China challenges EU and US over market economy status
China challenges EU and US over market economy status
Beijing launches action at WTO as war escalates over flood of cheap Chinese steel
China has launched a legal challenge against the EU and US over their reluctance to treat it as a “market economy” under World Trade Organisation rules.
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Beijing is unhappy with a provision that allows trading partners to use a special formula and prices in third countries to calculate punitive tariffs for non-market economies in anti-dumping cases. It is pushing for the provision to expire with Sunday’s 15th anniversary of its WTO membership.
But the EU, US, Japan and other WTO members have resisted the move, prompting China on Monday to take the first step in launching a case with the global trade regulator.
In a statement, China’s commerce ministry said it had requested consultations with both the EU and US and would seek to have a WTO panel rule.
“China has communicated through many channels for the third-country comparison to expire. What’s very regrettable is that EU and US have not acted to allow it to expire. It has had a severe impact on Chinese exports,” it said. “China is protecting its lawful rights and acting appropriately to maintain the WTO rules.”
The EU and US have resisted China’s bid for market economy status amid a flood of cheap Chinese steel on to world markets, which has sparked a wave of politically sensitive anti-dumping cases. In the EU, fears of an onslaught of cheap Chinese goods prompted the European Commission to recommend a fundamental shift in how it conducts anti-dumping cases. Under EU rules, Brussels imposed a 21 per cent tariff on the same steel products that were hit with a 266 per cent US tariff in 2015.
China is responsible for almost half of America’s trade deficit [and] they haven’t played by the rules
But the EU had hoped it could defuse the fight with Beijing by making other changes to its legislation.
“We regret that China is launching this dispute now despite the fact that the commission has already made a proposal to amend the legislation in question,” a spokesman for the commission said.
In a sign of the commercial stakes, the US on Friday imposed punitive anti-dumping tariffs on Chinese-made washing machines, imports of which into the US were worth more than $1.1bn last year. It also announced the launch of an anti-dumping investigation into plywood imports from China, which were also worth more than $1bn last year.
Those US cases and the fight over Beijing’s market economy status point to the trade battles already being fought with China even as Donald Trump, the incoming president, promises to get tough with Beijing over trade and other issues.
“One of the most important relations we must improve . . . is our relationship with China,” Mr Trump said last week. “China is responsible for almost half of America's trade deficit [and] they haven't played by the rules.”
The US and others argue that China has failed to live up to many of its WTO obligations since joining in 2001 and remains far from a market economy.
“They have acted like a non-market economy in so many respects with their state-owned companies, with subsidies, with dumping . . . there are more dumping cases brought against China than against all the other countries combined,” said Sandy Levin, the top Democrat on the House ways and means committee.
Chad Bown, a former White House economist now at the Peterson Institute for International Economics, said countries such as Brazil and India had also become much more aggressive in bringing anti-dumping cases against China.
“This is an issue for China and everybody in the world, not just the US and Europe,” Mr Bown said.
China could take even more action outside the WTO, which can take years to rule in cases, he said. It could also respond with a wave of retaliatory anti-dumping tariffs of its own that would hurt exporters in other countries.
A US official said it would continue to fight any attempt to grant China market economy status at the WTO, pointing to “serious imbalances in China’s state-directed economy”.
“China has not made the reforms necessary to operate on market principles,” the official said. “The United States is prepared to defend its right at the WTO to protect American workers and firms from the damaging effects of persistent distortions in the Chinese economy.”
The debate, however, also comes amid bigger systemic concerns surrounding the WTO and trade.
Mr Trump won his election on a protectionist platform and he is unlikely to usher in any change in approach on China’s market economy bid. But both his vow to pull the US out of big Pacific Rim trade negotiations and the scepticism he has expressed about the WTO mean many already see China filling a more important leadership role in global trade talks.
Some question how constructive that Chinese role is likely to be. Beijing’s focus on the market economy debate and other pet issues has also alienated other WTO members, who blamed China for this month’s failure to reach an agreement on the trade in environmental goods. “If that’s Chinese leadership then we are not going to be doing much in the next five years,” said one senior trade official in Geneva.
The Chinese side, for its part, is frustrated with developed countries’ apparent double-standards on the market economy access and other issues important for Chinese exporters.
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