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U.S., China at Odds over Market Economy Status for Chinese Goods

Thursday, January 07, 2016
Sandler, Travis & Rosenberg Trade Report

Nearly a year ahead of a change that could affect the calculation of antidumping duties on U.S. imports of Chinese goods, the two sides are already disputing what the change will mean in practical terms. Observers say the issue may only be resolved through litigation at the World Trade Organization, which could take several years to conclude.

A provision in China’s protocol of accession to the WTO allows members of that organization to use calculations in AD proceedings that are not based the actual costs of Chinese producers if the producers cannot demonstrate that market economy conditions prevail in their industry. The U.S. has used this provision to automatically assign non-market economy status to goods imported from China, which typically results in higher AD duties than would otherwise be the case.

This provision expires Dec. 11, but there is no agreement on what effect that will have. China asserts that WTO members will have to stop using NME-type methodologies altogether with respect to Chinese goods as of that date, and a Chinese official recently said that no party to China’s WTO accession “can evade its obligations under international treaties by citing domestic laws as an excuse.” The U.S. and others reject Beijing’s characterization and say they will continue to be allowed to use such methodologies after Dec. 11 if the petitioners can clearly show that market economy conditions do not prevail in the industry at issue. Private-sector supporters of this position argue that China’s central government still wields significant control over the national economy, often to the detriment of foreign competitors, and that a broad grant of market economy status would further exacerbate the harm caused by government policies.

The U.S. Department of Commerce has taken the latter position and said there is no provision in U.S. law requiring China to be treated as a market economy country for AD purposes after Dec. 11. Instead, DOC plans to consider market economy status for China on a case-by-case basis within the context of individual AD proceedings.

China has responded by threatening litigation at the WTO against the U.S. and other members that do not amend their laws and regulations to reflect its interpretation. Such a case could be the only way to obtain a definitive answer, but given the track record of the WTO Dispute Settlement Body, that answer could take years. The U.S. is likely to maintain its existing policies in the meantime.

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