China’s market economy status probed in Argentina

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In a recently initiated anti-dumping investigation of Chinese ceramic sanitary ware, the Argentinian authorities decided to treat China as a market economy.

The market economy status of China has a key impact on the prices used to determine the existence of dumping for Chinese products. In the event that China is considered a market economy, the existence of dumping is determined using domestic prices in China. If China is not considered a market economy, the investigating country may disregard Chinese domestic prices and use the domestic prices of a third country.

In November 2001, China became a member of the Word Trade Organization (WTO). The terms and conditions of the accession of China to the WTO are governed by the Protocol on the Accession of the People’s Republic of China (the accession protocol). The accession protocol allowed other WTO members not to treat China as a market economy. The fact that China was not treated as a market economy under WTO anti-dumping regulations resulted in a legal drawback that Chinese manufacturers had to face in anti-dumping investigations around the world.

The general rule for the determination of dumping is provided in the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the anti-dumping agreement). Section 2.1 of the anti-dumping agreement provides that “a product is to be considered as being dumped, i.e., introduced into the commerce of another country at less than its normal value, if the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country”. Thus, under the anti-dumping agreement, the determination of the existence of dumping is made by comparing the price at which the product is exported to the investigating country with the price at which the product is sold in the country in which it is produced.

However, section 15(a) of the accession protocol allows its members to use “a methodology that is not based on a strict comparison with domestic prices or costs in China…” This provision allows members to establish a specific method to determine the normal value (i.e., the price of the investigated product in the country of origin) in anti-dumping investigations against Chinese products. This specific method could be applied only if China was not considered a market economy by the investigating country.

The accession protocol, however, limited the rights of other WTO members to determine dumping without using a strict comparison with domestic costs or prices in China to a period of 15 years after the date of accession. This period expired in November 2016. There is a heated debate in the international community on the effects of the expiration of this 15-year period and certain authors consider that the expiration of the term does not necessarily result in an obligation to treat China as a market economy.

Until the recent investigation on ceramic sanitary ware, Argentina did not treat China as a market economy and determined the normal price of Chinese products based on the domestic price of the product in an “analogous” third country with a market economy. Therefore, in investigations of Chinese products, the authorities determined the existence of dumping by comparing the price at which products made in the “analogous” third country were sold in that third country with the price at which Chinese producers exported their products to Argentina. In many cases, the “analogous” third country had domestic prices which were extremely high compared to prices in the Chinese domestic market. As a consequence, the authorities usually found extremely high dumping margins in investigations of Chinese products, even when a comparison between Chinese export prices and domestic prices would probably show no dumping, or a significantly lower dumping margin.

Despite Argentina consistently treating China as a non-market economy in its investigations, there has been an unresolved dispute as to whether Argentina recognized the market economy status of China in 2004. In that year, Argentina and China signed a memorandum of understanding (MoU) in which Argentina recognized the market economy status of China. However, Argentine authorities have denied the effectiveness and enforceability of such recognition, arguing that the MoU was never ratified by its congress. The recognition of the market status of China has been at the top of the bilateral agenda between Argentina and China since the accession of China to the WTO.

The Argentinian authorities have not yet made public their official position on whether China has to be considered a market economy as a result of the expiration of the 15-year period from the accession date. However, on 18 May 2017, the nation’s secretary of trade issued Resolution 396, which initiated a dumping investigation on ceramic sanitary ware from China and did not elect any analogous third country for the dumping determination.

There is no express reference to the status of China as a market economy but the recitals provide that authorities consider that to determine the normal value (i.e. domestic prices in China) the internal prices in China will be used. Therefore, the Argentinian authorities seem to consider that, upon expiration of the 15-year period, the determination of dumping in investigations of Chinese products must be done using Chinese domestic prices.

This change in the Argentinian position follows a recent visit of Argentina’s president to China.

So while Argentinian authorities have not yet expressly recognized China as a market economy, they have started to treat China as a market economy in anti-dumping investigations.

Pablo Gayol is a partner at Marval O’Farrell & Mairal in Buenos Aires, Argentina