China's Demand for Market Economy Status

Why in news?

The United States recently submitted a document to the WTO, stating its opposition to granting China the market economy status.

What is the market economy status?

A market economy is an economic system in which economic decisions and the pricing of goods and services are guided solely by the market.
The aggregate interactions of a country's individual citizens and businesses operate behind the key economic decisions.
This is the opposite of a centrally planned economy, in which government decisions drive most aspects of a country's economic activity.

What does China aim for?

Central to China’s quest is the acknowledgement from trading partners of its market economy status.
In other words, a recognition that its domestic prices are determined by open competition rather than by the government.
This will help China counter the attacks by importer countries of its unfair dumping.
Conversely, as long as it is treated as a non-market economy, China has to ascertain the value of goods with reference to prices in a third country.
This is for the trading countries to ensure that the domestic firms did not gain an unfair trade advantage.

Is China's demand valid?

Supporting claims - The provisions in China’s Protocol on the Accession to the WTO 2001 has been a subject of controversy.
China insists that as per the provisions in the Protocol, its upgrade as a market economy was automatic on the completion of 15 years of its WTO membership in 2016.
Several nations have endorsed China’s position in return for bilateral cooperation in trade and investments in infrastructure projects.
Even a WTO appellate body’s 2011 ruling highlights that as per the protocol, China cannot continue to be treated differently by other member states for an indefinite period.
Opposing claims - The alternative interpretation draws upon the sub-clauses of the protocol.
It specifies the conditions when importers may take recourse to a different methodology to impose anti-dumping tariffs.
Accordingly, onus is on Chinese firms to prove that they were operating under conditions of a competitive market economy.
If they fail to do so, the importing states would be entitled to invoke rules applicable to a non-market economy while probing firms for dumping.
Another clause allows for the status of market economy to be decided for specific industry sectors, rather than the entire economy.

Why is the US opposing?

Excessive Chinese imports flooding domestic markets is the root cause for Western resistance to accord China the market economy status.
Countries that are opposing Chain's claims say that the use of state subsidies in China distorts market prices.
And is also consequently causing job losses in the manufacturing sector.
If China is granted the coveted status, it would be hard for the US to defend its anti-dumping rulings against Chinese firms at WTO.
There is also a concern that China’s economic liberalization seemed to have slowed or reversed, with the role of the state increasing.
Evidently, the following are being witnessed -

Source: The Hindu