December 11th marked the anniversary of China’s 15 years as a member of the World Trade Organisation (WTO). It was expected, by China, that they would finally attain “market-economy status” and an end to being labelled a “non-market economy”. The European Union and America have refused to acknowledge such a transition, leading to China pursuing legal action.
The row focuses on the wording in the original accession agreement and concerns the method WTO members use to protect their industries against cheap Chinese imports. The agreement welcoming China into the WTO gave other members licence to treat it as a non-market economy until December 11th 2016, meaning they could ignore domestic prices when assessing the appropriate value of Chinese imports.
China has expected to be treated like any other market economy by other WTO members from this date onwards; whereas America’s position is that after December 11th, China is no longer automatically a non-market economy. But WTO members can use their discretion as to whether it is a market economy, and since, according to America’s own criteria, China is not, it can keep using third-country prices in anti-dumping cases.
The European Commission has presented a proposal for a new method for calculating dumping on imports from countries where there are significant market distortions, or where the state has a pervasive influence on the economy. The purpose is to make sure that Europe has trade defence instruments that are able to deal with current realities – notably overcapacities – in the international trading environment, while fully respecting the EU’s international obligations in the legal framework of the World Trade Organisation (WTO).
The EU is responsible for ensuring that its trade defence instruments (TDIs) remain effective in dealing with
significant market distortions in certain countries that can lead to industrial overcapacity, and that encourage exporters to dump their products on the EU market. This causes damage to European industries, which ultimately can result in job losses and factory closures, as has been the case recently in the EU steel sector.
The proposal should be seen in the context of the October European Council’s call for an urgent and balanced agreement on the Council position on the comprehensive modernisation of all trade defence instruments by the end of 2016. Reforming the anti-dumping methodology would be an important part of the reforms needed, on top of the modernisation of all TDIs which the Commission proposed back in 2013.
This new anti-dumping methodology would apply to cases initiated once the amended rules are in force. The proposal also includes a transition period during which all anti-dumping measures currently in place as well as ongoing investigations would remain subject to the existing legislation.
Even if China wins the initial set of cases, WTO law does not force other countries always to use exact Chinese prices in their anti-dumping measures. The full scope of what they can do is still legally uncertain.
As the WTO have not provided a clear definition of a “market economy”, there is a difficulty in fitting China’s particular type of capitalism into a binary view of a market, or non-market economy. A long drawn out legal battle is now expected, not made any easier by President Trump’s protectionist “American First” views on trade.