Not just steel: What is the debate over China’s WTO status?

World Today

WTOThe World Trade Organization (WTO) logo is seen at the entrance of the WTO headquarters in Geneva.

On Monday, China lodged a complaint against the World Trade Organization over the United States and European Union using unfair and incorrect standards in calculating anti-dumping measures against Chinese exports.

China maintains that the punitive measures the EU and United States continue to seek are based upon economic measurements that are both outdated and incorrect.

The history

In 2001, China was invited to join the WTO as a special member. Because China has a centralized economy, they were given a provisional non market entity status (MES).

As a non-MES entity, other nations could assess whether or not China was selling its goods below market value – otherwise known as DUMPING – using use numbers from a surrogate country to gauge if their global prices were fair. Most recently, The U.S. has used Canada to measure Chinese export prices.

Since joining the WTO, China grown to become the world’s second-largest economy and largest trading country. Exports have risen from $266 billion in 2001 to $2.3 trillion in 2015. In that same time, foreign investment has also risen from $46.9 billion to $126.3 billion.

Yukon Huang, senior fellow in the Carnegie Endowment for International Peace, recently told CCTV China has made tremendous efforts to open up its market in past 15 years, and has fulfilled its commitment to the WTO.
“For sure China has become more of a market economy in the last 15 years. It’s liberalized its exchange rate regime. Private, non-state companies are now much more important in terms of the shares of economy than it was 15 years ago. So certainly China has become much more of a market-driven economy than it was 15 years ago,” said Huang.

The recent debate

On December 11, after 15 years, China’s provisional non-MES expired and valuation of their goods and behavior on the world market were to be based on their status as a free economy.

However, in the last month, the EU and United States have both made complaints through the WTO accusing China of dumping steel  onto the world market – both using the old non MES-model.

The port of Ningbo in China.

The port of Ningbo in China.

On Friday, only days before the December 11 expiration, the European Commission stated it would investigate complaints brought by EU steel makers’ association Eurofer regarding certain corrosion resistant steel.

In addition, the Commission said it would start another anti-dumping investigation into cast iron products from China and India.

These investigations would determine whether duties that already exist on Chinese steel should continue for another five years – or even increase – based on calculations during China’s previous non-MES status.

In November, U.S. Commerce Secretary Penny Pritzker said the time was “not ripe” for the United States to change the way it evaluates whether China has achieved market economy status. She also maintained there is no international requirement that the U.S. change the ways anti-dumping duties are calculated.

However, China maintains that, as of December 11, any investigations of dumping must consider China as having MES and use the China’s domestic price as they valuate exports.

The main question for all parties is how can both market and centrally planned economies compete fairly in the world market?

WATCH: The difference between market and centrally planned economies

CCTV America’s Ahmad Coo explains that, in reality, most economies are a mixed market system.

The difference between market and centrally planned economies

CCTV America’s Ahmad Coo explains the differences and unexpected similarities between a market and centrally planned economy. In reality, most economies are a mixed market system.

What now?

China is pushing for WTO members to respect the automatic expiration of that 15-year provision that allows trade partners treat the nation as a non-market economy.

On Friday, Chinese Commerce Ministry spokesman Shen Danyang said Beijing will take all “necessary measures” against WTO members that don’t deem China as a market economy.

Huang from Carnegie also noted the current standard by WTO on nations subsidizing companies is debatable.

“China subsidizes its companies directly. The west subsidizes consumers and firms through tax rebates. So they are also subsidizing, but they are subsidizing in a different way,” he said.

The concern in Beijing at present is that acknowledging China’s MES in the WTO will become subjective from nation to nation.

There is fear certain nations will ignore China’s new market status within the WTO as a means to score political points within their own borders. As a means to deflect responsibility from their own weak performing economies – while ignoring the benefits inexpensive Chinese goods and labor may have had on the global economy as a whole.

During the global financial crisis that started in 2008, China’s continued growth was considered by some to be a stabilizing factor and a catalyst for the world economic recovery.

For Beijing, being assessed by the old model, before 15 years of market reform and fitting itself to work with the global economy, is simply unfair.

“For a few members who still use the surrogate country approach in the anti-dumping investigations against China, China will take necessary measures to safeguard its own legitimate rights and interests according to the WTO rules,” Chinese Commerce Ministry spokesman Shen Danyang said on Monday.

So far, 150 world economies have respected China market economy status – 100 of which are WTO members.