Not So Fast, China: Non-Market Economy Status Is Not Necessary for the "Surrogate Country" Method

By Washington, André J. | Chicago Journal of International Law, Summer 2018 | Go to article overview

Not So Fast, China: Non-Market Economy Status Is Not Necessary for the "Surrogate Country" Method


Washington, André J., Chicago Journal of International Law


Table of Contents

I. Introduction.................... 262

II. Determination of Dumping.................... 267

A. The WTO Agreements.................... 268

B. The Legal Definition of a Market Economy is Unsettled.................... 269

1. Countries employing legal tests.................... 270

2. The role of the WTO in determining MES.................... 272

C. The Legal Implications of Non-Market Economy Status.................... 274

III. Debate Over China's Status As a Non-Market Economy.................... 275

A. The Political Backdrop to China's Accession.................... 275

B. The Accession Protocol of the People's Republic of China.................... 278

C. Antidumping Investigations against China prior to December 11, 2016.................... 279

D. Antidumping Investigations after December 11, 2016.................... 281

1. Arguments in favor of continuing China's NME status.................... 283

2. Arguments against continuing China's NME status post-expiration.... 285

IV. NME Status is Not a Necessary Precondition for the Application of the Surrogate Country Method.................... 287

A. Article VI of the GATT.................... 287

B. Article 2 of the Antidumping Agreement.................... 290

V. Conclusion.................... 294

I. Introduction

In international trade law, "dumping" is the technical term for the process of exporting goods at a price that is less than the "normal value" of that product "in the domestic market or third-country markets," or less than the "production cost."1 World Trade Organization (WTO) law condemns dumping when it "causes or threatens material injury to an established industry ... or materially retards the establishment of a domestic industry."2 If it is proven, following an investigation by domestic authorities of the importing country, that a product is being dumped and causing material injury, WTO law permits the importing country to levy an antidumping duty on the dumped product, which may not exceed the value of the "margin of dumping."3 This process of proving an instance of dumping, a resulting injury, and calculating the margin of dumping is called an antidumping investigation.

Article VI of the General Agreement on Tariffs and Trade (GATT) details the generally applicable method for calculating dumping margins in antidumping investigations.4 It provides that importing countries should calculate the difference between the product's export price and the price of the product in the domestic market of the exporting country "in the ordinary course of trade."5 In the absence of a domestic market, or sufficient sales in the domestic market, the investigating authority may use the difference between the export price and either the "highest comparable price for the like product for export to any third country,"6 or "the cost of production" plus "a reasonable addition for selling cost and profit" to determine the dumping margin.7

GATT Article VI operates under the assumption that the domestic market of the exporting country produces reliable prices to which import prices may be compared. However, where it is determined that the exporting country has a state-controlled economy, the WTO recognizes that price comparisons in antidumping investigations may be "difficult,"8 and thus makes an exception for importing companies to deviate from the specifically articulated methods in Article VI: 1 for the purpose of calculating dumping margins.9

One such alternative method frequently employed by the U.S. and the E.U. is called the "analogue country" method.111 It is popular for the same reasons that it is controversial. It permits investigating authorities to unilaterally select a third country whose domestic prices for the product in question are used in place of die actual prices reported by the exporting country.11 This selection authority gives investigators substantial power to manipulate the outcome of a dumping margin calculation, which is the entire objective of an antidumping investigation. …

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