US and EU should recognize China's market economy status and stop rampant anti-dumping investigations

Although solid Sino-US economic and trade relations do not automatically mean good political ties, they serve as a buffer to serious clashes between the two countries. Healthy and sustained development of Sino-US commercial links will not only be beneficial to both countries but also favorable to maintaining peace and stability in the Asia-Pacific region and the world as a whole.

Under the non-market economy provisions, China's foreign trade has suffered, as it has become a victim of anti-dumping and countervailing practices by other members of the World Trade Organization (WTO).

According to China's Ministry of Commerce and its "Foreign Market Access Report," discriminatory trade barriers against China exist in its dealings with major trade partners, such as the US and the European Union.

Due to some safeguard mechanisms, as well as other WTO members' concern about China's rapidly growing international competitiveness, China faces more challenges than other members in terms of market access. This is largely the result of the non-market economy provisions of The Protocol of China's Accession to WTO.

The restrictions imposed by being a "non-market economy country" are drawn from the US Trade Act of 1974, which states the general provisions of the Act should not be applied to communist countries, as these countries operate a planned economy with public ownership, in which their governments seek to direct all economic activity, decide what needs to be manufactured, to whom it should be distributed and at what price, and whose currency is not freely convertible.

In the final stage of China's negotiations to obtain WTO membership, the US and EU collaborated to refuse recognition of China's market economy status. At that time, in order to join the WTO as soon as possible, China made the concession to other WTO members that it be treated as a non-market economy country for the first 15 years.

This non-market economy provision applies exclusively to China, and China is the only country subjected to such discriminatory provisions. All the other WTO members can randomly invoke this provision to issue discriminatory restrictions on imports from China. Consequently, the non-market economy provision has become an excuse for anti-dumping legal action against China under fair-trade provisions.

To date, the US and the EU have been the two most active players in anti-dumping proceedings against China, which in effect impose restrictions on the competitiveness of Chinese enterprises.

China's non-market economy status has become an Achilles' heel for its exporters with respect to anti-dumping investigations.

For more than a decade, China has been the world's largest subject for anti-dumping investigations, and in the resulting adjudications, China has suffered the highest proportion of anti-dumping penalties. Indeed, China is often deemed to be the only guilty party. From 1995 to the first half of 2008, China's export products were cited in 640 anti-dumping investigations, accounting for 19.4 percent of total global anti-dumping investigations; 441 of these investigations resulted in implementation of Safeguard Mechanisms, which accounted for 20.9 percent of such cases.

In defending an anti-dumping lawsuit, Chinese enterprises need deep pockets as it is a very difficult and bitter process. For example, a lighter factory in Wenzhou spent 1 million yuan (103,500) in responding to an EU anti-dumping lawsuit.

On the surface an economic problem, China's non-market economy status is in fact a political issue. The US has specified criteria that narrow China's market economy status to criteria that suit the US' own interests: "the extent to which the currency of the foreign country is convertible into the currency of other countries" and "the extent to which wage rates in the foreign country are determined by free bargaining between labor and management".

As long as China complies with the above criteria, the US should grant China market economy status.

However, this means China's market economy status depends on whether it makes strategic concessions to suit the US, which has decided to use market economy status as a bargaining chip to deal with China.

The author is a professor with the Center for American Studies, Fudan University.