China claims it is now a market economy and will retaliate against any power that intends to challenge this assertion.
When China joined the World Trade Organization (WTO) on Dec. 11, 2001, the country assumed it would be granted market economy status (MES) on the 15th anniversary of its ascension, but the U.S., Japan, and the European Union are thwarting China’s plans.
“Regretfully, the United States and European Union have yet to fulfil this obligation,” the Ministry of Commerce said in a statement on its website.
President-elect Donald Trump said Thursday, just a few days before the anniversary, that China is a “non-market economy” and demanded that China “play by the rules.”
“The United States remains concerned about serious imbalances in China’s State-directed economy, such as widespread production overcapacity, including in the steel and aluminum industries, and significant State ownership in many industries and sectors,” the Department of Commerce said in a statement. “China has not made the reforms necessary to operate on market principles.”
Japan has also said it will not grant China market economy status.
The EU appears hesitant to change course as well.
Refusal to grant China market economy status “is nothing short of covert protectionism, which runs against the trend of globalization and poisons the recovery of the global economy,” China’s Xinhua News Agency argued Friday.
Ministry of Commerce Shen Danyang vowed Friday to take “necessary measures” against any WTO member that refuses to recognize it as a market economy.
China’s non-market economy (NME) status makes it easier for other WTO member states to attack China for dumping, which involves pricing its exports below what it would charge domestically. As China is a socialist economy, prices are compared to a third party.
“China will take necessary measures according to WTO rules to resolutely defend its lawful rights and interests against the small number of members who persist with the ‘surrogate country’ approach in their anti-dumping investigations into Chinese products,” Shen explained.
The complaint is that China is gaming the system unfairly.
“China wanted the advantages without meeting its obligations, and trade will not work when it’s a one-way street like that,” said Democratic Rep. Sander Levin, who voted for China’s ascension to the WTO but has since become a staunch critic. “They went in with full knowledge and essentially began thumbing their nose.”
As China does not agree, lawsuits, court battles, and trade fights may be in store.
China launched a dispute resolution case against the U.S. and the EU at the WTO over the surrogate country approach used to calculate prices in anti-dumping cases involving a NME Monday. More cases like this are expected to follow.
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