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US-China Trade Disputes Heat Up

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China Power

US-China Trade Disputes Heat Up

Ahead of Trump’s visit, U.S. Commerce Department prolongs China’s status as a non-market economy while China protests.

US-China Trade Disputes Heat Up
Credit: Official White House Photo by Joyce N. Boghosian

On October 26, the U.S. Department of Commerce announced it would maintain China’s status as a non-market economy (NME), ahead of U.S. President Donald Trump’s upcoming visit to China. In protest, China’s Ministry of Commerce (MOC) said the United States seriously distorted the facts.

In a publicly released 200-plus-page memo, the Commerce Department concludes that China is a NME country based on the findings that “the state’s role in the economy and its relationship with markets and the private sector results in fundamental distortions in China’s economy.”

“At its core, the framework of China’s economy is set by the Chinese government and the Chinese Communist Party, which exercise control directly and indirectly over the allocation of resources through instruments such as government ownership and control of key economic actors and government directives,” the memo said.

The U.S. review of China’s NME status is related to its earlier investigation on the imports of aluminum foil from China.

In response, the MOC on October 31 issued a statement claiming that the U.S. decision was “a serious distortion.”

“Since reform and opening up, China has established and been improving the socialist market economy, which has been widely recognized by the international community,” the MOC said. “The United States ignored China’s achievements in building a market economy and the conclusion was a serious distortion of the real situation.”

The MOC added that the United States has violated Article 15 of China’s WTO accession agreement. (Article 15 deals with anti-dumping measures and China’s NME status.) Thus, China urged the United States to “fulfill international obligations and take action to correct the wrong practice, while China will take measures to protect legal rights of Chinese companies.”

Article 15 of China’s WTO accession agreement is long-disputed issue between China and the United States. Part of the Article says:

Once China has established, under the national law of the importing WTO Member, that it is a market economy, the provisions of subparagraph (a) shall be terminated provided that the importing Member’s national law contains market economy criteria as of the date of accession.  In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession.

Hence, China argues that it should be regarded as a “market economy” after 15 years — which would have been in 2016. Many other WTO members argue that the Article is more complicated than China’s interpretation and China must demonstrate it is in fact a “market economy” before being recognized as such.

With U.S.-China trade disputes heating up, Trump didn’t refrain from adding more fuel to the fire ahead of his trip. Reuters reported that Trump said on November 1 that the U.S. trade deficit with China is “embarrassing” and “horrible.”