Market or non-market economy for China’s dumping cases?

Trade Pacts Latin America expert Dr. Fernando González-Rojas has recently presented his latest insights on China’s status as a market economy in anti-dumping investigations at the Advisory Center on WTO Law (ACWL), based in Geneva.

His presentation explored a proposal for the correct interpretation of Section 15 of China’s Protocol of Accession to WTO, which established special rules for dumping calculations applicable only to China. This protocol has triggered a heated debate amongst international trade scholars and practitioners, who perceive it as the golden grail in the field of trade remedies, not only because it involves billions in Chinese exports, but also because it challenges the basic principle of effective treaty interpretation. In essence, this debate motivates a crucial question: should WTO Members continue applying a special methodology for the calculation of the normal value of Chinese imports in anti-dumping proceedings, based on the belief that China is a non-market economy (NME)?

For many years, one sentence in China’s Protocol of Accession, known as the ‘sunset clause’, led many WTO Members to assume that, after 11 December 2016, China would be considered a market economy for the purposes of dumping calculations. Before that date, and based on Paragraph (a)(ii) of Section 15, Members were expressly allowed to use non-Chinese prices or costs to determine the normal value of Chinese imports, if China’s producers failed to demonstrate that market economy conditions prevailed in their industries. According to some observers, the use of this methodology significantly increases the chances of a positive finding of dumping, and, subsequently, of imposing anti-dumping duties on Chinese imports.

What Are Experts Debating?

Some experts believe that the surviving language of Section 15 still authorises WTO Members to use non-Chinese prices or costs to calculate the normal value of Chinese imports during anti-dumping investigations.  In general, they base their claim on one particular paragraph of China’s protocol of accession, which establishes that if the investigated producers clearly show that market conditions prevail in their industry, the importing Member must use Chinese benchmarks for their dumping calculations. According to these experts, a per contrario reading of this provision indicates that if the attempts of the producers to demonstrate market economy conditions fail, the investigating authority of the importing Member may resort to foreign prices or costs to determine the normal value of the Chinese goods.

Another group of experts believes that adopting such a view deprives the sunset clause of any meaning or relevance, since importing Members would still be allowed to use non-Chinese benchmarks, even though the provision that expressly authorised such methodology has already expired. The main problem with these two interpretations is that they both render certain provisions of China’s Protocol of Accession, either the surviving language in Section 15 or the sunset clause, meaningless. This end result contradicts the principle effective treaty interpretation.

China Still a Non-Market Economy?

Dr. González-Rojas offers a solution to this interpretative debate. His paper proposes that the surviving language of Section 15 still embodies the presumption that China is an NME. Indeed, Paragraph (a)(i) indicates that importing Members must rely on Chinese prices or costs to calculate normal value, if the producers demonstrate the prevalence of market economy conditions. This provision was not terminated by the sunset clause. Thus, anti-dumping investigations involving Chinese goods start with the rebuttable presumption that China is an NME even today.

May WTO Members Still Calculate Dumping of Chinese Imports Differently?

According to Dr. González-Rojas’ paper, importing Members may still use non-Chinese prices or costs for their calculations. However, as of 11 December 2016, WTO Members need to comply with the general requirements established in the GATT and the ADA to proceed to use such methodology.

Dr. González-Rojas points out that even before China joined the WTO, Ad Article VI:2 of the GATT and Article 2.2.2(iii) of the Anti-Dumping Agreement (ADA) already authorised the use of certain out-of-country prices or costs during anti-dumping investigations. However, these provisions subjected the use of such methodology to much tougher requirements than those contained in the extinct Paragraph (a)(ii) of China’s Protocol of Accession, which established only one condition for the use of non-Chinese prices or costs, i.e. the persistence of the NME presumption. Consequently, after the termination of Paragraph (a)(ii) by the sunset clause, importing Members must determine the normal value of Chinese imports by using the same methodologies and complying with the same requirements that are applicable during investigations involving goods from other WTO Members.

In other words, following 11 December 2016, Chinese imports must be treated in the same manner as those imports from other WTO Members. As mentioned, the only difference between the treatment received by Chinese goods and that afforded to products from other WTO Members should be the existence of a rebuttable presumption that China is an NME. Nevertheless, although the persistence of this NME-presumption may facilitate demonstrating compliance with the general requirements for the use of out-of-country prices or costs contained in the GATT and the ADA, it does not automatically authorise the use of such benchmarks. In sum, WTO Members may still use non-Chinese benchmarks to calculate the normal value of Chinese imports, although now they have to comply with the same requirements applicable during anti-dumping proceedings involving imports from other WTO Members.

Consequently, neither the sunset clause nor the rest of the surviving language of China’s Protocol of Accession lack any meaning or relevance. The effect of the sunset clause was the removal of the one-condition special regime for the use of non-Chinese prices or costs, previously contained in Section 15. In turn, the role of the surviving language in Section 15 is preserving the rebuttable presumption that China is an NME.

The paper by Dr. González-Rojas is scheduled to be published in the September 2017 issue of the International Trade & Customs Journal.

 Dr. Fernando González-Rojas forms part of Trade Pacts team of professionals offering trade law advisory services to businesses of all sizes and governments across the globe.  Visit the Trade Pacts website for detailed reports, white papers, and team developments, or follow on Twitter for regular updates.   

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