The 15-year hitch - A pact from 2001 stirs trouble between China and the West, and between America and Europe
China’s leaders it is as if, having signed a postdated cheque in their
country’s favour, Western countries are threatening not to honour it. Their
excuses—that the cheque was only ever provisional, that their domestic politics
make it impossible and that times have changed anyway—serve only to confirm the
impression of defaulters wriggling off the hook. So when, as seems likely, not
all the world’s big economies grant China “market-economy status” by the 15th
anniversary of its accession to the World Trade Organisation in late 2001,
China will cry foul and an almighty row will ensue. China will probably take the
dispute to the WTO for settlement. This does not mean it is in the right.
China argues that geopolitical and domestic economic considerations are
clouding a clear legal obligation. It may also sense an opportunity: to divide
the China policies of the West’s two most important components, America and the
European Union. More than a decade ago, it gave up hope that it might persuade
the EU to lift the embargo on arms sales to China imposed after the Tiananmen
killings of 1989. American disapproval put the kibosh on that. Now, however, it
may, to American dismay, win “market” status unilaterally from Europe.
At issue is the interpretation of
China’s accession agreement to the WTO. Article 15 allows countries to treat
China as a “non-market economy” when weighing accusations that it is dumping
products abroad—ie, exporting at an unfairly low price. When an alleged dumping
country has market status, complaining countries have to compare its export
prices with those in its domestic market. For China and other non-market
economies, they are allowed to use other similar countries as comparison.
This matters. No country is accused as often as
China of dumping (it is the current target of 28 out of 38 anti-dumping
investigations by the European Commission). And WTO rules allow members to
impose hefty punitive tariffs on dumped products. However, Article 15 provides
that if Chinese producers can prove that market conditions prevail in their
industry, then the importing country has to use Chinese prices as a comparison.
And, it goes on, “in any event” the non-market presumption will expire 15 years
after China’s accession—ie, on December 11th 2016.
It amounts, says China, to a guarantee of market status by that date. That
is not, however, what the agreement says. Rather, it says that importing
countries will lose the right automatically to treat China as a non-market
economy for anti-dumping purposes. That is not the same as according it full
market status under their domestic laws. China does not enjoy market status in
the EU, America or Japan, the world’s three biggest economies not counting
itself, nor in other giants such as Canada, India and Mexico. A lot is hanging
on the interpretation of Article 15.
When China joined the WTO all those years ago, it appeared bound on a
course of market-oriented reform. So the present debate was not foreseen. Yet later,
in 2008, a European Commission assessment deemed China to have failed to meet
four out of five criteria that the EU sets for winning market status. Since
then, despite the Communist Party’s decision in 2013 to let market forces play
a “decisive” role, and despite the continued growth of the private sector in
China, there has been no fundamental transformation of its economic structure.
In 2014 a body set up by America’s Congress to monitor the security
implications of economic relations with China noted that many witnesses had
told it that “China is not currently a market economy and is not on the path to
become one in the near future.”
China is of course right, however, that more than purely legal factors will
sway other countries’ decisions. In 2001 China accounted for 4.4% of global
merchandise exports. By 2015 the proportion had tripled. As China’s economic
clout has grown, so has fear about its impact on jobs elsewhere. In this
respect, it is unfortunate for China that the debate is coming to a head at a
time of panic in an industry China dominates: steel.
Last year China produced 803m tonnes—50.3% of the global total—and exported
112m tonnes. The world’s second-biggest producer was the EU, with 166m tonnes.
Even if China carries out its declared plans to close a lot of steel mills, at
the cost of hundreds of thousands of Chinese jobs, it will still have annual
excess capacity of 200m tonnes or more. This is great for steel consumers, but
threatens the jobs of steelworkers, of whom there are 328,000 in the EU alone.
What is more, the closure of steel plants provokes atavistic fears about
whether Western manufacturing has a future. To many Europeans and Americans,
even national identity may seem to be at stake.
On both sides of the Atlantic, anti-China diatribes are becoming more
common. Britain’s Conservative government is accused of sacrificing the steel
industry to toady up to China. In America Donald Trump, who accuses China of
“raping” America and wants to impose a 45% tariff on Chinese imports, is now
the all-but-certain Republican presidential nominee.
It seems unlikely, in this climate, that America will change its laws to
grant market-economy status to China. In Europe the decision is harder to call.
Britain, the Netherlands and the Nordic countries are likely to be in favour,
with some Mediterranean countries, notably Italy, against. In the end, some in
Washington fear, Europeans may be tempted to give China what it wants for the
sake of commercial advantage and to avoid a quarrel.
If so, that would recall the tussle over the arms embargo. It would also be
in keeping with Europe’s role as a distant, detached observer of the
geopolitical tussle under way between China and America for strategic primacy
in Asia. So the worst outcome of an obscure wrangle over China’s status in the
WTO may not be a blazing row with China so much as the widening of an already
worrying rift in the transatlantic alliance. The Economist
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