Caixin
Dec 09, 2016 07:46 PM
ECONOMY

China Fires Warning Shot as WTO Hope Threatened

Illustration by Xu Yuanyuan
Illustration by Xu Yuanyuan

(Beijing) — China on Friday vowed to take countermeasures if World Trade Organization (WTO) members continue to classify Chinese imports through a protocol that it says gives trading partners an edge in dumping disputes and can result in high tariffs imposed on Chinese goods.

The Chinese government had expected its status as a WTO "surrogate member" — technically barring it from the "market economy" status enjoyed by many trading partners — to end Dec. 11 on the 15th anniversary of China's accession to the global trade group.

But major WTO players, including the U.S., Japan and some EU countries — have frustrated these expectations, prompting the latest warning from Chinese Ministry of Commerce spokesman Shen Danyang.

Beijing "is strongly dissatisfied with and firmly opposes any intentions" by other WTO members to continue supporting China's surrogate status after the 15th anniversary, Shen said.

As a surrogate, China has had little control over how its exported goods are valued when dumping disputes arise. Trading partners that file WTO complaints against China can invoke Article 15 by valuing goods based on benchmark prices in select third-party countries such as Germany, Thailand and Malaysia, rather than according to Chinese prices, on grounds that China's industries are state-subsidized.

That's important because prices for goods in those third-party countries are generally higher than yuan-denominated prices in China. And that, in turn, makes it look like China is "dumping," or selling goods below market value, which can result in countries slapping high tariffs on Chinese goods.

"China will take necessary measures according to WTO rules to resolutely defend its lawful rights and interests against the small number of members who persist with the 'surrogate country' approach in their anti-dumping investigations into Chinese products," Shen said at a news briefing in Beijing.

On Thursday, Japan's Jiji Press news agency said that country will not recognize China as a market economy, and will continue subjecting imported Chinese goods to the WTO's so-called Article 15 mechanism when investigating alleged dumping.

The Japanese report came a few weeks after U.S. Secretary of Commerce Penny Pritzker said the time was "not ripe" for the U.S. government to change the way it calculates duties imposed in trade disputes. Neither is Washington apparently ready to approve China's bid for market-economy status.

The European Union has also indicated the 28-nation bloc will not automatically recognize China as a market economy on Sunday, although that position has not been ratified by legislators.

Shen said China wants WTO members to "live up to their commitment as early as possible to avoid affecting the normal development of bilateral trade relations."

When it joined the international trade body in 2001, China agreed to operate within the WTO system as a non-market economy for 15 years. China now wants to abandon that approach, arguing Article 15 gives trading partners unfair advantages.

To drive home the point, Chinese government officials in recent months lobbied trade partners directly as well as at WTO events in hopes of winning support for their bid to graduate from surrogate status.

At a July meeting in Geneva of the WTO's Council for Trade in Goods, China's representatives demanded all member countries fulfill their obligations under Article 15 by letting the surrogate limitations expire.

Australia and New Zealand have sided with China, but Europeans appear divided.

Britain, the Netherlands, Switzerland, Finland and Germany reportedly support market-economy status for China. But Italy, Spain and France have signaled opposition.

Germany's ambassador to China, Michael Clauss, told Caixin in a November interview that while views vary from one EU country to another, the German government is promoting compromise.

Clauss said his government wants to find "a balance that stops discriminatory treatment of Chinese goods while strengthening rules to prevent dumping from all exporters."

As of November, he said, the EU was pursuing 17 cases of alleged dumping that involve China. These covered a variety of goods, including steel, coal and chemical products.

"We agreed with the need to fulfill the obligations identified in the protocol on China's accession to the WTO," Claus said. "But we also pointed out that China still has issues with dumping overcapacity."

The Chinese government has argued that abandoning the surrogate system and granting market-economy status, which is implied for countries not covered by Article 15, are separate issues.

Legal experts agree China may or may not achieve market economy status even if WTO countries scuttle the use of Article 15 when dealing with Chinese imports. But they say abolishing the surrogate approach would level the playing field for China and its trading partners in the WTO framework.

China should use the WTO's settlement system when differences with trading partners arise, said Tao Jingzhou, the Asian managing partner for the U.S. law firm Dechert LLP, in a June commentary published by Caixin. The country should fight for its rights based on WTO rules and international law, he said.

And if China wants to strengthen its position in the global trade arena, according to Cheng Shuaihua, director of the Geneva-based International Centre for Trade and Sustainable Development, it should promote market-oriented reforms at home. In particular, he said, China should focus on cutting industrial overcapacity and prevent excessive price-cutting by exporters.

EU lawmakers are now considering a proposal that would change the way member countries assess Chinese imports linked to trade disputes. The proposal was introduced in November and was originally slated to take effect Dec. 11.

Under the plan, prices in the countries that file dumping cases against Chinese imports would generally be used as reference points. But if "significant distortions" affect those prices, according to the proposal, international benchmark prices may be used.

The proposal has yet to receive approvals from each of the EU's member states and the European Parliament. It's unclear when these bodies may take action.

China is entitled to this right as a WTO member, and other member-nations must deliver on their promises, Shen said earlier in December, adding the EU's decision not to scrap the way it treats Chinese imports "disappointing."

Contact reporter Han Wei (weihan@caixin.com)

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