The lesson here is that China is either a market economy or a nonmarket economy depending on which designation will enable trade officials to impose higher tariffs.13 The test is overly strict, has been inconsistently applied to China in the past, and is immune from judicial scrutiny.
There’s Always Regular Antidumping Abuse
The antidumping lobby has urged governments to continue using nonmarket economy treatment by claiming that otherwise there will be no way to protect domestic industries from low‐priced Chinese imports. One European steel industry representative went so far as to say “Granting China [market economy status] is giving it an unlimited license to dump.” 14 Hillary Clinton claims that abiding by our obligation to abandon nonmarket economy methodology would “defang our anti‐dumping laws and let cheap products flood into our markets.“15
Although nonmarket economy treatment is one of the most egregious forms of antidumping abuse, the unfortunate truth is that even if governments stop using nonmarket economy methodology, there are still plenty of ways, consistent with the WTO Antidumping Agreement, to impose excessively high antidumping duties. Cato scholars have thoroughly documented the myriad ways antidumping authorities have found to abuse their discretion under domestic and international antidumping rules.
The most likely outcome after the end of nonmarket economy treatment is for antidumping authorities to rely heavily on a methodology known as constructed value.16 Under certain circumstances, domestic prices can be approximated, or “constructed,” by adding together a producer’s costs of production plus estimated profit.17
The WTO rules allow for the use of constructed value when a high portion of domestic sales are not made “in the ordinary course of trade” or when “a particular market situation in the exporting country does not permit a proper comparison with the export price.“18
Antidumping authorities will enjoy the latitude to claim that Chinese prices are unreliable because of government interference in the market. This would enable them to resort to constructed value, which (while not nearly as unpredictable and unrealistic as nonmarket economy methodology) tends to produce unrealistically high estimates of domestic prices and so inflates the values of the antidumping duties ultimately imposed.
There is also the option of imposing countervailing duties that directly target Chinese subsidies. Protectionists often conflate antidumping, which deals with private pricing practices, and countervailing duties, which directly address the price distortions of foreign subsidies. They are, in fact, two totally separate remedies. In 2015, every U.S. antidumping duty order against Chinese goods was accompanied by a countervailing duty order. The average countervailing duty in those cases was approximately 103 percent.19 Far from defenseless in the face of Chinese market intervention, protection‐seeking U.S. companies have numerous weapons in their arsenals.
Advocates for maintaining the status quo discrimination in antidumping treatment of Chinese imports are trying to frame the question of China’s nonmarket economy designation in ways that misdirect the debate. There is no real question about what WTO rules require. China does not still need to show that it meets the criteria for market economy status. And, ending nonmarket economy treatment will not leave other countries defenseless against “unfair” trade practices.
The United States and European Union have already agreed to end nonmarket economy treatment of Chinese goods by no later than December 11, 2016. Refusing to honor that agreement will serve to frustrate important economic and political relationships with China and harm U.S. and European businesses and consumers.
1. Bryce Baschuk, “USTR Official Says Chinese Market Economy Status ‘Not Automatic’ after Dec. 11,” Bloomberg BNA, February 8, 2016.
2. World Trade Organization, “Protocol on the Accession of the People’s Republic of China,” ¶15, WT/L/432, November 23, 2001.
3. Bernard O’Connor, “Market‐economy Status for China Is Not Automatic,” Vox, November 2011, http://www.voxeu.org/article/china-market-economy; and Jorge Miranda, “Interpreting Paragraph 15 of China’s Protocol of Accession,” Global Trade and Customs Journal 9, no. 3 (2014): 94–103.
4. Miranda, “Interpreting Paragraph 15 of China’s Protocol of Accession.”
5. World Trade Organization, “Protocol on the Accession of the People’s Republic of China,” ¶15.
6. Daniel J. Ikenson, “Abuse of Discretion: Time to Fix the Administration of the U.S. Antidumping Law,” Cato Trade Policy Analysis no. 31, October 6, 2005, p. 6.
7. Daniel J. Ikenson, “Nonmarket Nonsense: U.S. Antidumping Policy toward China,” Cato Trade Briefing Paper no. 22, March 7, 2005, p. 3.
8. General Agreement on Tariffs and Trade, annex I, Ad Article VI.
9. 19 U.S.C. §1677(18).
10. 19 U.S.C. §1677(18)(D).
11. International Trade Administration, “Antidumping Duty Investigation of Certain Lined Paper Products from the People’s Republic of China — China’s Status as a Non‐market Economy,” memorandum, August 30, 2006, p. 80.
12. International Trade Administration, “Countervailing Duty Investigation of Coated Free Sheet Paper from the People’s Republic of China: Whether the Analytical Elements of the Georgetown Steel Opinion Are Applicable to China’s Present‐Day Economy,” memorandum, March 29, 2007, http://enforcement.trade.gov/download/prc-cfsp/CFSChina.Georgetown applicability.pdf.
13. See Scott Lincicome, “Documenting DOC’s Ample Discretion RE the ‘NME’ Designation,” lincicome.blogspot.com (blog), September 11, 2012.
14. Nicole Goebel, “Steel Industry Urges Tough Action on China Amid Overcapacity,” Deutsche Welle, February 15, 2015, http://www.dw.com/en/steel-industry-urges-tough-action-on-china-amid-ov….
15. Hillary Clinton, “If Elected President, I’ll level the Playing Field on Global Trade,” Portland Herald Press, February 23, 2016, http://www.pressherald.com/2016/02/23/commentary-if-elected-president-i….
16. K. William Watson, “Will Nonmarket Economy Methodology Go Quietly into the Night? U.S. Antidumping Policy toward China after 2016,” Cato Policy Analysis no. 763, October 28, 2014.
17. Brink Lindsey and Daniel J. Ikenson, “Reforming the Antidumping Agreement: A Road Map for WTO Negotiations,” Cato Trade Policy Analysis no. 21, December 11, 2002, p. 17.
18. World Trade Organization, Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, Articles 2.1–2.2.
19. See U.S. International Trade Commission, “Antidumping and Countervailing Duty Orders in Place,” January 14, 2016,