As part of the World Trade Organization, China is scheduled in December 2016 to achieve Market Economy Status, as opposed to its current Non-Market Economy status. This means, among other things, it will be much harder for US, Canadian or Mexican steel companies to bring anti-dumping actions against Chinese imports of steel and hundreds of other products. Some believe that status upgrade will be automatic, but not the NAFTA steel sector.
“We don’t believe [Market Economy Status] happens automatically,” said Thomas J. Gibson, president and CEO of the American Iron & Steel Institute. “Under US law there are criteria, six, by which China’s status as a market economy should be judged. And we are just drawing the US government’s attention to that and asserting that China should not become a market economy. Our main focus was to impress upon our elected officials the urgency of the crisis. The focus was on the breadth of the problem.”
NAFTA United Against Chinese Market Economy Status
Gibson was speaking during a press conference and conference call that featured several North American steel industry executives speaking with one voice against China’s potential ascension to market economy status. It’s an issue that has united Canadian, US and Mexican steel producers and given the sometimes disparate North American Free Trade Agreement partners solidarity against what they see as a flood of particularly Chinese imports that has grown to 30% of the North America market for the first time ever.
Last week, AISI released a commissioned report concluding that treating China as a market economy in anti-dumping investigations would “severely damage the NAFTA steel industries and harm NAFTA economies.”
Six steel industry groups sponsored the report: AISI, the Steel Manufacturers Association, the Canadian Steel Producers Association, CANACERO (the Mexican Iron and Steel Producers’ Association), the Specialty Steel Industry of North America and the Committee on Pipe and Tube Imports.
Has the EU Already Decided for China?
Of course, the North American associations aren’t alone in this fight. European Union lawyers have already concluded that China should be formally designated a “market economy” at the end of next year. The EU would have been a powerful ally for North America.
The European Commission’s legal service circulated a confidential opinion within the institution this past summer, officials familiar with the opinion said. The confidential opinion is not binding, and the EU may still oppose China’s “graduation,” but it’s still a blow to the organizations proposing full review and not a standard graduation to market economy status for China.
The Problem With China: Overproduction
The main argument the US, Canadian and Mexican steel producers make would likely hold as much weight with the EU member nations as it does for NAFTA’s: That Beijing’s policies lead Chinese firms to pump out far more goods than China’s domestic market can consume. Or overseas markets, for that matter.
“There are almost 700 million metric tons of overcapacity globally,” said Nucor CEO John Ferriola in last week’s press conference. “That’s almost half China’s. We must allow basic market forces to influence China’s production.”
Ferriola said the case that he and his fellow steel executives made to their representatives in congress was that the ENFORCE Act, a bill stuck in congress after previous legislation was passed to address dumping, would do this. Ferriola called it a “major piece of unfinished business.”
ENFORCE would change customs enforcement and stop trans-shipments which the domestic producers say are being sent from China and other nations where their origins are concealed by relabeling and other shipping tricks. It also has a much more comprehensive definition of “material injury” than current anti-dumping laws.
The bigger issue, even if ENFORCE passes, however, would still be China achieving market economy status. The Canadian Steel Producers’ Association predicted that 400,000 to 600,000 NAFTA jobs will be lost if nothing is done about Chinese exports.
“Our main focus was to impress upon our elected officials the urgency of the crisis. The focus was on the breadth of the problem,” Gibson said.