China seeks recognition as market economy

Goods for export are lifted from trucks onto ships in China's port of Qingdao. Photo: Reuters

China just marked 15 years since it became a member of the World Trade Organization (WTO).

But on Monday, China launched a complaint at the WTO. Chinese officials are protesting the way the United States and European Union calculate prices for exported goods in trade disputes with their country.

China joined the WTO on December 11, 2001. On Sunday, part of China’s agreement with the trade group came to an end.

Chinese officials say this means the nation, led by the Chinese Communist Party, should have market economy status, also known as MES. The term MES means that trade partners would have to accept prices reported by China’s exporters.

For the past 15 years, China’s trade partners have used what are called “surrogate prices.” These prices are believed to take the real cost of Chinese exports into consideration. This may include government assistance that makes prices lower.

Market economy status makes it harder for other countries to punish a WTO trade partner with high tariffs.

However, the European Union, the United States and some other countries do not agree that China should be given MES. Japan and India also are unlikely to immediately consider China a market economy.

Concerns about selling products below the cost of production

China’s economy is slowing now after expanding for about 25 years at a rate of 10 percent or more. This year, the world’s second largest economy is expected to grow by less than seven percent.

China considers market economy status important to its efforts to increase or at least support trade levels.

But many experts say China heavily supports state-owned businesses by letting them cut prices and “dump” goods in foreign markets. The word dumping describes selling exports for a lower price than they are sold in their home market or below the cost of production.

Scott Kennedy is director of the Project on Chinese Business and Political Economy at the Center for Strategic and International Studies in Washington.

He says, “The most neutral judge of whether China is complying with its WTO commitments is the WTO.”

Out of 24 trade disputes, Kennedy says, decisions have been reached in 16. Of those cases, he notes, China has lost 13.

However, a recent editorial in the Communist Party’s “People’s Daily” said it is not an issue of letting China receive market economy status. The newspaper said it is the “obligation of the EU and other WTO members” to give China MES.

Free trade less popular around the world

The disagreement over China’s position in the WTO adds to growing concerns about free trade around the world.

Ideas that some people consider protectionist have been voiced in Europe. They became widely reported after Britain voted to leave the European Union. U.S. president-elect Donald Trump has also threatened to place heavy import taxes on some Chinese goods.

Eli Friedman is an associate professor at Cornell University’s Industrial and Labor Relations School. He says the possibility of protectionist measures in the West could be really bad news for China’s exporters.

He says, “Many countries are now looking to China to push forward on free trade—an agenda that is increasingly unpopular among voters globally.”

The WTO is expected to release more information about China’s recent case in the coming days.

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