In These New Times

Why is U.S. ready to recognize China’s market ecoomy status?

August 14, 2009

Peoples Daily

In the first round of Sino-US strategic and economic dialogues held in Washington D.C. on July 27-28, the American side proposed to recognize China’s market economy status (MES) as soon as possible via a cooperative form of the Sino-US Joint Commission on Commerce and Trade.

People around China are now busy doing their own business, and why are others ready to recognize the economic status of the Chinese market?

The MES is a crucial issue China had to be involved upon its entry into the World Trade Organization (WTO) in December 2001. At that time, China joined the WTO as an economy under transformation. Then, WTO member countries had their ensuing right to or not to grant China MES within 15 years after its accession to the WTO.

An impact of MES on China was embodied mainly on anti-dumping and anti-subsidy investigations against the country. If China is granted a MES, other countries, while conducting anti-dumping investigations of Chinese products, must calculate the normal prices, based on the domestic actual costs and prices of these products, rather than adopt the market prices of a third country (substitute country).

If this is not the case, much higher prices in a third country will be used as the benchmark. With the employment of this method, many innocent enterprises or fimes will be ascertained that they have involved in anti-dumping and anti-subsidy actions and thus have to pay high anti-dumping and anti-subsidy tariffs.

WTO statistics show that China was the target of most trade remedy investigations in 2008, subject to 73 anti-dumping cases and 10 countervailing cases, accounting for 35 percent and 71 percent of the global cases respectively.

Hence, China has stated repeatedly that its main trade partners should recognize its market status as soon as possible since the nation has made great progress in the market-related reform or innovation.

For years, China has been pressing its trade partners to give it MES. The U.S., however, has used the market economy status to impose restrictions on imports from China, and so American consumers, too, paid a high price. This practice, nevertheless, has a very limited role to play for the protection of its industry and employment. The U.S., having not granted the MES to China for a long time, designed to use it as a bargaining chip in its negotiations with China and to seek its own interest.

The United States is now ready to strengthen cooperation with China and to recognize its MES as soon as possible for the ensuing reasons:

First, China has made substantial progress in its pursuit of market reform. Second, against a backdrop of great recession globally and particularly in the U.S., the Barack Obama administration is eager to cooperate with China on a great number of issues and to satisfy its needs on an issue, which is of concern to the country. Third, 97 countries worldwide have granted China MES, but some of the countries the U.S. granted MES cannot compare their market access level to that of China’s and, finally, China can automatically acquire MES by 2016, or 15 years after its access to the WTO, in line with the relevant WTO rules.

The United States is the second biggest market for China’s export destiny, only next to the European Union (EU) market. China’s exports to the U.S. in 2008 accounted for 17.6 percent of the nation’s total export trade. After the recognition of China’s MES, the U.S. will find it hard to use anti-dumping and anti-subsidy measures against China. So, Chinese firms will benefit from a fair trade status it had attained, and more Chinese goods will be exported. On top of this, owing to the U.S. vital status in the world economy and trade, other economies will follow suit or be prompted to recognize China’s MES as soon as possible.

In fact, it should be acknowledged that the U.S. has not formalized any agreement with China on granting it MES, though it has promised to recognize it as a market economy. At the same time, both sides still need to consult each other on the concrete content of the “cooperative form” the U.S. has suggested.

Meanwhile, it should also be notified that trade protectionism in the U.S. would not vanish anyway even after the country recognizes China’s MES but will instead re-emerge via other forms, and people in China should therefore keep sober-minded on all this.

By people’s Daily Online and contributed by Chen Changying, a veteran international trade expert at the International Economic Research Institute under China’s National Development and Reform Commission