Deciphering China’s trade deceptions: 

Deciphering China’s trade deceptions: 

Context

Recently, China accused India of starting a trade war when the latter decided to extend anti-dumping duty on 93 products imported from China for another five years.

China and WTO

• Until the 1970s, China’s economy was managed by the communist government and was kept closed from other economies.
• China became a member of the World Trade Organization (WTO) in December 2001. The admission of China to the WTO was preceded by a lengthy process of negotiations.
• The accession was aggressively pursued by China against the backdrop of the introduction of market reforms in 1978, opening up of the Shanghai Stock Exchange in 1990 and the government’s agenda to drive global manufacturing expansion.
• However, the accession came with a clause that China could be treated as a non-market economy in anti-dumping investigations if Chinese firms failed to establish that they operated under market economy conditions for a period of 15 years ending 11 December 2016 ( as per China’s accession agreement).
• In case of failure by the Chinese firms to prove that they were operating in market economy conditions, the importing country could use alternative methodologies to compute the normal value and dumping margin of the imported goods.
• The entry into the WTO certainly seems to have helped China in pursuing its ambitions: its share in global manufacturing increased from 2% in 1991 to more than 23% in 2013.

‘Dumping’ and ‘Anti-dumping’

• Dumping is the practice whereby the exporting nation sells its goods and services at a price lower than the price at which the importing nation sells the same goods and services within its domestic market.
• The objective of dumping is to increase market share in a foreign market by driving out competition and thereby create a monopoly situation where the exporter will be able to unilaterally dictate price and quality of the product.
• An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.

China and ‘market economy’ status

A market economy is an economic system where decisions regarding investment, production, and distribution are based on the interplay of supply and demand, which determines the prices of goods and services

• China views the WTO agreement of 2001 as saying that WTO-member countries had then decided to deem China as a ‘market economy’ from December 2016 while adjudicating anti-dumping cases
• China in December 2016 launched a legal challenge against the EU and US over their reluctance to treat it as a “market economy” under World Trade Organisation rules.
• But, The EU and US resisted China’s bid for market economy status amid a flood of cheap Chinese steel on to world markets, which sparked a wave of politically sensitive anti-dumping cases
• To deny China the ‘MES’, India — and others such as the US and the EU — have been saying that unlike in ‘market economies’ where prices are mainly determined by market forces (of demand and supply), there is significant governmental influence in China that in turn causes distortions in international trade..

China and India bilateral trade

• India and China officially resumed trade in 1978. In 1984, the two sides signed the Most Favoured Nation Agreement
• China is one of the largest trading partners of India, although the trade is highly skewed in China’s favour
• India and China have a trade partnership of about 70 billion dollars. China also invested 20 billion dollars in India to help in infrastructural projects, including smart cities.
• However, India has also complained in the past of India’s manufacturers in steel, chemicals, electrical and electronics sectors being “severely hurt” by “unfairly low-priced” imports from China.

India has clarified on multiple occasions that it needs to consider Chinese firms as operating in a non-market economy( as the prices are not determined solely by demand supply factors) due to the significant direct or indirect control of the state in firms’ operations and input factors such as raw material, power, land, and labor.

China resorting to use of Anti-Dumping measures against others

• China extended anti-dumping duty on chloroprene rubber imported from the US and Japan in May, it attributed the extension to the harm done to its domestic industry
• Similarly, in July this year, while China  protested against India starting anti-dumping investigations in the case of solar panels and cells imported from China, it itself, renewed the anti-dumping duty on optical fibre (mainly used in its domestic telecom sector) imported from the US for another five years in April.

Conclusion

• The bilateral trade between India and China is highly skewed in China’s favour.
• In such a scenario, when India is trying to protect its local industry China may attempt to apply further pressure in the future in bilateral and multilateral settings.
• For instance, in the context of BRICS, it may play the South Africa and Brazil card who have already given market economy status to China (Brazil is yet to implement it).
• Also, amidst the recent heightening of tensions between the two countries with the Doklam standoff, India needs to tread cautiously.