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  May 19th, 2017 | Written by

China is Not a Market Economy, CPA tells Government Agency

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  • Whether China is a market economy is important for the determination of countervailing and antidumping duties.
  • US law sets forth as six part test to determine whether a country is a “nonmarket economy country.”
  • “The WTO has proven itself incapable of holding China accountable.”

The Coalition for a Prosperous America (CPA) urged the International Trade Administration (ITA) to find that China is not a market economy for purposes of applying US trade laws in countervailing duty and antidumping investigations. The ITA initiated the inquiry as part of an investigation relating to aluminum foil imports from China. The question is important for the appropriate determination of countervailing duties or antidumping duties (CVD/ADD) to apply in order to neutralize the impact of any foreign subsidies.

US law sets forth as six part test to determine whether a country is a “nonmarket economy country.” Questions include whether the market or the state determines currency exchange rates, wage rates, allocation of resources, prices, output decisions. US law also requires a determination as to the extent to which joint ventures and foreign investments are permitted and the degree of government ownership and control of the means of production.

“China is guilty of being a non-market economy by its own behavior,” said Dan DiMicco, CPA Chairman. “They have ignored the obligations they themselves committed to when they joined the WTO. The WTO has proven itself incapable of holding China accountable. They must not be allowed to continue flaunting their trade mercantilism.”

CPA’s official comment stated that China’s continued capital controls and “trade ranges” for currency transactions prevent the market from setting exchange rates for the remnimbi. Wage rates are not set by bargaining between labor and management because labor abuses are rampant, freedom of association is denied, and workers are not allowed to strike.

China’s foreign joint ventures and investment regime is are the most restrictive in the world according to the OECD, belying government promises to relax those rules. Foreign companies are prevented from establishing facilities in China without government approval and without forming a joint venture with domestic firms.

State ownership and control of the economy predominates. According to one estimate, there are some 150,000 state owned enterprises (SOEs) in China. Most significant are the largest SOEs, which dominate many key industries including oil and gas, telecom networks, banking, and others. SOEs hold an estimated 40 percent of Chinese assets and employ some 20 percent of Chinese employees.

Government control over the allocation of resources and price and output decisions is strong. China steers resources to SOEs and state influenced entities starving the private sector of resources. Pricing and output decisions are determined more by state influence than market forces.

Other factors showing the weakness of market forces include China’s intentional disregard for intellectual property rights, China’s Five Year plans to govern the economy and their Made in China 2025 program which is designed to increase self sufficiency while restricting import dependence.

“There is one key question for any special interest lobbyists arguing that China is a market economy,” said Michael Stumo, CEO of CPA. “That question is – If the US implemented the Chinese model in our country, would you conclude that we remain a free market economy? The answer has to be ‘no’.”