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China’s ties with major trade partners tested by row over WTO accession agreement

China’s ties with its major trade partners – even its future role in the global trade system – are being tested by a row over a clause in its World Trade Organisation agreement – just as the 15th anniversary of its accession to the international body approaches.

Almost 17 years ago, after talks lasting six days and nights, China and the United States finalised a landmark deal on November 15, 1999, that laid the foundation for Beijing’s WTO entry on December 11, 2001.

The more than 900 pages of text included one clause stating that, in anti-dumping cases against Chinese exports, the investigator could use third-country pricing to assess whether China’s price was fair.

The clause stipulated that the provision would last for only 15 years after China’s entry to the WTO, according to Yang Guoping, a former commerce ministry official who took part in the talks.

The logic then was that China was not a market economy and prices were distorted, but it should become a true market economy within 15 years, Yang said.

China scores victories against US at the WTO in anti-dumping dispute

Beijing insists that the clause should expire automatically, but Washington and Brussels are not satisfied with China’s slow progress in matters they consider necessary in order for it to be considered a market economy.

During this week’s sixth China-European Union High-level Economic and Trade Dialogue in Brussels, co-chaired by China’s Vice-Premier Ma Kai and European Commission Vice-President Jyrki Katainen, China once again requested that the EU “fully fulfil” its obligations under the so-called “Article 15 of the Protocol” on China’s accession to the WTO, known as a sunset clause, but again the request was ignored.

In fact, Beijing has lowered its own target over the issue, by giving up its request for the recognition of its market economy status from its trading partners.

Instead, China wanted only for its trading partners to stop using a third-party country in anti-dumping price assessments, said Lu Feng, an economics professor at Peking University.

US, China clash over market economy status at WTO

China initially thought that the expiry of the clause would equate to the recognition of its market economy status.

“[Now] the government’s stance on the issue had changed radically,” Lu said.

Although products involved in anti-dumping cases have accounted for only a tiny share of China’s overall exports – which expanded after the nation joined the WTO – Beijing is trying hard to protect exporters from unexpected punitive duties in importing countries.

Beijing is one of the biggest winners from a global multilateral trade system centred on WTO. But the current global economic slowdown, alongside rising populism and protectionism have made cheap Chinese exports the crux of criticism for distorting market conditions and threatening local jobs.

That situation has made the issue of China’s market economy status more complicated and is behind tension between Beijing and its largest trade partner, the EU.

“It is now imperative for the EU’s trade defence instruments to be updated,” the European Commission said in a statement on Tuesday.

“The proposal will not grant market economy status to any country, but ensure that the EU’s Trade Defence Instruments are adapted to face the new challenges and legal and economic realities, while maintaining an equivalent level of protection.”

Playing by WTO rules … China defends grain subsidies against US allegations

China’s Premier Li Keqiang said earlier this year that whether or not China was a market economy should be decided by its domestic situation.

As of 2011, 81 countries have given China market economy status, but these do not include the US, Japan or the EU, China’s largest trade partners.

Some Chinese economists lay the blame on the issue of market economy status having been politicised, while European Commission president Jean-Claude Juncker said in July that a decision on whether to grant market economy status to Beijing was related to China’s steel overcapacity, but that the bloc would abide by its international obligations.

Yang said China could file a suit with the WTO after December 11 if other members continued to use third-country standards in anti-dumping disputes.

India, the US and the EU launched most anti-dumping investigations related to China from 1995 up to the end of 2015.

“A market economy status has importance for China as it will significantly change how to handle anti-dumping disputes, but it also has symbolic significance,” said Zhao Xijun, a finance professor at Renmin University.

“It is not a gift. It will bring benefits for both trading sides.”