 years’ transition period to allow investigating authorities in otherWTO members to use the analogue countrymethod in their antidumping investigations against imports from China.
Under the analogue country method, investigators don’t use the product price in the exporting country as a basis when determining whether to impose tariffs, and instead use third-country reference prices. As a result, more Chinese products are investigated, and in most cases they have to pay higher anti-dumping duties even though there are problematic issues related to price estimation in China.
There are two options for the 15-year transition period. First, if Chinese producers can prove market economy conditions prevail in their respective industries, such as in the production and sales of the goods, importingWTO members would need to use Chinese prices or costs in their investigations. Second, if those producers cannot demonstrate such market economy conditions, otherWTO members can use prices and costs of a third analogue country.
From a strictly legal perspective, the Accession Protocol does not explicitly say that otherWTO members should grant China market economy status and it does not set a deadline by which this must happen. In addition, the WTO itself does not have a definition of what exactly is a market economy. Domestic trade laws have created the concept of market economy status and the criteria to grant it.
But the protocol does say that “in any event” WTO members may not use the analogue country method against Chinese exports beyond the 15-year transition period. This means that after Dec 11, 2016, theUS should treat Chinese exports like those from other WTO members, unless it renegotiates an agreement to prolong the transition period with China, which Beijing would not agree. So, whether or not theUS confirms China’s market economy status, from Dec 11 it will have to stop using the analogue country method against Chinese products.
Experts like Bernard O’Connor argue that other provisions of Section 15 imply that even after Dec 11, China will need to meet the market economy criteria of importing countries to stop other countries from using the analogue countrymethod. This logic has two major flaws. First, if China still needs to prove it qualifies as a market economy after Dec 11, as O’Connor argues, then the expiry date in the protocol is meaningless. Second, the most likely intention of the negotiators writing this specific text was to allow for a 15-year transition period for both China and other members, during which China accepted discriminatory treatment in anti-dumping investigations.
More importantly, we are witnessing a degree of hypocrisy here from EU andUS officials, who apply criteria to other countries that they themselves do not meet. No government intervention in productions and sales?
There are numerous cases whereWTO panels have ruled against the EU and theUS for their government interventions, including billions of dollars of subsidies to domestic civil aircraft manufacturing as well as cotton subsidies. CNNMoney tracker shows theUS government pledged $11 trillion and actually spent $3 trillion to rescue its financial institutions from 2008 to 2009, and the EU spent at least $1 trillion to bail out its banks.
Yes, China is still far from being a smooth-functioning market economy, although it has made steady progress in that direction. And it ought to continue improving its market institutions for the good of its own development.
But the fact that China falls short of a perfect market economy according to theUS should not be an excuse forWashington to not respect the letter and spirit of the negotiated agreement of a 15-year transition period for the analogue countrymethod.
Appropriate solutions to the issue could be an opportunity for US leaders to show thatWashington remains credibly committed to standing by a rule-based, nondiscriminatory multilateral trading system. The author is managing director of ICTSD China.