By Thea Harpley Green
Since 2016 the issue of whether the Chinese economy should be classified as a market by the World Trade Organisation (WTO) has been in the forefront of international dealings, particularly between China, the United States (US) and the European Union (EU). So why is the Chinese government requesting alterations to be made in the WTO’s legislation regarding China’s international economic status? And why are the EU and the US so opposed to these requested changes?
When China first joined the WTO on December 11, 2011 it accepted its’ Protocol of Accession, at the time classifying the country as being a ‘non-market economy’, unlike its largest trading partners including the EU and US. However, according to Chinese authorities, the country believes it is due to receive Market Economy Status (MES) on December 11, 2016. China believes it ought to receive automatic MES on this date due to the expiration of a particular clause within its Protocol Accession. China’s argument rests on a specific sentence in Section 15 of the Protocol which states that “in any event”(1) the second provision above “shall expire 15 years after the date of accession”(1), therefore on the December 11 2016.
If China was successful in its claim to be awarded MES in the near future the country would be invited to enjoy the same market status as the US and EU when it comes to anti-dumping investigations before the WTO, an area of great controversy in international trade.
The issue of China’s desired MES status is an area of current debate due to “countless allegations- in the form of trade cases and other trade complaints and disputes- levied by the US and the EU against China since its accession to the WTO in 2001, essentially maintaining that China does not yet operate as a market economy.”
The US and the EU both argue that because China’s economy and the role of its government within its economy operate differently to the majority of traders on the world stage. Therefore, China is effectively able to produce a surplus, and export the products at a much cheaper price than its trading partners. This issue has spurred up countless allegations of dumping over the past several decades against China. For example, China was subject to 55% of total world anti-dumping investigations in 2014.
It is clear to many that the Chinese economy operates differently to many Western economies aiding the US and EU’s argument that China should not be granted MES under the WTO. For example, The World Bank “…has noted that the Chinese government continues to exercise control over prices for transport, energy, utilities and credit.” (1) Furthermore, nearly 3,000 domestic-listed Chinese companies “reported government aid rose to more than 119 billion Yuan, or more than $18 billion in 2015, compared with about 92 billion in 2014”(1) according to a recent Wall Street Journal analysis.
The essence of the debate lies in the fact that non-market economies, such as China’s economy, pose a real problem when it comes to “appropriately determining the margins used to compensate for products unfairly dumped into another market.”(1) In a non-market economy both an exporting country’s costs of production and local prices are too skewed due to government market interference, and therefore calculating margins using these figures would lead to inaccurately calculated results. Although since the early 1980’s the non-market economy status has been applied to China when calculating anti-dumping margins by the US Department of Commerce, a change to China’s non-market status under the WTO could see the US having to apply a different methodology when dealing with Chinese dumping cases.
Therefore, the question the world is waiting to hear an answer to is: how can we protect local economies against Chinese dumping of exports whilst bringing China and its developing economy into a ‘proper’ place within the WTO and the global trade ecosystem?
(1) Mental Miner, China vs. the World: Why the Battle for New Trade Status is Such a Huge Deal. December 30 2016. https://agmetalminer.com/2016/12/30/china-market-economy-status-debate-explained/
Thea Harpley Green studies Economics and Business Law at the University of Western Australia. She enjoys law and international relations, and dressing her schnauzers up in Christmas costumes.