China's Market Economy Status under WTO Antidumping Law after 2016

• Author: Rao Weijia
• Pages: 152-168

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152 TSINGHUA CHINA LAW REVIEW [Vol. 5:151

CHINA’S MARKET ECONOMY STATUS UNDER WTO

ANTIDUMPING LAWS AFTER 2016

RAO Weijia

Abstract

Paragraph 15(d) of China’s Accession Protocol provides that the provisions of subparagraph

15(a)(ii) shall expire in 2016. Subparagraph 15(a)(ii) permits the importing Member to

derogate from a strict comparison with Chinese prices or costs when determining the normal

value of the p roducts if the producers under investigation cannot clearly show that Market

Economy conditions prevail in the industry in question. While a respected commentator

argues that, despite the stipulated expiration, the importing Member can still treat China as a

Non-Market Economy and use alternative methodologies based on the remaining provisions in

the chapeau, this paper takes a different view by analyzing the role and textual structure of

paragraph 15(a) in light of the negotiation documents and relevant rulings of the Appellate

Body in EC-Fasteners. It demonstrates that the expiry of subparagraph 15(a)(ii) in 2016 will

have the same effect as the expiry of paragraph 15(a) as a whole. Thus, there will no longer be

any legal basi s in China’s Accession Protocol for the importing Member to derogate from a

strict comparison with Chinese p rices or costs after 2016. In this sense, the expiration of

subparagraph 15(a)(ii) in effect bestows Market Economy Status on China.

I. INTRODUCTION

China has long been categorized by many WTO Members as a

Non-Market Economy (NME). China has thereby been subjected to

methodologies that deviate from the strict comparison with domestic

prices or costs required by the GATT 1994 and the Antidumping

Agreement. This different treatment is based on paragraph 15(a) of

China’s Accession Protocol, which permits the importing Member to

use an alternative methodology when Chinese producers cannot

clearly show that market economy conditions prevail in the industry

in question. Meanwhile, paragraph (d) of Article 15 contains an

expiration clause stating that the provisions of subparagraph 15(a)(ii)

shall expire 15 years after the date of China’s accession. For many

scholars and governments, this clause is the basis for the automatic

shift of China’s status from Non-Market Economy to Market

Economy in 2016.1

On 15 July 2011, the Appellate Body, in its report in

EC-Fasteners, interpreted Article 15 of China’s Accession Protocol

for the first time. The Appellate Body largely endorsed China’s claim

that Article 15 contains only a temporary and limited derogation

1 See, e.g., HENRIK ANDERSEN, EU DUMPING DETERMINATION S AND WTO LAW 294 (2009); Joris

Cornelis, China’s Quest for Market Economy Status and its Impact on the Use of Trade Remedies by the

European Communities and the United States, 2 Global Trade and Customs Journal 105, 105-115

(2007); Helena Detlof & Hilda Fridh, The EU Treatment of Non-Market Economy Countries in

Antidumping Proceedings, 2 Global Trade and Customs Journal 265, 265-281 (2007).

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2013] CHINA’S MARKET ECONOMY STATUS 153

from the general rules for determining normal value in antidumping

investigations. The Appellate Body also affirmed that these special

rules would expire in 2016 as established by paragraph 15(d).2

Bernard O’Connor has challenged this consensus by arguing that

paragraph 15(d) only provides for the expiry of subparagraph

15(a)(ii) in 2016. Thus, the chapeau of Section 15 and subparagraph

15(a)(i) remain, and the importing Member can still resort to the

chapeau to justify its use of a methodology that is not based on a

strict comparison with domestic prices or costs. O’Connor concludes

that the expiry of subparagraph 15(a)(ii) will not automatically grant

China Market Economy Status. Instead, China’s status will still be

left to the discretion of the importing Member according to its

domestic laws.3

The Market Economy Status here refers to the eligibility of a

country for the obligatory use of domestic prices or costs when

determining the normal value of the products in antidumping

investigations, which is generally provided for by Article VI of the

GATT 1994 and the Antidumping Agreement. However, for WTO

Members who are subject to either a determination of Non-Market

Economy in the sense of the exception in the GATT 1994 itself4 or a

specific provision in this regard in a respective WTO Accession

Protocol, the importing Member may adopt an alternative

methodology instead, such as the use of surrogate prices in a third

Market Economy country.

The Market Economy Status issue is extremely important to

domestic enterprises, related industries and the overall environment

for trade and investment in China. First, Chinese exporters have

suffered significant financial losses due to the alternative

methodologies used to calculate antidumping duties justified by the

2 See Appellate Body Report, European Communities—Definitive Anti-dumping Measures on

Certain Iron or Steel Fasteners from China, ¶283-291，WT/DS397/AB/R (Jul. 15, 2011).

3 See Bernard O’Connor, The Myth of China and Market Economy Status in 2016,

http://worldtradelaw.typepad.com/files/oconnorresponse.pdf (last visited Jul. 24, 2013) [hereinafter

O’Connor, The Myth]; see also Bernard O’Connor, Market-economy Status for China Is Not Automatic,

http://www.voxeu.org/article/china-market-economy (last visited Jul. 24, 2013) [hereinafter O’Connor,

Not Automatic]; cf . Bernard O’Connor, China And Market Economy Status III,

http://worldtradelaw.typepad.com/ielpblog/2012/05/china-and-market-economy-status-iii.html (last

visited Jul. 24, 2013) . For comments on O’Connor’s views, see Christian Tietje & Karsten Nowrot,

Policy Paper on Transnational Economic Law No. 34: Myth or Reality? China’s Market Economy

Status under WTO Anti-Dumping Law after 2016, available at

http://telc.jura.uni-halle.de/sites/default/files/telc/PolicyPaper34.pdf; see also Henry Gao, If You Don’t

Believe In the 2012 Myth, Do You Believe In the 2016 Myth?

http://worldtradelaw.typepad.com/ielpblog/2011/11/if-you-dont-believe-in-the-2012-myth-do-you-belie

ve-in-the-2016-myth.html (last visited Jul. 24, 2013).

4 See General Agreement on Tariffs and Trade ad art. VI:I (2), Oct.30, 1947, 55 U.N.T.S. 194 (The

threshold set for the invocation of this Ad Note is extremely high and can hardly be satisfied with regard

to China).