China’s NME status at the WTO: analysis of the debate

• Date: 01 February 2021
• DOI: https://doi.org/10.1108/JITLP-09-2020-0054
• Pages: 1-20
• Published date: 01 February 2021
• Subject Matter: Strategy,International business,International business law,Economics,International economics,International trade
• Author: Mirek Tobiáš Hošman

China’s NME status at the WTO:

analysis of the debate

Mirek Tobi

ašHošman

Alma Mater Studiorum Università di Bologna, Bologna, Italy

Abstract

Purpose –Although off‌icially ended in July 2020, China’s dispute about its non-market economy (NME)

status at the World Trade Organization(WTO) is far from being resolved. The NME status enables China’s

counterparts to disregardChinese prices in antidumping proceedings and instead use the so-called surrogate

country methodology.This paper aims to structure and analyze the complex debate,which emerged with the

disputes China has f‌iled againstthe European Union and the USA at the WTO, and therefore provide a point

of referencefor future analysis of and debates about China’s NMEstatus.

Design/methodology/approach –The analysis is based on the existing academicliterature on the topic

and on the legal WTO-related documents (e.g. multilateral agreements, China’s Accession Protocol, legal

f‌indings of the WTO disputepanels).

Findings –Four different interpretationsof the respective legal documents about China’sNME status are

discussed and strong and weak aspects of these interpretations are pointed out. Also, several

misunderstandingsand mistakes appearing in the debate are clarif‌ied.

Practical implications –As the question of China’s position at the WTO and its NME status has not

been resolved yet and some authors believe that China will pursue its case again once the WTO Appellate

Body revives its functionality, the analysisof the debate can serve as a point of reference for the academic

debate and thefuture research on this topic. Moreover, it offers an introductionto China’s NME position at the

WTO for the newcomers to this topic.

Originality/value –Although China’s NMEstatus has been much discussed, there is no literature review

that would structure the debate and point out some of the (dis)advantagesof the respective arguments and

interpretations. Rather than adding to the large corpusof literature about the NME status, this study takes

this corpus as the objectof itsanalysis.

Keywords WTO, Antidumping, DS516, NME, Non-market economy, Trade dispute mechanism,

EU, USA, China

Paper type Literature review

Introduction

Among the many challenges the World Trade Organization(WTO) is facing right now –be

it the need to quickly f‌ind a new Director-General who will replace the early-resigned

Roberto Azevedo, the ongoingtrade conf‌lict between the USA and China or the deteriorating

judicial system manifested by the suspension of the Appellate Body functioning –there is

one issue that seems to be off the table, which is China’s dispute over its non-market

economy (NME) status.

The dispute off‌icially ended in July 2020 with the authorityof the panel in the EU–China

dispute (DS516) lapsingafter a 12-month suspension of the case. China started its disputeat

the end of 2016 by f‌iling lawsuits against the USA and the European Union (EU) at the

The author would like to thank this journal’s anonymous referees for their valuable comments. The

author would also like to express his gratitude to Old

rich Krpec and Maria Lucia Boi for their insight

and support.

China’s NME

status at the

WTO

1

Received20 September 2020

Revised9 November 2020

5 December2020

Accepted6 December 2020

Journalof International Trade

Lawand Policy

Vol.20 No. 1, 2021

pp. 1-20

© Emerald Publishing Limited

1477-0024

DOI 10.1108/JITLP-09-2020-0054

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1477-0024.htm

WTO. This step unleashed enormously complex debate among trade experts and states’

representatives and the disputes were given signif‌icant importance from the involved

parties as well. The US Ambassador to the WTO, Robert Lighthizer, called it “the most

serious litigation matter that we have at the WTO right now”indicating that a possible

ruling in China’s favor would be “cataclysmic”for the WTO (US Committee on Finance,

2017, p. 12). China also considered the dispute “the most important live issue in WTO

antidumping law”which “concernsthe credibility of the dispute settlement mechanism, the

integrity of the WTO and the membership’s faith in the multilateral trading system”

(Xiangchen, 2017,p.14).

Although it may seem that the debate is over, China lost and will have to accept its

position at the WTO, the underlying problems remain to be extremely relevantand it is

reasonable to assume that the antidumping practices and legislature –on the WTO

level and on the level of the nation-state –will continue to evolve in light of the legal

debate about China’s NME status. Professor Mark Wu from Harvard Law School

pointed out that:

[...] the WTO cases on China’s market economy status represent but the opening salvo in what

will be a multi-stage trade confrontation between China and its trading partners in the coming

years (Wu, 2018, p. 6) and that [h]istory will likely judge the debate over China’s market economy

status as having contributed to the [global trading system’s] crisis and the contours of its eventual

resolution (Wu, 2018, p. 7).

Given the importance of China’s NME status at the WTO, this article tries to structure

and analyze the complex, often blurry and sometimes rather technical debate

surrounding the supposed expiration of the status in 2016. The aim of the article is to

provide a point of reference for future analysis of and debates about the NME status.

For this purpose, I identify four different interpretations of Article 15 of China’s

Accession Protocol (CAP) [1], –the legal foundations of the NME status –related to the

abovementioned expiration. I examine the main arguments of these interpretations and

I try to point out their strong and weak aspects based on the basic principles of

international treaty interpretation and the WTO antidumping framework.

Furthermore, certain misunderstandings and confusions appearing in the debate are

clarif‌ied and several mistakes are corrected.

The article proceeds as follows: the f‌irst section presents the general antidumping

framework within the WTO, the second section provides the necessary information about

China’s NME status, the third sectionanalyzes differing interpretations of Article 15 of CAP

and the fourth section concludes.

World Trade Organization antidumping framework

The legal basis for antidumpingbehavior and possible anti-dumping measures is nowadays

provided by the Article VI of the General Agreementon Tariffs and Trade (GATT) and the

Agreement on Implementation of Article VI of the GATT 1994, generally referred to as the

Anti-Dumping Agreement(ADA).

The basic method of antidumping duties calculation that the investigative authority

(IA) uses is the price comparison between the domestic price and the export price of the

same product (Article VI:1(a); ADA 2.1). If for some reason, the domestic price is not

available, other methods which may be used inc lude comparing export prices to the

country of the investigating authority and a third country (Article VI:1(b)(i); ADA 2.2)

and comparing the export price to the constructed price of production in the country of

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