"It Could Reshape The Global Trading System For Decades" - US Rejects China's Bid For "Market Economy" Status

The US has filed a legal submission to the WTO as a third party, intervening in a case that China has brought against the European Union. The US rejects China’s argument that under the 2001 agreement, which confirmed China’s WTO status, it would should automatically be considered a “market economy” fifteen years after joining. The dispute could affect both America's and China’s future within the international body and, as the New York Times contends, “shape the global trading system for decades to come.” It goes without saying that this will only ratchet up the current tensions between the US and China over trade, which has been a cornerstone of Trump’s rhetoric since he launched his election campaign.

Briefly, the US submission sets out the legal arguments explaining why China should not be designated as a market economy, which would give it preferential treatment under existing WTO rules. China is currently designated a “nonmarket economy” which allows the US, EU and other countries to decide whether China is dumping products at unfair prices under a WTO framework. If they decide that China is dumping, countries can add an extra duty to protect domestic manufacturers.

According to the Financial Times, "the Trump administration has opposed China’s bid for recognition as a “market economy” in the World Trade Organization, citing decades of legal precedent and what it sees as signs the country is moving in the opposite direction under Xi Jinping. The US opposition to China’s efforts to be recognised as a market economy in the WTO came in a legal submission due to be released on Thursday in a case brought by Beijing against the EU. Market economy status would make it more difficult for the US to prove anti-dumping cases against Chinese companies at the WTO."

The move comes as the Trump administration has stepped up trade pressure on Beijing and as Washington faces growing international isolation over what critics fear is a populism-fuelled attack on the global trading system. In the 40-page filing seen by the Financial Times, the US rejected Beijing’s argument that under the 2001 conditions of China’s accession to the WTO it would automatically be considered a market economy 15 years after joining, when it faced anti-dumping cases from fellow members.

In “big picture” terms, the US and EU are arguing that China has failed to meet its part of the 2001 agreement by reducing the Chinese state’s role in the economy, which significantly distorts costs and prices for exports. The US argues that there are precedents for using benchmark pricing from third countries to determine whether products are being dumped.

The US also argued that regardless of those conditions, China remains subject to the same WTO rules as other members and points to the treatment of eastern European countries such as Poland when they joined the precursor of the WTO while still under Communist rule in the 1960s and 1970s. Those rules, the US contends, allow countries to use prices in third countries when dealing with non-market economies to determine whether goods are being exported below cost to gain an unfair advantage. “The evidence is overwhelming that WTO members have not surrendered their longstanding rights…to reject prices or costs that are not determined under market economy conditions,” the US lawyers wrote. US officials say their interpretation is shared by the EU and other countries such as Canada, Japan and Mexico.

When the China-EU is eventually settled, it is likely to serve as a precedent for China’s challenge to the US which the WTO’s panel will hear next. The Trump administration is watching closely since it will be much more difficult to levy anti-dumping duties against Chinese exporters if the EU fails. As the FT notes.

The case in which China is challenging the EU’s refusal to grant it market economy status is seen by the Trump administration as an important test of the WTO’s dispute system. Washington has expressed scepticism at the way the WTO resolves disputes and has even been accused of seeking to sabotage the system. China has been proceeding more slowly with a similar WTO case against the US. The senior US official also expressed frustration with the fact that in arguing against China’s bid to be labelled a market economy, the US had been forced to deal with at least one past ruling by the WTO’s appellate body that Washington deemed inappropriate.

The “past ruling” refers to a 2011 case when the WTO found in favor of China against the EU regarding annti-dumping tariffs on fasteners. Going beyond the boundaries of China’s complaint, the WTO declared that China’s accession protocols “do not contain an open-ended exception that allows WTO members to treat China differently”. The US criticized the seven-member panel for making laws instead of interpreting the existing WTO rules.

A Chinese victory over the EU will strengthen the belief of some officials in the Trump administration that the WTO was not set up to deal with a (largely) centrally-planned economy like China’s and that it will never defend American interests. As the New York Times explains, this includes America’s Trade Representative.

