WASHINGTON — A bipartisan group of U.S. senators is urging the European Commission’s trade commissioner not to designate China a market economy.
The EC, the executive body of the European Union, is said to be evaluating whether to grant market economy status to China as part of the country’s protocol agreement at the World Trade Organization.
But a group of U.S. senators led by Sherrod Brown (D., Ohio) and Jeff Sessions (R., Ala.) accused China of “flagrant violations” of its WTO obligations and in a letter cautioned Cecilia Malmstrom, trade commissioner at the EC, against granting the status to China.
The senators, primarily advocating on behalf of the U.S. steel industry, said the EU’s giving China market economy status would hurt broader global trade compliance efforts and destabilize the steel industry, in particular. More broadly, they argued that China continues to have “significant government influence over the allocation of resources and the decisions of enterprises.”
“There is rampant violation of intellectual property rights and a largely ineffective legal framework for conducting business, which discriminates against foreign enterprises,” they stated in the letter. “The state continues to dominate the financial sector through state ownership and lending to [state-owned enterprises]. In short, the Chinese government exerts significant influence in its market and for many reasons China remains a nonmarket economy.”
The U.S. has challenged China at the WTO on a wide range of products and trade issues. Most recently, China agreed to terminate a program that provided export subsidies in several industries, including textiles, apparel and footwear, after the U.S. filed a case at the WTO. The Obama administration alleged the Chinese government provided illegal export subsidies to enterprises across seven economic sectors and scores of subsectors in more than 179 industrial clusters.
The U.S. has not granted China market economy status and the senators are disputing whether there is a looming deadline for WTO members to treat China as a market economy by the end of the year. That possibility has raised concerns in the U.S. manufacturing industry and on Capitol Hill.
China is considered a non-market economy because of its state-owned enterprises, banking system and central control, which leads to higher duties on U.S. imports of Chinese products in antidumping cases.
If China is granted market-economy status, duties in antidumping cases China loses would be much lower than under a non-market economy designation. Dumping occurs when an exporter sells goods abroad at a lower price than in the country of origin, or at below cost, despite China’s push for such a designation.
“Labeling China a market economy before it in fact becomes one will thwart global efforts to secure China’s compliance with its international trade obligations,” the letter stated. “In addition, it could have a destabilizing impact in certain global sectors, including the steel industry. We urge the commission to maintain China’s non-market economy status until China has transitioned completely to a market economy.”
Contrary to China’s claims, China’s WTO Accession Protocol does not require countries to treat China as a market economy by the end of 2016,” the senators asserted.
They argued that under China’s accession agreement, the WTO allows its members to use an alternative to Chinese prices or costs as the basis for dumping calculations when producers under investigation “cannot clearly show that market economy conditions prevail in the industry.”
The European Union’s delegation in Washington said Thursday that the EC is continuing to assess whether the EU should change the treatment of China in anti-dumping investigations after December 2016. An in-depth examination will include an analysis of sectors per member state with a particular focus on the potential impact on jobs.
“All options remain on the table and are being duly assessed in the framework of the full impact assessment the Commission has decided to conduct and that will include a public consultation,” a spokeswoman said in an email. “Concerning the possible way forward, the Commission is analyzing three basic options: not to change the EU legislation; to remove China from the list of non-market economy countries without further conditions; to remove China from this list while at the same time introducing mitigating measures,” she added.