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European Parliament: China’s Market Economy Status Debate

Since the fall of the Soviet Bloc and the opening of transition economies to international trade, a distinction between non-market economies (NMEs) and market economies has been established in international trade law, in particular in the framework of anti-dumping (AD) investigations. In a NME, domestic prices are considered unreliable in determining the normal value of the good in the country, as prices are distorted by government intervention. Therefore international trade law allows for the use of alternative methodologies for the calculation of normal values in AD investigations against firms located in NMEs. The status of China as a non-market economy in transition is enshrined in section 15 of its accession protocol to the WTO. Unless Chinese firms can prove that they operate under market economy conditions, alternative methodologies can be used to assess the Chinese normal value.

The legal interpretation of section 15 of the Chinese WTO Accession Protocol is controversial; a debate sparked on whether that provision constitute a legal obligation to grant Market Economy Status (MES) to China after December 2016 and therefore would require abandoning the use of NME methodology for antidumping investigations against Chinese firms. The EU Commission started a consultation in order to decide whether it should grant MES to China and amend its current antidumping regulation.

In February 2016, the European Commission put forward three options regarding the 2016 amendment of section 15 of the Chinese Protocol.

  • The first option considers leaving EU legislation unchanged.
  • The second option would introduce MES without mitigating measures and would rely on tools existing within the current regulatory framework.
  • The third option would introduce MES with mitigating measures such as “grandfathering” current antidumping measures and strengthen use of safeguards

A last option could use a system similar to the one in Canada, where MES is given by default but the domestic industry can submit proof that the Chinese sector is not operating under market economy condition and in which case alternative approach to calculate the dumping duty are used.

The European Parliament adopted a resolution in May 2016 stating that ‘until China meets all five EU criteria required to qualify as a market economy, the EU should use a non-standard methodology in anti-dumping and anti-subsidy investigations into Chinese imports in determining price comparability, in accordance with and giving full effect to those parts of Section 15 of China’s Accession Protocol which provide room for the application of a non-standard methodology’, and calling on the Commission to make a proposal in line with this principle. All the above-mentioned options (with the exception of option 1) would require an amendment of the Antidumping Regulation and therefore require participation of the Parliament as co-legislator.

On this page you can find the link to some recent and relevant EPRS publications with respect to the debate on the Market Economy Status of China. The in-depth analysis on the calculation of dumping margin reviews the issue of the legal interpretation of section 15 of the Chinese WTO accession protocol and then details the current EU law to calculate normal values and dumping margins in investigations against market economies and non-market economies looking also at some of the implications for the options considered to address the MES debate. It also looks at the differences in the European Union and United States approaches towards non-market economies, and uses empirical analysis to see how different methodologies are used in investigations against China.

The briefing on major EU antidumping cases against Chinese goods reviews some of the key AD cases that have led to procedural and substantive challenges of the EU Antidumping Regulation before EU Courts and at the World Trade Organization (WTO) respectively.

The briefing on SOEs shows the important reforms undergone by China which are a key element of China’s development toward a market-oriented economy. The current reform design still suggests that SOEs are likely to retain many of their privileges, hindering private domestic and foreign firms to compete with SOEs on a more equal footing in and outside of China in the future.

The last in-depth analysis on Market Economy Status for China looks at the debate on the interpretation of section 15 of the Chinese WTO Accession Protocol and at the current policy of selected WTO members with respect to China’s MES.

Source: EPTT

 

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