New manufacturing trade alliance forms to block ‘market economy’ status for China

A group of leading U.S. manufacturing and industrial trade groups have formed a new coalition, called Manufacturers for Trade Enforcement, to oppose China’s designation as a market economy at the end of 2016.

The group was formed, in part, to fight China’s claim that it should be automatically accorded treatment as if it were a market economy after the 15th anniversary of its accession to the World Trade Organization (WTO) in December 2016. U.S. law requires that the Department of Commerce make a market economy status (MES) determination based on established criteria, which many experts agree that China has not met.

“Our industries can compete against any other market-oriented competitors, but we cannot compete against the Chinese government,” said Heidi Brock, president & CEO of the Aluminum Association. “The Chinese economy does not meet the basic requirements set forth by U.S. statutes and the Department of Commerce for a functioning market economy, and we will work together in this coalition to speak loudly, and with one strong voice, to prevent China from gaining a status that it does not yet deserve.”

The U.S. trade groups united in their opposition to market economy status for China include the Alliance for American Manufacturing; Aluminum Association; American Fiber Manufacturers Association; American Iron and Steel Institute; Narrow Fabrics Institute; National Council of Textile Organizations; PET Resin Association; and U.S. Industrial Fabrics Institute. Several companies with ties or major operations in Arkansas, including Nucor Steel, are part of the alliance.

According to organizers, these organizations represent 800,000 direct manufacturing jobs in the U.S.  Granting market economy status to China would put many of these jobs at risk by limiting U.S. manufacturers’ ability to seek remedies for unfair trade practices by Chinese firms.

The newly formed MTE said state support of domestic manufacturing in China has distorted global markets, leading to significant oversupply and other issues that are hurting domestic manufacturers. In the aluminum industry alone, eight U.S.-based aluminum smelters have curtailed or closed since the beginning of 2015, representing more than 60 percent of U.S. primary aluminum capacity and impacting more than 3,000 workers.

In November, the American Iron and Steel Institute presented research performed by three NAFTA-region economists demonstrating the negative impact to the steel industry and related industries in North America of granting China market economy status before China has made the necessary market-oriented reforms to its economy.

“The unfortunate reality is China continues to be a state-run economy in many respects, creating an un-level playing field for manufacturers here at home,” said Thomas Gibson, president and CEO of the American Iron and Steel Institute. “What we are calling for is a fair and accurate assessment of the Chinese economy – and we believe that will show that market economy status for China is not warranted at this time.”

According to the recent report by international trade law firm, Sandler, Travis & Rosenberg (ST&R), the two countries are at odds over “market economy’ status mainly due to antidumping by Chinese companies that affect American manufacturers of steel, iron, clothing and other U.S. goods.

A recent ST&R Trade Report, which covers international trade agreements and global laws, regulations, policies and procedures that affect the importation and exportation of goods around the world, says a provision in China’s protocol of accession to the WTO allows members of that organization to use calculations in AD proceedings that are not based the actual costs of Chinese producers if the producers cannot demonstrate that market economy conditions prevail in their industry.

The U.S. has used this provision to automatically assign non-market economy status to goods imported from China, which typically results in higher AD (anti dumping) duties than would otherwise be the case. This provision expires Dec. 11, but there is no agreement on what effect that will have.

“China asserts that WTO members will have to stop using (non-market economy-type) methodologies altogether with respect to Chinese goods as of that date, and a Chinese official recently said that no party to China’s WTO accession “can evade its obligations under international treaties by citing domestic laws as an excuse,’” says the report by the Miami-based law firm, which has trade offices in North America, South America, Asa and Europe.

“The U.S. and others reject Beijing’s characterization and say they will continue to be allowed to use such methodologies after Dec. 11 if the petitioners can clearly show that market economy conditions do not prevail in the industry at issue. Private-sector supporters of this position argue that China’s central government still wields significant control over the national economy, often to the detriment of foreign competitors, and that a broad grant of market economy status would further exacerbate the harm caused by government policies,” said the recent report.

The U.S. Department of Commerce has taken the latter position and said there is no provision in U.S. law requiring China to be treated as a market economy country for antidumping purposes after Dec. 11. Instead, DOC plans to consider market economy status for China on a case-by-case basis within the context of individual proceedings.

China has responded by threatening litigation at the WTO against the U.S. and other members that do not amend their laws and regulations to reflect its interpretation.

“Such a case could be the only way to obtain a definitive answer, but given the track record of the WTO Dispute Settlement Body, that answer could take years. The U.S. is likely to maintain its existing policies in the meantime,” the ST&R report concludes.