Commerce Begins Formal Review of China's Non-Market Economy Status in AD/CVD Cases

The Commerce Department will undertake a review of China’s non-market economy status in antidumping and countervailing duty cases, it said in a notice (here). The inquiry, which will be conducted as part of the recently initiated antidumping and countervailing duty investigations on aluminum foil from China (see 1703290017), will determine whether China should be graduated to market economy status, which could result in lower and more predictable AD rates for Chinese companies. Commerce will accept public comments as part of the inquiry. The notice has yet to be published in the Federal Register, but upon publication comments will be due within 30 days.

The inquiry comes on the heels of the expiration in December 2016 of certain provisions of China’s World Trade Organization membership agreement that allowed for treatment of China as a non-market economy. Some argue that countries are still allowed to treat China as a non-market economy, even after expiration of the provisions (see 1602290025). Others, including China, argue countries must treat China as a market economy following expiration. China filed WTO cases against the U.S. and the European Union the day after the provisions expired (see 1612120019), though it has so far only requested formal adjudication of its case against the EU (see 1703130037).

Commerce said it is beginning its inquiry “to solicit and collect the most recent information following” expiration of the WTO provisions. Under U.S. law, once Commerce treats a country as a non-market economy, it cannot begin treating it as a regular market economy until it makes a formal determination revoking the country’s non-market economy status.

Commerce conducted a similar inquiry in 2006 at the request of the Chinese government. The agency concluded that, “while China has enacted significant and sustained economic reforms, the Department continues to find that market forces in China are not yet sufficiently developed” to treat China as a market economy, according to a fact sheet issued at the time (here). For non-market economies, Commerce uses third-country “surrogate” prices and costs to calculate antidumping duty rates, as opposed to using the investigated company’s real prices and costs as it does in market economy cases.

Administration officials have indicated they are unwilling to treat China as a market economy. U.S. trade representative nominee Robert Lighthizer has said he would keep China’s non-market economy status in place (see 1703150042), and President Donald Trump himself said in December that “China is not a market economy,” according to a report from Reuters (here). Commerce Secretary Wilbur Ross said at his confirmation hearing that China is the “most protectionist” of all large countries (see 1701190039). South Korean exporters recently accused the White House of improperly meddling in an antidumping duty case (see 1703240036).

The United Steelworkers Union immediately voiced its opposition to granting market economy status to China. “Given that the last review of China’s status as a non-market economy occurred in 2006, today’s request is most appropriate,” it said in a press release (here). “While more than a decade has passed, the USW’s experience with China makes it clear that its non-market economy continues,” said the labor union, which has requested several antidumping duty investigations on Chinese products. “Granting China market economy status would be contrary to the facts as well as serving to devastate domestic producers and workers.”

A domestic industry coalition said China’s economy is still far from market-based, and should remain a non-market economy in antidumping duty cases. "The distortions in the Chinese economy remain so broad and so destabilizing to global trade that the current inquiry will confirm what all businesses and workers in America know -- China's state capitalism is far removed from a market economy,” said trade lawyer Terence Stewart, past president of the Committee to Support U.S. Trade Laws. "Our members hope to be helpful to the Department by submitting data and analysis, developed over the last decade of investigations, that conclusively document China’s steady drift away from the promises it made when admitted to the WTO,” current CSUSTL President Thomas Sneeringer said.

Email ITTNews@warren-news.com for the CSUSTL press release.