Fight for market economy status

Why the U.S. is blocking China’s bid

Published - December 06, 2017 12:15 am IST

International countries relationships and global economy consequences concept with a cradle and flags on spheres 3d illustration.

International countries relationships and global economy consequences concept with a cradle and flags on spheres 3d illustration.

Last week, the U.S. protested at the World Trade Organisation against China’s bid for recognition as a market economy. Its opposition is a counter to China’s 2016 legal challenge against the U.S. and the European Union, both of which refuse to accord China the coveted status it wants. They say that the use of state subsidies in China distorts market prices. Significant in this regard is the fact that the U.S. Commerce Department is conducting separate investigations into the dumping of aluminium foil by China.

Central to China’s quest is the acknowledgement from trading partners that domestic prices are determined by open competition rather than by the government. This will help China counter attacks of unfair dumping. Conversely, as long as major trading powers treat China as a non-market economy, they would insist on ascertaining the value of goods with reference to prices in a third country to ensure that domestic firms did not gain an unfair trade advantage. Were China to be granted the coveted position, it would be hard for the U.S. to defend its anti-dumping rulings against Chinese firms at the world body.

The protocol to China’s 2001 WTO entry has been a subject of controversy. Beijing insists that under Section 15 of the Protocol of Accession, the country’s upgrade as a market economy was automatic on the completion of 15 years of its WTO membership in 2016. Several nations have endorsed China’s position in return for bilateral cooperation in trade and investments in infrastructure projects. In support of that contention is a WTO appellate body’s 2011 ruling that the protocol to Beijing’s accession did not provide for the country to be treated differently by other member states for an indefinite period.

The alternative interpretation draws upon sub-clauses of Section 15, which stipulates conditions when importers may rely on Chinese prices, or take recourse to a different methodology to impose anti-dumping tariffs. Section 15(1)(i) places the onus on Chinese firms to prove that they were operating under conditions of a competitive market economy in the manufacture and sale of relevant products. If they fail to do so, the Section provides that importing states would be entitled to invoke rules applicable to a non-market economy while probing firms for dumping.

Now, a subsequent provision stipulates a 2016 date of expiry for recourse to the alternative methodology of determining prices. Another clause allows for the status of market economy to be decided for specific industry sectors, rather than the entire economy. Western resistance to accord China the necessary recognition is rooted in concerns over a glut of Chinese imports flooding domestic markets and causing job losses in the manufacturing sector. But the Trump administration’s attempts to undermine the WTO’s dispute resolution mechanism could further delay an outcome in the appellate body’s process of disposing of cases.

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