China Must Play by WTO Rules
As the Presidential campaign lurches toward November, both parties clearly believe that trade policy is a hot-button issue with voters of all persuasions. Republican Donald Trump and Democrat Hillary Clinton seem to be trying to outdo each other with their rhetoric against trade agreements past and future, each vowing to reopen old trade agreements (like NAFTA), pursue only “fair trade” in the future, and protect American workers and jobs from foreign competition they deem unfair (particularly China).
While generally supportive of more global trade, the Forging Industry Association (FIA) believes that trade agreements must be fair and provide strong enforcement mechanisms to protect against unfair practices. Specifically regarding China, FIA has recently become engaged in a broad coalition of U.S. manufacturers that oppose the automatic granting of “market economy status” to China at the end of 2016. This coalition is called Manufacturers for Trade Enforcement (www.tradeenforcement.org).
When China was allowed access into the World Trade Organization (WTO), it agreed to a series of steps to bring its economy into compliance with WTO rules over the next 15 years. With that deadline approaching, China has argued that it should be granted automatic market economy status by all WTO members. Some WTO members – including the U.S. and the European Union – disagree, arguing that market economy status can only be granted country-by-country and only when China meets the criteria established by each country.
Most Americans probably never heard of this area of trade policy and don’t have much understanding of what it means or how it affects them. But it’s a big deal to countries that want to export their products globally because it impacts the way that trade-enforcement mechanisms like antidumping and countervailing duties are assessed against those products.
Here’s how it works. Under the rules established by all parties to the WTO, countries may enact trade remedies to counteract unfair trade practices such as dumping or illegal subsidies. Those trade remedies are country-specific, but they must adhere to the broad parameters laid out in the WTO rules, which include the ability to treat market economies and non-market economies differently when determining whether the country’s trade laws have been violated.
Market economies are fairly transparent. Therefore, it is relatively easy to determine whether goods exported to the U.S. are sold at unfair or “dumped” prices or whether the goods have benefited from unfair subsidies. In a non-market economy where the government owns some or all of the means of production or provides subsidies to industries, however, how does one determine the “market price” for goods?
In the U.S., the Department of Commerce is charged with determining whether a foreign economy operates on the principles of market pricing and cost structures, based on a set of basic requirements. If not, then Commerce is allowed to take that into account when determining whether goods from that country are being sold in the U.S. at unfair prices or benefiting from unfair subsidies.
FIA and the other members of the coalition believe that China has not demonstrated the necessary reforms to make it a market economy, particularly in the area of government subsidies, and therefore should not be automatically granted market economy status at the end of 2016. The group is working to educate policymakers about the issue.
Specifically, the Manufacturers for Trade Enforcement believes the following: “Fair international competition and a level playing field are essential for the global competitiveness of U.S. manufacturers. Effective and predictable trade-enforcement mechanisms must include the accurate assessment of and response to distortions from state-run or other non-market economies, which risk endangering U.S. jobs and the economy.
- The Chinese economy does not meet the basic requirements set forth by the Department of Commerce for a functioning Market Economy.
- A determination by the Administration that the Chinese economy continues to meet the definition of a Non-Market Economy is vital for U.S. manufacturers seeking redress for unfair trade practices by Chinese firms.”
The coalition will continue to work with the U.S. government to ensure continued non-market economy status for China until such time it meets all the criteria set forth in U.S. law for treatment as a market economy.