Bursting the Bubble

EU Dumping Policy 2: China’s Market Economy Status

30 November 2016 | by

A lot of attention currently goes out to the provisions of China’s WTO Accession Protocol dealing with, as it seems, an automatic expiry of its non-market economy status in December 2016. China claims that the provision which allows for an alternative method for calculating dumping margins will no longer apply fifteen year after its date of accession. But the European Union challenges this perception. This comes as no surprise. The Union would lose an important tool – the analogue market method – for raising the barrier of entry to the European market.

WTO Dumping Legislation

WTO law provides the framework for EU anti-dumping legislation and sets the standard for what is acceptable in dumping proceedings. Dumping is basically the practice of exporting a product at such a low price that it causes or threatens to cause injury to the local industry producing the like product. The difference between the export and the normal value of a product is called the dumping margin and it is the relevant factor for the calculation of the anti-dumping rate.

The precursor of the WTO, called the GATT, recognises that certain difficulties may exist when determining prices for the purpose of calculating dumping margins in cases where market conditions do not prevail:

This opens up the possibility to set dumping margins differently for countries classified as non-market economies. In these cases, as I have written in a previous article, dumping margins may be determined according to the analogue country method, which compares prices to a third country market.

Section 15

China paid a high price for its accession to the WTO. It made deeper concessions than most other developing country and allowed importing countries to treat China as a non-market economy in anti-dumping proceedings. This means that an alternative methodology for calculating the dumping margin may be used. Unsurprisingly, the use of the analogue country method by the EU has generally resulted in higher anti-dumping margins than what can be considered fair. It thus functions as a barrier to entry for Chinese goods, giving the Union industry a marked competitive advantage.

The EU’s presumption that China could indefinitely be treated as is a non-market economy is based on the wording of the first and the third sentence of paragraph 15(d) in Section 15 of China’s Accession Protocol:

China, however, argues that the second sentence of Section 15(d) should be interpreted as establishing a deadline to the status of non-market economy. Thereafter, non-market economy status can only be imposed if the importing country can prove that certain elements of the GATT are applicable.

The GATT recognises that difficulties for price comparability may exist in dumping cases where “a country has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the State.” But China does not completely fulfil this characterisation. It is a transitioning economy. Consequently, China cannot be said to be a full non-market economy. This implies that the possibility to use the alternative country method would expire together with China’s non-market economy status fifteen years after its accession, as laid down in the Protocol.

The EU takes issue with this interpretation and argues that the standard to be met in the evaluation of China’s market economy status is set out in the national law of the importing country. Whether China is a market economy or not is thus considered a question for the domestic laws of the importer. China does not meet the criteria that the EU uses for classifying a country as a market economy. This consequently leads to the conclusion that there is no automatic shift from non-market to market economy status. The possibility of adopting an alternative anti-dumping methodology not based on a strict comparison with Chinese prices or costs would thus still exist.

The dispute over the expiry of China’s non-market economy status will in all likelihood be fought out before the WTO. It is in the interest of the Union to miss the December deadline, not only because high dumping margins would still apply until the final verdict, but also because it gives breathing space to the EU which, sensing defeat, is already preparing to adapt its trade defence legislation.

 

The above is article two of three on EU Dumping Policy. Please find the first article here

What do you think?