On the 15th of June, 2020, People’s Republic of China lost a four year battle with the European Union (EU) over the status of “market economy”. This has put a great dent in the infamous Chinese trade book.
Fundamentally, what is a market economy?
A market economy is an economic system in which economic decisions and the pricing of goods and services are guided solely by the market. It is not organized by any central authority but is determined by the supply and demand of goods and services. The United States and Japan are all examples of market economies.
How did it all unfold?
In 2001, Beijing joined the World Trade Organization membership under the impression that it will be treated as a market economy by its entire fleet of commercial and trade partners. Article 15 of the accession agreement has a sunset clause suggesting that China might be given the status of a free market economy within 15 years, the keyword here being, MIGHT.
The onus, however, was always on China itself to display itself as the economy under discussion before gaining legal recognition. Rather than engage in this sport, Chinese diplomats have insisted on calling it one without any actual proof or show.
In 2016, determined to achieve the title, Beijing took legal action to be recognized boldly as a free market economy and continued to pursue a case against E.U. concerning China’s non-market treatment on the grounds of “anti-dumping”.
Before diving deeper into the matter it is imperative for us to understand what “Anti-Dumping” and “Dumping” mean and how does it contribute to China’s position in the W.T.O?
Anti-Dumping is a protectionist tariff a country imposes on imports (at face prices much lesser than their real prices) if they have their reasons to prove that it will hurt the domestic businesses of the country.
In a real-life scenario, a country named X has a trade deal and receives imports from country Y. They recognize that because the imports coming from country Y are so cheap, lower than their real price back home, people of X demand them more (Since the Law of Demand states: cheaper the commodity, more the demand). This puts all local businesses that might produce the same import articles at home, naturally under jeopardy. This is not only foul but catalyses regional economic rundown.
Not only EU but India and the United States of America have provided evidence time and again that Chinese goods — especially commodities such as steel and aluminium —are still heavily underpriced because of subsidies and state-backed oversupply hence, Dumping, giving local businesses an unfair disadvantage. More than US $100 bn of Chinese goods have been targeted with anti-dumping duties in the U.S. alone.
China has defended itself stating that under a socialistic economy it is hard to keep track of the prices since virtually everything is under state control but the interesting point to note here is that the principles of a free market economy are almost in stark contrast to the ones of a socialist economyTo win this war of entitlement, a game of loopholes and ambiguous interpretation was seemingly all China had up its sleeve.
“China believes that there can be no other plausible reading of this simple and unambiguous treaty language,”
-China’s WTO ambassador Zhang Xiangchen
So what was the final verdict?
None! China unexpectedly froze all the legal proceedings. By suspending the case, they had the power of reopening it as and when time was in their favour but instead, they allowed the case to lapse hence losing even their trivial advances in the matter aforementioned.
One trade official close to the case said so much of the ruling had gone against Beijing that it had opted to pull the plug before the result became official. Whether this has spurned into another one of China’s highly futuristic goals with extensive motives or for once, they had guessed that winning this case was almost a utopian aim, only few can answer.
Written by: Aishanya Gupta