Sunday, November 27, 2011

Market-economy status for China is not automatic

by Bernard O’Connor


November 27, 2011

Is China a market economy? This legal question matters as antidumping and anti-subsidies laws apply differently to market economies. This column deconstructs the myth that China will automatically get market-economy status at the WTO in 2016 and argues that if China wants the EU to recognise it as a market economy it should comply with the explicit criteria in EU law.

In EU trade-defence law (antidumping and anti-subsidies), there is provision for different treatment between those exporting countries which are considered to have the status of being a market economy and those which are not. If a country does not have market-economy status it is easier to construct the normal value of the exported goods. The constructed normal value will normally be based on costs and prices from outside the exporting country and thus are likely to be higher. This means that when the comparison is made between the normal value and the export price the level of dumping is likely to be higher.

China therefore has a strong interest in arguing that it is a market economy. However China goes further. It argues that it is automatically entitled to market-economy status on the basis of the protocol it signed to become a member of the WTO.

There is nothing in the WTO rules, or elsewhere, to provide that China automatically gets market-economy status in 2016. The idea that it will is a misunderstanding shared by many in China, the EU and the US.


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