CHINA has vowed to take action against the west over the scrapping of a huge promise it claims was made to it 15 years ago.
Since 2001, the United States and the European Union have restricted China’s ability to conduct trade deals with the rest of the world.
Over the past year, thousands across Europe have protested against easing these restrictions, saying it would take away their own jobs and livelihoods.
But now China is on the warpath. It claims it was “promised” the rules would be relaxed this week, and has vowed to retaliate at any cost.
With tensions between the rising superpower and the US already bubbling up, this may be the last thing either country needs.
WHAT’S CHINA SO ANGRY ABOUT?
In December 2001, China was admitted to the World Trade Organisation, the international body that regulates global trade.
But the US and EU only agreed to grant China access on the condition that it would be recognised as a “non-market economy”.
This means China was placed below the US, EU and Japan, making it easier for them to intervene in its trade process and hold to account if it participated in ‘dumping’ — the process of selling commodities to an exporting market at prices lower than the selling prices at the domestic market.
China still agreed to join, believing it would be upgraded to “market economy status” — the same level as the other three powers — on its 15-year anniversary.
That anniversary was this week, but to China’s indignation, the major countries now say nothing will change despite their promise.
But according to Vox, that “promise” is just an urban myth.
It notes there is only one provision of the Protocol that deals with dumping, which does not say China will get market-economy status. It just says that one specific aspect will cease to apply, suggesting everything else will remain the same.
Regardless, China is not happy now that the three WTO powers are refusing to budge.
“Regretfully, the United States and European Union have yet to fulfil this obligation,” China’s Ministry of Commerce said in a statement on its website.
The US Department of Commerce released a statement saying China is not ready for an upgrade.
“The United States remains 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,” it said in a statement. “China has not made the reforms necessary to operate on market principles.” Japan came out siding with the US.
To add fuel to the fire, President-elect Donald Trump ruled that China is still a “non-market economy”, demanding the country “play by the rules”.
Minister of Commerce Shen Danyang has hit back furiously, vowing to take “necessary measures” against any WTO member that refuses to recognise it as a market economy.
HOW WILL CHINA FIGHT BACK?
China has vowed to “resolutely defend its legal rights”, requesting consultations with the US and EU.
But Dr Weihuan Zhou, a law lecturer at the University of New South Wales, told news.com.au it’s not going to be an easy task for them.
“Firstly, China may not have a measure to argue against until the US and EU actually apply the non-market economy methodology by using surrogate prices/costs in an anti-dumping case,” he said.
“Secondly, even if they did use surrogate prices/costs in calculating dumping margins, it may find a justification under the WTO Anti-Dumping Agreement.
“Third, a WTO dispute can take years to resolve. During the period, the US and EU are unlikely to change their practice, and China… may be likely to take retaliatory actions including by imposing antidumping measures.”
However, he said China’s objective in this case is not to completely take away the right of the EU and the US to use surrogate prices and costs — which China has the same right to — but to stop their discriminatory treatment of China as a non-market economy.
Earlier this year, China’s state-run Global Times newspaper warned it would take a “tit for that” approach against the United States while criticising Mr Trump’s suggestion of a 45 per cent tariff on Chinese goods.
“China will take a tit-for-tat approach then. A batch of Boeing orders will be replaced by Airbus. U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted,” the newspaper warned.
SO WHY NOT JUST CHANGE CHINA’S STATUS?
Dr Zhou explained there is a lot of domestic pressure to keep Chinese exports, like steel, out of the global market.
“The US and the EU, like others, refuse to grant China market economy status as they are under immense political pressure from domestic import-competition industries hungry for higher protection in the form of anti-dumping duties,” he said.
This domestic pressure is nothing new. Steel workers have staged demonstrations across Europe for years, urging the European Union not to grant China market-economy status, saying it will threaten their own countries’ jobs and investment.
They’ve demanded authorities stand up to China and cease dumping subsidised exports on European markets.
Australia has faced similar controversy. While we technically recognise China as a market economy, Dr Zhou explained we don’t treat them as such in practice, in that we use third “surrogate” countries to calculate dumping margins.
Overall, there has been ongoing pressure to prioritise our domestic industry over cheap imports from China.
In September this year, an inquiry by the Anti-Dumping Commission found Australia’s steel and aluminium industries can’t compete on a level playing field with China’s prices.
“The ongoing significant global over-supply has depressed steel and aluminium prices, resulting in prolonged difficult trading conditions for steel and aluminium producers generally, including in Australia,” it said in a report.
The report says the nature and extent of Chinese market interventions, coupled with the sheer size of China’s production, has made a significant contribution to current global over-capacity and persistent imbalance between production and demand.
When the report was released, Labor industry spokesman Kim Carr called on the government to support Australian steel industry jobs.
“Industries and workers are harmed when goods from overseas are dumped into the Australian market and when overseas exporters try to circumvent Australia’s anti-dumping rules,” he said.
THE TIMING COULDN’T BE WORSE
The WTO confrontation comes at a sensitive time, with tensions between China and the United States on the rise since the election of Donald Trump.
Over the past couple of weeks, the President-elect has slammed the country’s record on trade, accusing them of devaluing the US’ currency and heavily taxing its exports.
In the past, he’s said China is “killing (the US)” and has vowed to step steps to reduce the large US goods trade deficit with China. He’s deemed Beijing a “currency manipulator”, and in May infamously said “we can’t allow China to continue raping our country”.
He’s also warned to levy duties of up to 45 per cent on Chinese goods.
Dr Zhou warned the WTO conflict is likely to have a lasting impact.
“The issue of market-economy status has become one of the major issues in the China-US/EU relationship,” he said.
“The Chinese government has remarked in official and un-official events that China is deeply concerned about the US and the EU’s protectionist approach and will bring a WTO case against such practice if it is continued.”
China’s state media has already slammed the President-elect as a “diplomatic rookie” and an “ignorant child”.
While we’re yet to see what happens with the WTO, it hardly bodes well for the relationship.