An India Ratings & Research report has warned that if China gets market economy status (MES), which is likely soon under the World Trade Organisation (WTO) rules, it will prove to be credit-negative for the commodity-driven sectors across the world.
As per the rules governing China’s accession to the WTO, China would get the market economy status on completion of 15 years.
Non-market economy till now
Since December 10, 2001, when Beijing became a WTO member, China has been treated as a non-market economy based on the the WTO accession document.
According to India Ratings’ Abhash Sharma, the key sectors that will be credit negative if China gets the MES are iron & steel, chemicals, ceramics and tyres, the items which enjoy heavy state subsidy in China. He also notes that these sectors are among others which have benefited by the anti-dumping duties in the past.
The MES status means China’s cost of production and sale price (within China) need to be considered by importing countries, while ascertaining if the dumping of goods is taking place, which was optional hitherto.
Beijing believes after 15 years of its accession to the WTO, which falls on 10 December 2016, it should be given MES status, and though not providing MES is not an option for WTO members, many countries argue that MES should not be given to China.
China can just dump its products
The MES status would give China’s competitors less opportunity to initiate anti-dumping measures on Chinese exports, thus pushing up exports from China further and threatening commodity-linked sectors.
China’s exports as a percentage of the total global exports jumped manifold to 14.2 or $2.27 trillion in 2015 from a paltry 0.9 or $530 million in 1948.
It can be noted that Beijing has been one way or other related to the world trade body since 1947 and became a full member on December 11, 2001.
From the Indian angle
Similarly, China’s imports to India rose manifold to $62 billion in 2016 from $7 billion in 2005.
China has been categorised as a non-market economy by WTO members under its membership rules. Point 15 of the membership rule, which deals with price comparability in determining subsidies and dumping, provides the method to calculate the normal value of any product, to assess if China is dumping.
Point 15(a) (ii) of the accession document states that if the producers under investigation cannot clearly show that market economic conditions are prevailing in the industry, the importing WTO member may use a methodology that is not based on a strict comparison with domestic prices or costs in China.
