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Manufacture This

The blog of the Alliance for American Manufacturing

But it's not a market economy!

Sunday was the 15th anniversary of China’s entry into the World Trade Organization (WTO).

It has been a fruitful 15 years for China since then, at least in the terms of its bilateral trade relationship with the United States. Its cumulative surplus since then has been $3.5 trillion. And its national economy continues to grow at a staggering pace.   

But the Chinese government is not happy, as evidenced by 1) a number of state-media editorials and 2) the WTO complaint it announced on Monday. Beijing wants its trading partners – specifically, the United States and the European Union (EU) – to begin treating it as a market economy. That means China wants them to use China's numbers when they launch investigations into whether Chinese industries are selling good in their countries at artificially low prices.  

Here’s how Reuters describes it:

When China joined the WTO in 2001, its accession terms allowed other WTO members to treat it as a non-market economy and use a third country's prices to assess whether Chinese goods were being sold below cost.

But part of that clause expired on Dec. 11, which China says means WTO trading partners must drop their use of such surrogate pricing.

In sum: The United States and the EU haven’t stopped treating China as a non-market economy, which makes it easier for them to prosecute trade cases against opaque Chinese industries. China argues it should be automatically granted market economy status (MES) because of its own interpretation of its WTO accession terms.

But is it a market economy? Said Alliance for American Manufacturing President Scott Paul:

Pure and simple: China’s not a market economy. Not by the smell test, and certainly not through a rudimentary understanding of U.S. trade law.

The Department of Commerce has six criteria that must be considered before granting MES. Here they are, listed out as questions:

  1. Is China’s currency convertible into the currency of other countries?
     
  2. Are wages of Chinese workers determined by free bargaining between labor and management?
     
  3. Are foreign companies or joint ventures free to make investments in the Chinese market?
     
  4. Is China’s economy free of government ownership and/or control over the means of production?
     
  5. Is China’s economy free of government control over the allocation of resources and price and output decisions of companies?
     
  6. Does China operate on the global trade stage in a transparent manner?

There’s a simple answer that applies to each of these questions: No.