econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 15 December 2016

It Is Not China Destroying The Global Market Economy

Written by , Difference Group

WTO Debacle Heralds the End of Postwar Trade Regime

China is not a market economy," President-elect Donald Trump said in Iowa a few days ago. In the past few months, Trump has also pledged to undo the North-American Free Trade Agreement (NAFTA), beat back the Trans-Pacific Partnership (TPP), impose huge tariffs on China and Mexico, and rewrite the rules of trade.

global.trade.380x220

Nevertheless, the Obama White House, the EU and Japan beat Trump in the reset of the international trading regime by refusing China its market economy status (MES). The key clause in China’s agreement for joining the World Trade Organization (WTO) expired on Sunday.

The WTO “reinterpretation"

When China joined the WTO on December 11, 2001, it was written into the agreement that member states could treat China as a “non-market economy" (MES), due to the size of the Chinese economy, government intervention and its state-owned enterprises. As a result, advanced economies could ignore Chinese domestic price comparisons and rely on “constructed values" to reflect the “true" Chinese economy.

In turn, those “surrogate figures" allowed them to impose heavy anti-dumping duties on the basis that China’s low prices did not reflect market realities.

As the December 11, 2016 deadline for this practice approached, the advanced economies’ lobbyists, which represent some of the most uncompetitive companies in a few sectors (especially steel), began to urge WTO members to “reinterpret" the accession language. Now it was argued that in the original agreement there was an “escape clause," which would conveniently justify the continued treatment of China as a non-market economy.

In the past 15 years, the surrogate figures have permitted wide discretion and manipulation of price data, which has been used as basis for anti-dumping charges; that is, tariffs up to 40 percent higher than normal anti-dumping duties.

Economic issues and geopolitical ploys

A few days ago, Japan said that it will not recognize China as a WTO market economy, which will leave tariffs as a ready option against Chinese exports. That is convenient at a time when the reform agenda of Prime Minister Shinzo Abe has failed to reflate the Japanese economy. In turn, the US administration of Barack Obama has stated that the time was “not ripe" for China’s market economy status and the European Union has followed its lead.

Such a “reinterpretation" of the WTO rules is very expedient from the standpoint of Washington, Brussels and Japan. In the past, it has allowed them to deploy market-restricting figures and methods to shun competition by Chinese companies. As advanced economies are struggling with secular stagnation, it seeks to extend the anticompetitive past practices far into the future.

Yet, this revision of history is relatively new. Through much of the past 15 years, US presidents (Bill Clinton, George W. Bush), US Trade Representatives (Charlene Barshefsky), Secretaries of Commerce (Gary Locke) and key administration figures repeatedly affirmed that the non-MES methodology would expire in due time.

The change came with the Obama administration in 2012 when the US Trade Representative reversed its position and affirmed a new “reinterpretation," which reflects protectionist doctrines - even though such a reinterpretation by the EU was contradicted only months before the 2011 WTO Appellate Body decision.

Why the sudden change? The new approach did not emerge in a historical vacuum, but amid the US pivot to Asia, which was developed by then-Secretary of State Hillary Clinton and initiated by president Obama.

Positioning against emerging economies

In legal terms, the reinterpretation represents the violation of the 2001 agreement, which will be China’s chief argument in the to-be-expected legal battle at the WTO.

In practice, the Obama administration’s reinterpretation of the WTO agreement reflects the kind of geopolitical trading environment that was to emerge with the US pivot to Asia, particularly the Trans-Pacific Partnership - both of which incoming president Donald Trump plans to redefine or bury to make room for assertive “America first" trading regime.

China is neither the first nor the last large emerging economy to face such anticompetitive challenges. However, as secular stagnation is about to deteriorate in advanced economies, it is likely that Washington, Brussels and Tokyo will resort to market-restricting methods to avoid intensifying competition by emerging economies. As global growth prospects rely increasingly on emerging nations - not advanced economies - such maneuvers are likely to prove costly to global economy.

Through the past 15 years, the US, the EU and Japan have often lectured China and other emerging economies on being “responsible international stakeholders" and the importance of the “rule of law" in international relations. Yet, last Sunday, they violated both tenets, which heralds the end of the postwar trading regime and the return of irresponsibility and the rule of might.


The original, slightly shorter version of this commentary was published by China Daily on 13 December 2016

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Opinion Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.




Econintersect Opinion








search_box
Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.







Keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government




























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2018 Econintersect LLC - all rights reserved