Chinese Economy a Far Cry From Market-Based

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Arguably, no issue has impacted the steel industry more than imports.

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With multiple trade cases filed in 2015, service centers reeling with higher than average months-on-hand inventory levels (at prices that exceed the current market), US producers operating at 71.3% capacity utilization, the last thing the industry needs to hear is China somehow ascending to the World Trade Organization with full “market economy” status.

Nobody Thinks China Operates a Market Economy

According to a new report issued by trade specialist law firm Wiley Rein entitled, The Treatment of China as a Non-Market Economy Country After 2016 discusses what changes in market status China should expect to receive after 1 provision in the original negotiated WTO agreement expires on December 11, 2016.

China’s Protocol of Accession (to the WTO as a full member) requires that China and more specifically, its government, not meddle, “…its control over prices of key inputs to many manufactured products.”

Back in 2001, all negotiating parties (including China) agreed to a different standard for China to adhere to with regard to anti-dumping and trade cases filed against it. The agreed-upon standard actually required China to demonstrate “that market economy conditions prevailed in the industry producing the product under investigation,” and, if not, the importing country could compare prices or costs based on an economy of similar economic development to China. A “proxy” economy, if you will. This provision will expire on December 11, 2016.

The authors of the report cry foul that, “with the expiration of that single provision, the US and other countries are required to treat China as a market economy country in anti-dumping investigations, so that they must use Chinese prices or costs in anti-dumping comparisons,” argues the report’s authors, “This claim is simply incorrect.”

Normal Anti-Dumping Proceedings

More typically for other countries accused of anti-dumping, the importing country uses factors such as the price of the good in the home market or the cost of production for that item in the home market.

Meanwhile the US steel industry remains opposed to the granting of market economy status to China.

Moreover, the case against China’s ascendancy appears to be growing as industry speakers and stakeholders from around the world are becoming more vocal on the issue.

Finally, several of the steel cases filed this year all occurred after the passage of The Trade Preferences Extension Act legislation that should make it easier for steel producers to ensure protective duties on key domestically produced materials. We will continue to watch with anticipation how these cases get decided.

Non-Market-Based Actions

We haven’t even touched on the latest allegations that 2 giant Chinese state-owned metals companies including Chinalco and Baosteel have hacked into several US producers including Allegheny Technologies, Alcoa and U.S. Steel. We’d hardly consider that “market economy” based behavior (it’s criminal in the US to do that).

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If any of our readers believe China is acting as a market economy, we’d welcome your arguments.

Please follow Lisa Reisman on Twitter @LReismanMM

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