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U.S. Senator Urges EU Not to Grant Market Economy Status to Mainland China

Senate Finance Committee Ranking Democrat Ron Wyden (Oregon) is urging the European Union not to grant market economy status to mainland China this year because “it would not reflect current economic reality and is the wrong choice for the millions of American and European workers and their families who are facing unfair trade from China.” Separately, a coalition of U.S. manufacturers has called on the DOC to refrain from modifying mainland China’s status in antidumping and countervailing duty proceedings because the mainland does not meet the basic requirements set forth by U.S. statutes and the DOC for a functioning market economy.

A provision in mainland China’s protocol of accession to the World Trade Organisation allows members of that organisation to use calculations in AD proceedings that are not based on the actual costs of mainland Chinese producers if the producers cannot demonstrate that market economy conditions prevail in their industry. The United States and others have used that provision to automatically assign non-market economy status to goods imported from mainland China, which typically results in higher AD duties than would otherwise be the case. However, the protocol of accession provides for the expiration on 11 December 2016 of a WTO country’s ability to “use a methodology that is not based on a strict comparison with domestic prices or costs in mainland China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product.”

Mainland China contends that as of 11 December 2016 WTO members will have to stop using NME-type methodologies altogether with respect to mainland Chinese goods, and a mainland Chinese official recently said that no party to mainland China’s WTO accession “can evade its obligations under international treaties by citing domestic laws as an excuse, and treat Chinese enterprises in an unfair, unjust, unreasonable and discriminatory manner.” However, the United States and others contend that they will be able to continue to be allowed to use such methodologies after 11 December 2016 if the petitioners can clearly show that market economy conditions do not prevail in the industry at issue.

The EU has initiated a process to determine how to calculate dumping margins in AD investigations concerning mainland China after 11 December 2016 and is currently carrying out a full impact assessment that includes a public consultation process and an in-depth economic analysis. EU Trade Commissioner Cecilia Malmström stated at the 17 March European Commission Trade Defence Conference that the EU has three possible options: (i) leave EU legislation as it is; (ii) change the method of calculation, including by removing mainland China from the list of NME countries without further conditions; or (iii) modify the method of calculation and accompany that action with other changes to the legislation to ensure that the EU is able to capture various other distortions in the mainland Chinese market. Ms. Malmström stressed that while the European Commission has not made a decision on this matter, “doing nothing would initiate disputes at the WTO and beyond, with unknown outcomes.”

Sen. Wyden and other U.S. lawmakers are concerned that this exercise on the part of the European Commission could ultimately weaken trade enforcement efforts in the EU against unfairly traded mainland Chinese products and put pressure on the United States to follow a similar route. Notably, Mr. Wyden believes that “it is critical that the United States and Europe continue to stand together for strong trade enforcement.” Manufacturers for Trade Enforcement, a coalition of industry associations representing 800,000 direct manufacturing jobs in the United States, strongly supports Sen. Wyden’s position, noting that U.S. law requires that the DOC make a market economy status determination based on established criteria that many experts believe mainland China has not met.

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