by Aishanya Gupta
On the 15th of June, 2020, China discreetly lost a four year battle with the European Union (EU) over the status of a “market economy”. This comes as a landmark streak for the international socio-economic relations and dynamics existing around the globe.
Firstly, what is a market economy?
A market economy is an economic system in which economic decisions and the price of goods and services are guided solely by the market without any government interventions. The activity is unplanned; it is not organized by any central authority but is determined by the supply and demand of goods and services.
How did the noteworthy occurrence 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 onus, however, was always on China itself to display itself as the economy under discussion before gaining legal recognition. Rather than engaging 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” because after all, somehow winning the title would open many avenues with their commercial partners and help China to retaliate over these very anti-dumping statements that have been attached to it now like a second skin.
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 if they have their reasons to prove that it will hurt the domestic businesses of the country.
While Dumping means the process where a company/country exports commodities at a lower price than their normally charged price in the home market.
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 catalyzes regional economic rundown.
Not only the EU, but India and the United States of America have provided evidence time and again that Chinese goods — especially commodities such as steel and aluminum —are still heavily underpriced because of subsidies and state-backed oversupply hence dumping gives the Chinese exporters an unfair advantage over the local businessmen. More than US $100 bn of Chinese goods have been targeted with anti-dumping duties in the U.S. alone and some of them have 500% taxes levied on them.
China, on the other hand, has stood 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 economy. Where every market mechanism is free to operate independently, every market under a socialist set-up has practically no independence. To 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 at a WTO hearing in 2017.