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Key WTO clause for China expires

December 11, 2016

Fifteen years after China joined the World Trade Organization, Beijing's hopes for clear recognition as a market economy have been challenged. The US, EU and Japan are defending their economies against dumping.

Chinesiche Stahlfabrik
Image: picture-alliance/dpa/S. Wei

A key clause in China's agreement for joining the World Trade Organization (WTO) expired on Sunday and Beijing's hopes of being upgraded to market economy status have been overshadowed as a number of major Chinese export markets are not honoring their WTO promises to Beijing.

When Beijing joined the WTO on December 11, 2001, it was written into the agreement that member states could treat China as a non-market economy. This allowed them to impose heavy anti-dumping duties on the basis that China's low prices did not reflect market reality.

China, however, is legally entitled to be treated as a market economy for anti-dumping purposes, but many WTO members will not accord it such status. The United States, the European Union and Japan are keeping rules that they say protect them from cheap Chinese products flooding their markets.

"We are not declaring China a market economy, but we are reforming the system so as to make it country-neutral," Cecilia Malmström, the EU’s trade chief said Wednesday. Japan said this week it continued to view China as a non-market economy.

On Friday, China's commerce ministry spokesman, Shen Danyang, was quoted as saying "China will take steps to defend its rights if (WTO) members continue this old practice of anti-dumping regulation against Chinese products after the expiration date" of Sunday.

Long legal battle

China faces a long legal battle at the WTO against its trade partners in order to get market economy status which would make it more difficult for other countries to launch anti-dumping cases against it. Beijing is expected to appeal to the WTO's dispute settlement body.

The US Department of Commerce issued a statement saying it remained "concerned about serious imbalances in China's state-directed economy, such as widespread production overcapacity, including in the steel and aluminum industries, and significant state ownership in many industries and sectors." The statement continued, "China has not made the reforms necessary to operate on market principles."

China's responded saying, "The refusal is nothing short of covert protectionism, which runs against the trend of globalization and poisons the recovery of the global economy." The statement from the Commerce Ministry claimed it was "another double-standard applied by the West against China."

The US stance is unlikely to change with the new administration of President-elect Donald Trump. During  the election campaign, he threatened to impose 45 percent punitive tariffs to protect American jobs. "They haven’t played by the rules, and they know it’s time they’re going to start," Trump said at an Iowa rally on Thursday. He cited "massive theft of intellectual property" and "product dumping."

Aixtron takeover deal blocked

In a separate development, the takeover bid by Grand Chip Investment for German chip-equipment manufacturer Aixtron has been blocked. Grand Chip Investment is the German unit of China's Fujian Grand Chip Investment Fund.

Deutschland Herzogenrath-Kohlscheid Aixtron
Aixtron's offices in GermanyImage: picture-alliance/R. Hackenberg

On Friday, the  German government said it had stopped the vetting process for the Aixtron deal after US President Barack Obama ordered Fujian Grand Chip to drop its attempt to acquire Aixtron's California subsidiary, citing concerns over national security.

Germany has been the top European destination for Chinese investors with $11 billion (10.4 billion euros) spent on German companies this year alone. That is a major rise from the previous record of $2.6 billion in 2014. The deals this year included the $5 billion takeover in the summer by Midea Group, the Chinese electrical appliance manufacturer, headquartered in Beijiao, for Kuka AG, which makes robotics systems for the auto and aerospace industries in Augsburg.

jm/sms (AFP, dpa)

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