China, Exclusive Interviews, Trade defence

INTERVIEW: Ruessman – China does not qualify as a market economy

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Laurent Ruessman, Partner, Fieldfisher

Will the EU’s antidumping authorities be obliged to treat China as a market economy in late 2016? Laurent Ruessman thinks this is not the case.

 

 

 

 

The China ‘market economy status’ or ‘China MES’ debate is raging in Europe, and it is deeply polarising. We’re interviewing a few experts to ask them what is at stake.

 

2016 is the year in which the EU and other major economies will need to start pairing back the ‘non-market economy’ treatment they offer Chinese firms in their antidumping laws and procedures. This status allows them to use other methods than those enshrined in the World Trade Organization’s Antidumping Agreement.  China’s 2001 WTO accession protocol stipulates that China will need to be treated as a normal WTO member starting in 2016 – though to what extent exactly is debated.

 

China’s ‘non market economy’ status contributes to making Chinese firms the top target of the EU’s antidumping measures. And the EU’s crisis-ridden steel sector is the biggest beneficiary of the policy. A new EU state aid case involving the steel company Ilva’s plant in Taranto, Italy, launched today (20 January), and a fresh WTO appellate body report upholding a report on how the EU Commission implemented a 2012 ruling indicting the way in which it handled a Chinese antidumping case is likely to further ignite the debate.

 

We have asked a few experts to share their views on this matter. We have already asked China expert Guy de Jonquières. Now is the turn of a Brussels-based lawyer, Laurent Ruessman, to share his views.

 

Q: Is China a market economy? Does this issue have anything to do with the EU’s WTO commitments?

 

No, China is not a market economy.  This issue is relevant to the EU’s WTO commitments to the extent that  if China met the EU’s market economy criteria, the EU would be obliged to grant China MES pursuant to Section 15 of China’s WTO Accession Protocol. Until China meets those criteria, the EU is not obliged to do so under China’s WTO Accession Protocol.

 

Also relevant in this debate are China’s WTO Accession Protocol obligations, because if China had already met those obligations, it would today be a market economy.  For example, Section 9 of China’s WTO Accession Protocol generally obliges China to allow all prices “to be determined by market forces” (there is an annex with an exhaustive and not very long list of exceptions to this obligation), but various investigating authorities (including the US and EU) regularly find Chinese price distortions in the course of trade defence investigations.

 

Some interpret the unclear text of Section 15 of China’s Accession Protocol, involving a subparagraph in December 2016, to say that all WTO Members – including the EU – must treat China from December 2016 on as if it were a market economy regardless of reality. They ignore a clear distinction in the text of Paragraph 15(d) between the situation when China is able to demonstrate it has become a market economy and the situation where it has not yet been able to do so.  Unfortunately, because China has not yet met a series of clear market-oriented obligations to which it committed itself to immediate implementation 15 years ago, that distinction in Paragraph 15(d) is still very relevant.

 

Q: The United States and other WTO members also need to decide whether China is market economy. Is there a need for Brussels to take a coordinated view with Washington? Is the US government’s view on China MES the right one?

 

There is a need for a coordinated view with Washington for the simple reason that the US is the EU’s major trading partner and a unilateral grant of MES to China by the EU would both result in substantial trade diversion (dumped exports from China directed toward a relatively defenceless EU), and raise issues with regard to the ongoing TTIP negotiations about US market access for EU products made from Chinese inputs.

 

As to whether the US government’s view on China MES is the “right one”, there are obviously opposing views but it should be remembered that Section 15 was negotiated – only – between the US and China.  Accordingly, besides the fact that the US is the EU’s largest trading partner, the US government’s view of how to interpret Section 15 is certainly relevant.  In the end, the “right” view of China MES and the interpretation of Section 15 will most likely be decided by the WTO Appellate Body in a few years’ time.

 

Q: What happens if the EU and the West more broadly do not grant China market economy status treatment in 2016?

 

The short answer is nothing :  countries would continue to apply their current non-market economy methodologies in their anti-dumping investigations of imports from China, until the point where China can demonstrate that it meets market economy criteria.

 

In terms of the reaction one might expect from China, and on the understanding that China interprets Section 15 of its Accession Protocol as obliging other WTO Members to grant it MES in December 2016, China could seek consultations under the WTO Agreements and eventually request WTO dispute settlement regarding the failure of other WTO Members to adopt China’s interpretation of Section 15.  To the extent China would be tempted also to engage in illegal retaliation, one would hope it would consider carefully its interests in not doing so.

 

 

 

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