Trade Cases

Trade Tensions Rise with Rebuff of Market Economy Status for China

December 13, 2016

The fifteenth anniversary of China’s accession to the World Trade Organization has passed without China receiving its coveted market economy status.

The United States, European Union and Japan said they will continue to treat China as a non-market economy. A change in status would protect Chinese exporters from tariffs that the U.S., EU and others have imposed against numerous products, including steel. Currently products imported from China are compared to cost of production in a third country (for example Canada) to calculate whether the products are being sold at a fair price in the market.

China has been attempting to move away from state-owned entities to a more market controlled economy. It has been a difficult route for a country that has long relied on government assistance to keep production rolling and citizens employed.

Opponents to granting market status say China has not done enough and continues to circumvent rules for its own benefit. Unfairly priced steel products have flooded the global market putting domestic company at risk of bankruptcy and job cuts.

In the United States, the Manufacturers for Trade Enforcement estimates that 16,000 steel industry jobs have been lost since the beginning of 2015 due in part from injury to the industry by Chinese steel imports. Seven U.S.-based aluminum smelters were closed or reduced production in the same time period.

Over 41 investigations have been launched against Chinese steel imports by 15 countries in 2016. The EU last week opened a new investigation into imports of corrosion resistant steels from China.

China responded to antidumping charges by the U.S. and EU by launching a dispute settlement with the WTO on Monday regarding how antidumping measures are calculated against Chinese imports.

“Members of the World Trade Organization have the right to initiate such investigations, but they must strictly observe related rules and fully ensure the legal rights and interests of Chinese companies,” said Shen Danyang, a spokesperson of the Ministry of Commerce.

President-elect Donald Trump has echoed sentiments that that China does not abide by market economy rules. “They haven’t played by the rules, and they know it’s time they’re going to start,” said Trump at a rally last week in Iowa.

Xinhau news agency, an information organ of the central government said on Monday, “In a statement on its website, the ministry said in accordance with Article 15 of the accession protocol signed when China joined the WTO in 2001, the surrogate country approach expires on December 11, 2016.

“All WTO members should live up to their international obligations to abandon the surrogate country approach when calculating anti-dumping measures against Chinese exports.”

“We are playing by the rules and you need to keep your promise,” said Xue Rongjiu, a trade adviser to China’s State Council, China’s cabinet, said earlier this month. “It’s unfair to blame China for your problems, which have resulted from bad management and operations.”

The Manufacturers for Trade Enforcement, a coalition of representing one million workers in the aluminum, steel, cement, chemical, textile and other manufacturing industries, expressed their appreciation to the U.S. government for supporting continued non-market economy status for China.

Thomas J. Gibson, president and CEO of the American Iron and Steel Institute and co-chairman of the Manufacturers for Trade Enforcement, said, “Given the significant role of the Chinese government in many key aspects of its economy, and especially in its state-owned and controlled steel sector, there can be no question that China remains a non-market economy. This is not just a North American concern. The steel industries in Europe and throughout Latin America share our concern. We applaud our government’s commitment to ensuring China is not prematurely awarded market economy status.”

Further complicating rising trade tensions between China and the U.S. is President-elect Trump’s phone call with the leader of Taiwan and comments that he does not feel “bound by a one-China policy unless we make a deal having to do with other things, including trade.”

“The one-China policy is the political foundation of China-U.S. ties,” said Geng Shuang, Foreign Ministry spokesperson, at a daily press briefing.

“We urge the new U.S. leader and the government to fully recognize the high sensitivity of the Taiwan issue, continue to stick to the one-China policy and the three Joint Communiques between China and the United States, and discreetly deal with Taiwan-related issues so as to prevent China-U.S. relations from being severely disturbed and damaged,” the spokesperson said.