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China goes to war with EU and US on trading status

Beijing’s legal challenge comes only a day after it argues it won market economy status.

Beijing has wasted no time in launching legal action against the EU and the U.S. for failing to recognize China as a market economy by a December 11 deadline.

The decision is likely to heighten the risks of a trade war, as U.S. President-elect Donald Trump ratchets up his rhetoric against China, which he has criticized for its military build-up in the South China Sea and for failing to pull its weight in reining in nuclear-armed North Korea.

Market economy status in the World Trade Organization has long been one of China’s most coveted political goals. Winning such a designation would not only represent a highly symbolic economic coming-of-age for the Communist nation, but would also make it far harder for other countries to slap anti-dumping tariffs on tides of ultra-cheap Chinese imports.

Beijing argues that it is automatically entitled to market economy status from December 11 according the terms of its accession agreement to the WTO. This would mean that other WTO members would have to switch to a new anti-dumping methodology that would make it far more difficult to pursue cases against bargain-rate consignments of Chinese steel, ceramics and textiles.

Only one day after the expiry of the deadline, the WTO confirmed on Monday that China had launched a dispute resolution case against the EU and the U.S. in an instant riposte to their failure to change their anti-dumping methodology in time.

“We regret that China is launching this dispute now despite the fact that the Commission has already made a proposal to amend the legislation in question,” a European Commission spokesperson said. “We will now study the request and accept, as usual, China’s request to enter into consultations,” he added.

Chinese state broadcaster CCTV quoted Commerce Minister Gao Hucheng as saying: “China’s lawful rights and interests must be maintained and the country reserves the right to take further action. Several WTO members have failed to fulfil their obligations.”

Analog antics

Washington and Brussels both use a so-called analog country methodology to determine tariffs for dumped goods on the understanding that China is a “non-market economy.” This methodology makes it relatively easy to prove Chinese dumping as it allows the use of prices of a third country to determine what the price of Chinese goods would be if market conditions were in place. 

China insists this methodology must now be dropped.

Beijing’s legal challenge will have no immediate effect, but the move increases pressure on lawmakers in Brussels and Washington. The EU is divided over a proposal revamp of bloc’s trade arsenal that still needs approval from the European Council and European Parliament.

A dispute at the WTO must first pass through a consultation phase where representatives of China, the EU and the U.S. meet to discuss the case behind closed doors.

Following the consultations, China can request a panel to be set up. The EU and the U.S. have the right to refuse the request for such panel once, causing a delay. They are then obliged to accept a second request.

A timeline prepared by Van Bael & Bellis, a Brussels-based law firm dealing with trade disputes, puts 2020 or 2021 as likely dates for the end of the cases.

“The bottom line is that the only way to get definitive clarity about the correct legal interpretation of Section 15 [the relevant section of the accession protocol] post-December 11 is from a WTO dispute settlement,” said Laurent Ruessmann, a partner at Fieldfisher, who is representing Aegis, a lobby representing 30 European manufacturing industries that oppose market economy status for China.

“Since China is obviously not happy that other major trading partners do not simply adopt their view of the text, it makes sense that they bring it to the WTO for dispute settlement,” he added.