The Office of the U.S. Trade Represen-tative (USTR) in mid-November forwarded a statement of opposition to giving China market economy status (MES) to the WTO, in support of a similar statement from the EU. The Chinese Ministry of Commerce has voiced its strong dissatisfaction with the U.S. decision, which was made public on November 30.

China's request to the WTO for a ruling a year ago is not its MES but the implementation of Section 15 of China's accession protocol. China asked for the termination of the surrogate country approach on December 11, 2016, 15 years after China's accession to the WTO. The surrogate country approach is a technical clause dealing with anti-dumping issues. According to Section 15 of China's accession protocol signed on December 11, 2001, in cases of anti-dumping, if the Chinese manufacturer of the product under anti-dumping investigation can prove that market conditions prevail in the whole process of production, including materials acquisition, design, manufacturing, logistics and sales, then the relevant data it forwards for the case can be used as the base for investigation. If not, the data of a surrogate country can be used. In any event, after 15 years, from December 11, 2016 onward, the surrogate country approach must end.

Section 15 clearly shows that this article refers to the market conditions only at the company and product level, or microeconomic level, and has nothing to do with the macroeconomy of China and whether it is a market or non-market economy. In other words, the termination of the surrogate country approach does not mean and does not need automatic recognition of China's MES by other WTO members.

In Chinese anti-dumping cases against U.S. products, the data forwarded by U.S. manufacturers are used as the base, with no surrogate country data used. However, China has not recognized the U.S. as a market economy either.

Who is to judge? 

No WTO or General Agreement on Tariffs and Trade (GATT) clause stipulates the recognition of MES. WTO rules are based on market economy conditions. It is impossible to imagine that a planned economy could join the WTO. The status of a member's WTO rules-compliance is decided by WTO General Council. In the past 15 years, China has passed all the WTO reviews with positive observations. The U.S., as a member of the WTO, has no authority to judge whether another WTO member (China, for instance) is a market economy. On the other hand, no other WTO members are trying to grant or refuse the U.S. MES. The WTO and GATT rules system does not contain any standards for MES. It governs trade behavior, trade disputes and anti-dumping practices among WTO members.

China follows a socialist market economy path and is energetically driving deeper all-round reform to allow the market to play a decisive role in the allocation of resources.

Lack of evidence 

The USTR statement listed six factors supporting its contention that China is not a market economy. However, these are only standards set by U.S. domestic law, not by the WTO, and thus they do not apply to China.

Interestingly, all six factors are supported by nothing more than abstract concepts and subjective reasoning, describing China's economic system rather than providing convincing facts and figures. While claiming that the Chinese Government exerts strong control over resources, the statement conveniently ignores the fact that the French and Singaporean governments also exert strong control over their resources. The USTR also criticizes government subsidies in China. They have, however, ignored the fact that there are numerous subsidies and incentives in the U.S., especially in land acquisition, property prices, power supply and seed money for startups and companies in less developed areas. You can find plenty of subsidies on the official websites of the U.S. Energy Department and almost all state governments.

The WTO dispute settlement mechanism listed all the 530 cases forwarded by its members by November 20. Of this total, the U.S. is by far the largest respondent, accounting for 130, far ahead of China (39 cases). Many of the complaints against the U.S. relate to unfair subsidies. The U.S. would be well advised to look at its own trade subsidies and market conditions before casting aspersions on China.

Nobody benefits 

Since the termination of China's surrogate country status has nothing to do with its MES, as elaborated above, the only explanation for the irrelevant USTR statement is that it is intended to serve as a means of restricting imports from China. In continuing to use the surrogate country approach, the U.S. could easily take another country with much higher actual costs in determining if a Chinese company is dumping its products in the U.S. As long as the U.S. wants to hinder a rapid increase in imports from China, it can easily use anti-dumping and countervailing measures based on non-actual cost calculations.

Statistics show that since the start of this year, the number of trade restriction measures taken by the Trump administration has almost doubled compared with those implemented in the same period of 2016. The USTR statement is just a part of the "America First" policy used to protect U.S. businesses at the expense of the nation's trading partners.

China rejects the statement and will stick to its legal case at the WTO, demanding the unconditional termination of the surrogate country approach from December 11, 2016. If the U.S. imposes any restrictions on Chinese exports that are not WTO compliant, China will naturally retaliate against imports from the U.S., ending in a lose-lose outcome that benefits nobody.

The author is a senior research fellow with the Center for China and Globalization 

Copyedited by Chris Surtees 

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