Those officials include Robert E. Lighthizer, the United States trade representative, who in his confirmation hearing before the Senate in June described China’s challenge against Europe and the United States as “the most serious litigation matter we have at the W.T.O. right now.” Mr. Lighthizer said that he had “made it very clear that a bad decision” on China’s status “would be cataclysmic for the W.T.O.”

We should emphasize that WTO disputes aren’t resolved quickly. An initial ruling on the current China-EU dispute may not happen before 2019, with the possibility of a subsequent appeal. The China-EU case will obviously take even longer. Some commentators are speculating that a Chinese victory over the EU could lead to the WTO’s demise. From the New York Times.

Nicholas R. Lardy, a senior fellow at the Peterson Institute for International Economics, said Mr. Lighthizer’s statements called into question whether the United States was looking for a reason to withdraw from the W.T.O.

“I don’t know what the outcome is going to be, but I think there’s a pretty good chance China is going to prevail,” he said. “Maybe this is going to be one of the nominal excuses to taking us out.”

On Wednesday, senior United States officials said that the W.T.O. served a number of purposes, but that they would like to see it work the way members intended it to work.

The NYT alludes to the fact that when the WTO was set up, the underlying assumption was that emerging economies would become more market-driven, like the more developed nations. With China arguably becoming more centralized under Xi, the current “rules of the game”, established by organizations like the WTO, are under threat.

Comments

Fireman TheSilentMajority Thu, 11/30/2017 - 08:16 Permalink

And contrary to the tooth fairy perhaps if we all just close our peepers and wish very very very hard the nasty Chinese will all just simply go away....and we'll all have jobs again, be rich and not falling around like monkeys on opioids. They fucking own US already, or hadn't you heard that part of the story?https://www.statista.com/statistics/246420/major-foreign-holders-of-us-…

In reply to by TheSilentMajority

chubbar MFL5591 Thu, 11/30/2017 - 10:30 Permalink

China has been patiently building a trading consensus with countries around the world in an effort to trade outside the dollar, it's called "one belt, one road" and it has over half the world's countries and about 2/3rds of the world's population already signed up. It is using US dollars to build out infrastructure and as a rule offers "carrots" instead of "sticks" to it's new trading partners.IMO, it's this effort that has the US on the defensive. Any effort to marginalize China just speeds up the process. The US dollar is being replaced. Right now Russia, China and Iran (plus some smaller players) are using Yuan convertible into gold for trade settlement. Eventually it'll be something else linked to gold, crypto-currency or perhaps a combination. The actual game-changer isn't the currency but the fact that the US will no longer be able to spend it's printed dollars into the world market without producing something in trade. This pretty much assures the US of a 3rd world future unless it becomes competitive in something other than printing money and starting wars.

In reply to by MFL5591

Son of Captain Nemo Thu, 11/30/2017 - 07:48 Permalink

Donald Hump...

If China will just give us an unsecured loan of $5 or $10 trillion that includes holdings in physical gold and silver (to be paid back at a later time of our choosing)... We'd be glad to make the PRC a market economy and one of the "Club"!...

Plus as a bonus we'll leave "rocket man" alone and keep our "powerful armada of ships" out of their disputed islands!

Ghordius Thu, 11/30/2017 - 07:49 Permalink

short term: thanks, Mr. Trump, for taking that immediate Chinese pressure offmedium term: meh. if China "wins" too strongly in that spat with the EU... things might change, including the whole role of WTOon a purely UK political level: oh, my. lots of Brexiteers asking for a drop down to WTO levels might look silly, don't they? but hey, they are used to see their hobbyhorses clashing violently with factsfor those not following that stuff: China is arguing for freer trade, more "free trade". the EU and now the US are arguing that "free trade" is not fair if you have giant state companies dumping prices without regard to anything else, since the State backs them for market shares. a simplification, but I think a handy one

philipat Ghordius Thu, 11/30/2017 - 08:13 Permalink

In view of the fact that China is such a "trade pirate", surprising that so many US and European Comapanies seek to offshore their manufacturing there, whilst extracting most of the profits from the higher margins out through transfer pricing and trademark/licensing/royalty and other IP arrangements to tax haven countries to avoid paying taxes in their home countries? To the impartial observer, that would appear to be just an itsy-bitsy hypocritical?

