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China - World Trade Organization

The economic and trade relations China has developed with the rest of the world after joining the World Trade Organization about two decades ago worked in its favor. According to a 2019 McKinsey report, China's economic dependency on the rest of the world has reduced while the world's reliance on China has increased.

If a large country isolates itself, its economic and other interactions with the outside world will stop and, as a result, its economy will become stagnant and fragmented. There have been periods in history when China did well as an insulated society but then it gradually lost steam and ceased to make further progress. A country that believes it has become self-sufficient in technology may cease to make any progress in the field.

On 11 December 2001, China acceded to the World Trade Organization. The terms of its accession called for China to implement numerous specific commitments over time, with all key commitments phased in by December 11, 2006. The data confirm a dramatic expansion in trade and investment among China and its many trading partners, including the United States, since China joined the WTO.

Many of the problems that arise in the U.S.-China trade and investment relationship can be traced to the Chinese government’s interventionist policies and practices and the large role of state-owned enterprises and other national champions in China’s economy, which continue to generate significant trade distortions that inevitably give rise to trade frictions. The United States notes that China’s current leadership, in place since 2013, has highlighted the need to pursue further economic reform in China, but to date not much progress is evident.

In the United States’ view, if China is going to deal successfully with its increasing economic challenges at home, it must allow greater scope for market forces to operate, which requires altering the role of the state in planning the economy. China likewise must reform state-owned enterprises, eliminate preferences for domestic national champions and remove market access barriers currently confronting foreign goods and services. Otherwise, China’s economic challenges will only increase and become more difficult to solve.

When dialogue with China has not led to the resolution of key trade issues, the United States has not hesitated to invoke the WTO’s dispute settlement mechanism. Since China’s accession to the WTO, the United States has brought 20 WTO cases against China, more than twice as many WTO cases as any other WTO member has brought against China. In doing so, the United States has placed a strong emphasis on the need for China to adhere to WTO rules and has held China fully accountable as a mature participant in, and a major beneficiary of, the WTO’s global trading system.

A special problem in the application of anti-dumping and countervailing duties is created by the fact that two types of economy exist. One is the economy based on the cost of production (in the following called free-trade economy) and the other is the State-trading economy in which the prices within the national economy are determined on other bases than the cost of production. Prices on the home market of State-trading countries may in one instance be higher than the price of the same product would be in a free-trade country a situation which could lead to the levy of anti-dumping duties even in circumstances which economically are not dumping.

On the other hand, extremely low prices in a State-trading country could exclude the levy or anti-dumping duties. A note to the revised Article VI refers to that problem and states that a strict comparison in such cases may not always be appropriate. In practice, countries levying anti-dumping or countervailing duties on imports from State-trading economies very often rely on the price situation in comparable third markets or on consultations with the exporting country.

A lack of domestic prices or costs that ensure comparability in non-market economies means that normal value must be found on another basis. In particular, “in the case of State-trading countries the normal value – due to the lack of comparable figures – is sometimes calculated on the basis of prices in third countries having a comparable economic structure. A comparable, market economy structure is a prerequisite for price comparability. The WTO Contracting Parties, in describing how their domestic legislation defined the Article VI term “normal value,” demonstrated their understanding that normal value could only be established through what were referred to as prices from a “free economy”, prices for goods “freely offered for sale”, prices “in the ordinary course of trade”, and other similar formulations.

Chinese government officials, acting without fear of legal challenge, at times require foreign enterprises to transfer technology as a condition for securing investments approvals, even though Chinese law does not – and cannot under China’s WTO commitments – require technology transfer. Similarly, in the trade remedies context, China’s regulatory authorities at times seem to pursue antidumping (AD) and countervailing duty (CVD) investigations and impose duties for the purpose of striking back at trading partners that have legitimately exercised their rights under WTO trade remedy rules.

In 2016, despite the new Chinese leadership’s initial re-focusing on economic reform, a wide range of Chinese policies and practices continued to generate significant concerns among U.S. stakeholders, as did the continuing abuse of administrative processes by Chinese government officials. Major areas of specific concern continued to include: serious problems with intellectual property rights enforcement in China, including in the area of trade secrets; the Chinese government’s prolific use of industrial policies favoring state-owned enterprises and domestic national champions, including “secure and controllable” information and communications technology (ICT) policies, export restraints, subsidies, unique national standards and investment restrictions, among other policies; troubling agricultural policies that block U.S. market access; numerous continuing restrictions on services market access; and inadequate transparency. China’s slow movement toward accession to the WTO Government Procurement Agreement (GPA) also hindered development of the U.S.-China trade relationship.

Specifically with regard to excess capacity in the steel industry, where China’s State Council had issued guidelines calling for the elimination of 100 to 150 million MT of steel capacity, China committed to undertake further steps to ensure market forces are not constrained, so that its steel industry develops a stronger market orientation to enhance efficiency, and, in doing so, progressively reduces excess capacity.

Donald Trump's administration formally rejected treating China as a market economy, a decision submitted to the WTO made public on 30 November 2017. The decision filing marks the first time the US government had publicly declared its position. "The decision shows the US is resorting to the rivalry game, a tactic different from the cooperation game embodied by Trump's visit to China, during which deals worth $253.5 billion were signed," Bai Ming, a research fellow at the Chinese Academy of International Trade and Economic Cooperation in Beijing, told the Global Times.

The reason the US and EU did not grant China market economy status was mainly due to the discrepancy between the standard they hold and China's economic system, Sang Baichuan, director of the Institute of International Business at the University of International Business and Economics in Beijing, told the Global Times on 01 December 2017. "Actually there is no strict definition of market economy standard in the WTO," Sang said. "The US and the EU also have their own standards on the concept, and different countries have their own market economy models, so there is not an applicable standard to the whole world."

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Page last modified: 01-08-2021 14:07:43 ZULU