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Deciphering China’s trade deceptions

LiveMint logoLiveMint 12-09-2017 Anshul Pachouri

China acceded to the World Trade Organization (WTO) in December 2001 after lengthy negotiations. The accession was aggressively pursued by China against the backdrop of the introduction of market reforms in 1978, opening up of the Shanghai Stock Exchange in 1990 and the government’s agenda to drive global manufacturing expansion. The entry into the WTO certainly seems to have helped China in pursuing its ambitions: its share in global manufacturing increased from 2% in 1991 to 7.5% in 2001 to more than 23% in 2013.

However, the accession came with a clause that China could be treated as a non-market economy in anti-dumping investigations if Chinese firms failed to establish that they operated under market economy conditions for a period of 15 years ending 11 December 2016 (Section 15(a) of China’s accession agreement). In case of failure by the Chinese firms to prove that they were operating in market economy conditions, the importing country could use alternative methodologies to compute the normal value and dumping margin of the imported goods.

China often mentions the usage of these alternative methodologies, such as surrogate approach (third country reference production costs method) in particular, as discriminatory and unfair trade practice by India and many other countries.

India has clarified on multiple occasions that it needs to consider Chinese firms as operating in a non-market economy due to the significant direct or indirect control of the state in firms’ operations and input factors such as raw material, power, land, and labour.

The US and the European Union (EU) have also highlighted their concerns about exchange rate and intellectual property management by China with regard to its market economy status.

However, the contention doesn’t end here. China also saw the deadline of December 2016 as an automatic route to get market economy status signed and sealed by all the member countries of WTO.

But section 15(d) of China’s accession agreement clearly states that “Once China has established, under the national law of the importing WTO Member, that it is a market economy, the provisions of subparagraph (a) shall be terminated provided that the importing Member’s national law contains market economy criteria as of the date of accession”.

This means that China can’t secure market economy status automatically unless and until it meets the criteria as defined in the national laws of WTO member countries, including India. China seems to have presented the facts in a disingenuous manner in this regard and has even filed a case in the WTO against the US and EU after failing to receive market economy status after the passing of the deadline in December 2016.

Recently, China also accused India of starting a trade war when the latter decided to extend anti-dumping duty on 93 products imported from China for another five years in August. In contrast, when China extended anti-dumping duty on chloroprene rubber imported from the US and Japan in May, it attributed the extension to the harm done to its domestic industry.

A similar dichotomy can be seen in the case of India starting anti-dumping investigations in the case of solar panels and cells imported from China in July. Again, China has protested against this while renewing the anti-dumping duty on optical fibre (mainly used in its domestic telecom sector) imported from the US for another five years in April.

This shows, unsurprisingly, that China is not operating in good faith; it changes its stand based on convenience.

India has initiated anti-dumping investigations in 818 cases between 1995 to June 2016, out of which 24% (193 cases) were against China. Anti-dumping measures had been levied in 149 cases (77%) out of these 193 investigative cases. Interestingly, India had also initiated similar anti-dumping investigations against other South-East Asian economies (Indonesia, Malaysia, Thailand, Taiwan and Singapore) in 193 cases during the same period.

Out of these 193 cases, anti-dumping measures had been levied in 143 cases (74% of total cases).

The other major targets of anti-dumping investigations by India are the EU (62 cases) and South Korea (62 cases); out of these, anti-dumping duty has been levied in 46 EU cases and 45 South Korean cases.

The data clearly shows that India is pursuing anti-dumping investigations across the board depending on the merits of the case rather than just targeting any one particular country.

It shouldn’t come as any surprise if China attempts to apply further pressure in the future in bilateral and multilateral settings. For instance, in the context of Brics, it may play the South Africa and Brazil card; they have already given market economy status to China (Brazil is yet to implement it).

However, India should not budge, no matter the pressure. Its reservations have technical grounding and New Delhi should hammer on this point. Initiation of anti-dumping investigations is decided on the merits of the case and not just used merely as a trade policy war tool by India. It is high time China understood this—not just when it comes to China but also in its dealings with the US and the EU.

Anshul Pachouri is project manager, J-PAL, South Asia, at the Institute for Financial Management and Research.

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