Eleven Months Left to Revoke China’s Nonmarket Economy Status

When China joined the World Trade Organization in 2001, it agreed that other members would be allowed to apply “nonmarket economy methodology” in antidumping cases against Chinese goods for 15 years.  That deadline will soon pass in December 2016, but the Financial Times reported recently that U.S. officials are actively pressuring their European counterparts to continue using NME methodology indefinitely.  The report is disappointing but not at all surprising.

Given Washington’s long history of actively and intentionally violating WTO antidumping rules, most experts have guessed that the United States would not change its practices at the end of 2016 to comply with WTO rules.

It’s important to realize at the offset that the U.S. antidumping law is bad policy that exists to protect a handful of politically powerful U.S. industries from legitimate competition.  My colleague Dan Ikenson has thoroughly catalogued the numerous fallacies used to support antidumping in general, the myriad abuses of the U.S. government, and the particularly nonsensical nature of nonmarket economy treatment.

I wrote a Cato Policy Analysis in October 2014 explaining the history of NME status as an excuse for lawless protectionism.  I also spelled out some of the possible paths the United States could take following the 2016 expiration of China’s NME status at the WTO and what the legal consequences would be of each.  At the time, I thought the most likely outcome would be no change in practice resulting in years of embarrassing trade litigation at the WTO where the United States will be continually called out for violating trade rules.  According to the Financial Times, that’s exactly what they’re planning to do:

The Obama administration . . . is advocating a policy of inaction, which would force China to bring a challenge in the WTO and thus put the onus on Beijing to prove that its state-heavy economic model has met all the criteria for [market economy status].

Unfortunately, the article perpetuates a frustrating myth that advocates of the status quo use to misdirect the debate.  Whether China’s economic model meets the criteria laid out in U.S. or EU law for market economy or nonmarket economy treatment is irrelevant.  Those criteria are not part of WTO law. 

The WTO Antidumping Agreement lays out detailed rules for how members can implement antidumping measures, and the use of NME methodology is plainly inconsistent with those rules.  China’s accession protocol to the WTO exempts members from some of those rules until December 2016.  After that, United States, European Union, or any other WTO member that uses NME methodology against Chinese goods will be violating global trade rules.

To be blunt, the United States uses NME methodology against Chinese imports because it provides for more protectionist outcomes, not because China doesn’t have a market economy. Whether China qualifies as a market economy under any set of criteria will have no impact on WTO rules or U.S. practice.

What’s more, it’s clear that China considers resolving the NME issue to be an important international economic goal this year.  Ending NME treatment on time would smooth over relations and enable the United States to work on more important bilateral issues. 

Antidumping duties on imports from China harm American consumers and businesses by making the things we buy more expensive while privileging inefficient, rent-seeking domestic industries.  Rather than kowtowing to special interests, the U.S. government should promote economic growth and international peace by ending the NME charade as soon as possible.