The current European and global debate over whether WTO members should treat China as a market economy in their domestic trade defence laws is also a battle over the future business model of a crisis stricken steel industry, and over the integrity of the global trading system. The unfolding saga, viewed by Iana Dreyer, in three parts.
The United States have indicated in 2015 that they had no intention of granting China market economy treatment in their antidumping proceedings after 11 December 2016, date at which China’s 2001 World Trade Organization accession protocol says this practice should end. Several other WTO members have signalled the same. The European Union is engaged in deep soul-searching over an issue commonly called ‘China MES’. The way things are headed on this file do not bode very well for the global trading system.
China’s quest for market economy status recognition
China is the world’s top target of antidumping measures, accounting for 28 percent of new initiations in from mid 2014 to mid 2015, according to the latest WTO data. Beijing believes that by receiving market economy treatment the number of cases targeting its exports will be reduced.
Antidumping legislation aims to protect industries from predatory export practices, or ‘dumping’. Antidumping is regulated in the WTO’s Antidumping Agreement and GATT Article VI. Non market economy treatment was established by GATT (the WTO’s predecessor) members during the Cold War period to handle exports from planned economies, the prices for rare exports of which which it was technically impossible to determine benchmarks for. Instead of using local prices to establish price comparisons with the exported goods under scrutiny to assess dumping, authorities resorted to price comparisons with third, so-called ‘analogue’ countries.
China, when it acceded to the WTO in 2001 after engaging in more than a decade of market oriented reforms, asked to no longer be treated as a non-market economy. But its wary WTO counterparts refused. Instead, they promised to stop resorting to the ‘analogue country methodology’ within fifteen years of Chinese membership in the world trade body.
China has made it one of its top diplomatic priorities to see its non market economy treatment end. It convinced Singapore, Australia and New Zealand to do so during the last decade, but its pleading fell on deaf ears in Washington, Brussels, Tokyo, or Toronto. Now Beijing expects non market economy treatment to end by December 2016, and it is making it known.
A wide-spread belief among trade policymakers that the end of non-market economy treatment for China would be automatic has been shaken over the last two years. Law experts – mostly lawyers whose clients are major users of antidumping instruments in Washington and in Brussels – have started questioning it.
Their arguments build on the in-built ambiguities of Article 15 of China’s accession protocol, whose subparagraph (a)(ii) allows WTO members to resort to “analogue country methodology”, but whose paragraph (d) states: “in any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession”. While paragraph (d) has led many trade experts to believe China’s treatment as a market economy is automatic, others say this is not so, because Article 15 as a whole remains, and because it also obliges China to demonstrate that it actually is a market economy. Alas, WTO rules offer no criteria to determine what is a ‘market economy. This means the determination of the criteria are left to the organisation’s members.
More liberal than Brazil?
For many years the universally feared Chinese export ‘juggernaut’ was attributed to the country’s embrace of market principles and globalisation. Today, many, including the EU’s trade commissioner Cecilia Malmström, claim that China is not a market economy. “We are not deciding on whether or not China is a market economy. That is clearly not the case today”, the EU trade chief said in a recent speech in Brussels.
It seems obvious needs to be restated: China is no longer a planned economy. State interventionism, though rife in China, is not necessarily much more pronounced than in other major emerging markets. Take China’s WTO import regime: it is more liberal than many an emerging market that other WTO members treat as market economies in antidumping.
Brazil, a ‘market economy’ and regular member of the WTO, applies an average 14.1 percent of import tariffs on non-agricultural goods. China’s average tariff is 8.6 percent, a rather moderate rate for big emerging market standards. Brazil has made 43 services liberalisation commitments in the services pillar of the WTO, the GATS. Brazil has signed no bilateral free trade agreement. China has made 93 commitments, offering more than fifty more market openings than Brazil. China has signed several free trade agreements that cover selective services sector liberalisations, such as in its FTAs with Australia, New Zealand, Hong Kong and Taiwan. These modest indicators alone show that China allows market dynamics to unfold in its domestic market.
