US follows the EU in impeding China market economy status in WTO

A ship with containers at the port of Rotterdam. (Copyright: European Union. Source: EC – Audiovisual Service. Photo: Robert Meerding)

Trade relations between China and the West may be on the brink of a substantial turn. Last Thursday, the United States have formalized to the World Trade Organization (WTO) its opposition to China’s request to be recognized as a “market economy”. The move, which is strong enough to represent a gamechanger alone, comes amid a wider dispute between China and the European Union over anti-dumping regulation and Beijing’s status inside the WTO. And, since the two matters are at least partially related, it looks like last week’s happenings have the potential to reshape the trading system – if not the entire economic scheme – between China and the West.

Background

During its plenary sessions circa two weeks ago, on November 15, the European Parliament passed new anti-dumping regulations. The move came as a consequence of an earlier agreement between the European Parliament and the Council to change the EU’s anti-dumping and anti-subsidy legislation, following a proposal from the European Commission since November 2016. The main change to the anti-dumping legislation was the introduction of a new way to calculate dumping in anti-dumping investigations on imports from members of the World Trade Organization (WTO) in case prices and costs are distorted because of state intervention. And, although the European Commission specified on an official statement on October 4 that the “changes do not target any particular country”, it resulted immediately clear that the main impact would have been on China.

Anti-dumping duties

As specified by the EU, under WTO rules, the EU can impose anti-dumping duties on products from countries outside the EU if an investigation demonstrates that these products enter the EU at dumped prices (in a few words, prices that are below a “normal value”) and that have a negative economic impact on EU industry. Dumping is calculated by comparing the export price of the product in the EU with the domestic price in the country where it is produced.

Based on these assumptions and calculations, the EU – during the last four-five months alone – proceeded against a few countries and imposed duties on imports. Last October, the EU indeed announced it imposed anti-dumping duties on imports of hot rolled flat steel products from four countries including Brazil, Iran, Russia and Ukraine. The duties were ranging between 17.6 EUR and 96.5 EUR per tonne after an investigation conducted by the Commission. Most notably, last August, the EU announced it decided to impose provisional anti-dumping duties on Chinese corrosion resistant steel, following an eight-month investigation by the Commission, and so that China was going be taxed with anti-dumping duties of up to 28.5%.

US investigation

And last week the EU found itself in good company. Last Tuesday, the Trump administration announced Washington was initiating an anti-dumping investigation against China over aluminium sheeting imports. US Commerce Secretary Wilbur Ross used the powers of his cabinet to launch what has become the first “self-initiated” anti-dumping duty case since 1985, when the Reagan administration launched an investigation against Japanese semiconductor. The investigation comes indeed without any formal request from industry.

“President [Donald] Trump made it clear from day one that unfair trade practices will not be tolerated under this administration. He made a promise to American businesses, workers, and farmers that he would vigorously enforce our trade laws”, the Financial Times quoted Wilbur Ross, the US commerce secretary, as saying. “Today’s action shows that we intend to make good on that promise to the American people”, Mr. Ross added.

Turn of the screw

That wasn’t all from Washington. Last Thursday the United States formally told the World Trade Organization that it opposes granting China market economy status, raising trade tensions with China even more. With an official 40-page statement seen by the Financial Times the US rejected Beijing’s argument that, under the 2001 conditions of China’s accession to the WTO, it would automatically be considered a market economy 15 years after joining. US officials say their interpretation is shared by the EU and other countries such as Canada, Japan and Mexico, as reported by the Financial Times last week.

The move by the United States comes in support of the European Union in its dispute with China over the trade status of the latter inside the WTO. China is indeed fighting the EU for recognition as a market economy, a designation that would lead to dramatically lower anti-dumping duties, and clashes with Brussels’ 2016 actions against Beijing over corrosion resistant steel. The US and EU currently argue that the state’s pervasive role in the Chinese economy, including rampant granting of subsidies, mean that domestic prices are deeply distorted and not market-determined.

Beijing’s reaction

China’s reaction didn’t come late. Immediately last Wednesday evening, when the news hadn’t even been reported by main western media outlet, Chinese Ministry of Commerce (MOC) said China is “strongly dissatisfied” with the U.S. Department of Commerce’s investigation into Chinese exports of common alloy aluminum sheets. “China is strongly dissatisfied and resolutely opposes the rejection, as the US government tried to mix the concepts of the surrogate country approach and market economy status to mislead the public”, the MOC said in a statement.

Also, Chinese Foreign Ministry spokesman Geng Shuang told a regular news briefing on Friday that some countries were trying to “skirt their responsibility” under WTO rules, Reuters reported. “We again urge relevant countries to strictly honor their commitment to international principles and laws, and fulfill their agreed upon international pacts,” Geng said.

Pressure tests

Most Chinese media outlets are now saying Chinese analysts expect relations between the world’s two biggest economies would be put to the test as the US took action. However, a trade war between the two superpowers, as well as with the West as a whole, remains unlikely. Trade tensions between Washington and Beijing are by all means increasing, but, just a few weeks ago, US President Donald Trump and his Chinese counterpart Xi Jinping shook hands and baptized the signing of $250 billion worth of deals in Beijing.

The EU case though, despite proceeding very slowly, seems to be even more complex than the US-China one. According to official Anti-dumping, anti-subsidy, safeguard statistics, published by the European Commission and covering 2016, by October last year, already more than 50 different Chinese products were covered by anti-dumping duties.

Although it appears unlikely that the EU will relieve the pressure and give Beijing the ok-go to sit at the WTO’s table soon, it is highly needed to maintain a balanced approach that is of benefit to the EU as China is one of its most important trading partners.

The Sting will be following the matter closely and reporting to its readers.