It is of utmost importance to China's leaders that China be recognized as a market economy. As a market economy, China would be treated differently when it comes to global trade law. But while the nation's leaders appear to believe that admission as a member of the WTO in 2001 triggered a 15 year countdown to market economy status, Bernard O'Connor says "idea that there is a deadline is an urban myth that seems to have gone global." Writing at Vox, O'Connor says China must earn market economy status by satisfying very specific criteria:
As Karel De Gucht, the current EU commissioner for trade, recently stated, whether China is or is not a market economy is a technical question under EU law. The EU assesses the existence of a market environment using five criteria set out in the EU antidumping regulation. Such conditions can be summarised in the following questions:
Does the government influence the operative decisions of firms or are they made in response to market signals?
Does the legacy of the command economy, in terms of public ownership, barter trade and so on, affect firms' operations?
Do firms have effective accounting standards?
Do firms operate under an effective framework of bankruptcy regulation and property-rights protection?
Do firms convert currency at standard market rates?
Does China as a whole meet these criteria? This is an open question. Both the US Department of Commerce and the EU Commission have found, during the course of investigations into companies in antidumping investigations that firms in China do not comply with international accounting standards, and in anti-subsidy investigations, that many market sectors operate within the framework of the five-year plans which encourage some sectors and discourage others. For example, companies in the encouraged sectors receive funding from state-owned banks without any regard to the risks which such funding might incur. In addition, many countries have questioned whether China allows its currency to float. Brazil has raised this issue in the WTO referring to the concept of monetary dumping.
On the basis of analysis carried out in the US and in the EU it is unlikely that China would be considered a market economy according to the normal standards applicable in EU law. And Article 15 of the China WTO accession protocol requires that the evaluation be carried out on the basis of the law of the importing WTO member.
Read Market-economy status for China is not automatic here.
Filed under: vox, global business, trade, EU, global trade, tariffs, China, Europe, eu law, bernanrd o'connor, antidumping, wto, market economy, price controls