In reply to by Ghordius

silverer Ghordius Thu, 11/30/2017 - 08:59 Permalink

Want to compete fairly with China? Get rid of your stupid losing system of socialism, where right now China is paying for your lazy populations that choose not to work, and where the difference of the savings on what your socialist populations purchase on Chinese goods that have been helping them get by will quickly soon be absorbed by the taxes that forever increase to support the failing systems. The only way out is to force an increase in the cost of Chinese goods. But that will also fail in time.

In reply to by Ghordius

Fireman Thu, 11/30/2017 - 08:21 Permalink

Time for the China and Russia "Truth Bomb" and drive their collective 40 thousand tons plus of gold into stadiums in Moscow and Bejing and in front of the global press unveil their staggering gold reserves. Then call on USSA to do the same and finally if the rigged game doesn't end then sacrifice worthless USSAN Treasury debt and flush the IOU Saudi Mercan (no longer I$I$ backed) blood-stained toilet paper dollah out of the global ponzi sewer, imploding the Wall St and €uro sewers and unleashing the greatest tsunami of toxic derivative shit humanity has ever seen. Game over!USSA will learn to be humble in line with its new status of dead beat thug creditor or face a serious smacking.Debt is US!https://www.statista.com/statistics/246420/major-foreign-holders-of-us-…BRICS of gold http://theduran.com/brics-countries-in-plans-to-create-new-international... 

dark fiber Thu, 11/30/2017 - 08:17 Permalink

In other news the US is a market economy and capable of being the arbitrator of what is a market economy and what isn't.  What I don't get is why does China and everyone else for that matter give a fuck what t the US and US puppets consider a market economy.

silverer Thu, 11/30/2017 - 08:49 Permalink

China is not dumping the way the US claims, although sometimes they may be. The US says that for a simple reason. They've made it too expensive via taxes in the US for the US to compete with the pricing China offers. The US negotiated shitty deals with China in the first place. Congress has accepted so many bribes to protect big US corporations, they've prevented true capitalism from working in the US homeland, which would bring down costs for many items. This explains my 3.5 oz. tube of prescription anti-itch cream I need to use about three times a year costing $1,035.00 at my local pharmacy. Having left that on the counter after seeing the cost, and finding a $5.39 bottle of Bactine worked as well, I side stepped the criminality of the rigged US economic system. Make no mistake that these sick, twisted fucks in the US will do anything to spoil somebody else's party if it starts looking better than their exclusive protected club. This explains why the rest of the world is really getting sick of the US empire and its policies.

Money_for_Nothing silverer Thu, 11/30/2017 - 09:33 Permalink

So what are you proposing? Your arguments say you don't like either but you dislike the US the most. So what. Why should trade policy be based on your likes and dislikes?

Why wouldn't one want both sides to follow the letter and the spirit of an agreement? The US has more power because it needs China less than China needs the US.

"has accepted so many bribes" -- Heard of the Clinton Global Initiative? China paid a lot to them as did Russia and others. Venality is universal regardless of sex, race or country of origin. Quit being puerile.

In reply to by silverer

Rex Andrus Thu, 11/30/2017 - 16:44 Permalink

As a begging basket case and a fiat printer industrial power China has totally gamed the WTO. Fuck the UN. Stop paying these global and globalist swindlers. They lie about everything. They don't do charity. They go where charity is being done right, take pictures of themselves and use these props as a shield for their criminal partners in governments to steal everything they can from the citizens of their countries, and from the unborn. Shut it down. Prosecute everybody involved with the UN for fraud and treason. String them all up. They are as despicable as the EU, DC and the Vatican.