WTO Report Revealed: Yes, EU Industries Can Treat China as a Non-Market Economy

By Matthew McMullan
Oct 15 2019 |
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China didn’t like the outcome of a trade dispute case it started, so it had the findings sealed.

Remember when the Chinese government was beating the drum hard to gain “market economy” status in the eyes of the World Trade Organization (WTO)?

It’s been a little while since this last came up. A lot of trade politics has happened since we last wrote about it. Namely; the Trump administration has hit China with a raft of tariffs on Chinese goods, and the Chinese government has responded in kind. Billions of dollars in tariffs tend to distract from questions like “is China a market economy?”

But it really is a fundamental question in the context of WTO decisions. Because China is considered a non-market economy (NME), WTO-approved anti-dumping tariffs on Chinese products suspected of being sold at an unfair price can be based on the price of the same product from a third country – where the product is manufactured at a market rate.  

China had argued that the terms of the WTO accession deal it made in 2001 granted it automatic market economy status after 15 years (the terms made it clear that other WTO members could treat China as a NME because it was clearly a NME). And as soon as those 15 years were up in December 2016, it took the European Union to the WTO’s dispute settlement – basically, to trade court – over “the method Brussels applied for calculating anti-dumping duties on states seen as non-market economies,” writes Politico. Back then we called this a “divide and conquer strategy.”

Well, Politico got its hands on a confidential WTO report on that case. It was was issued earlier this year, and only to the parties involved. China, Politico reports, “conceded that parts of the ruling would have been so detrimental that it suspended the case and asked for the report to not be published, keeping the panel's reasoning locked away.”

Dang. China wanted this reasoning “locked away.” Dang!

More from the story (which is behind a paywall):

Broadly, it argues that WTO members are free to make their own judgments, from December 2016 onwards, on whether Chinese goods are produced at market rates. Each WTO member will be entitled to “determine the normal value of Chinese imports … when the importing member finds, on the basis of its own positive and objective determination, that market economy conditions do not prevail in the industry under investigation,” it said.

It continues:

Most specifically, the (WTO dispute) panel found that while some conditions surrounding the treatment of Chinese imports did expire in 2016, the parts of the accession protocol that continue to apply establish that importing countries can use a methodology that isn't based on Chinese domestic prices and costs if it finds that the investigated industry isn't operating under market economy conditions, the report said.

And it also says:

So while Beijing can't be described as non-market economy by default, it can be treated as such if there's evidence.

It’s great that everybody involved in this argument is so good at lawyering – shoutout to lawyers! – and close readings of contracts, but if the Chinese government doesn’t want Chinese businesses to have to eat lots of anti-dumping tariffs on their exports, the government should get its hands out of Chinese industries. Or just stop dumping its exports!