At present, an average of every seven anti-dumping cases worldwide, one involves Chinese products, making China always one of the countries that are subjected to the most anti-dumping investigations, as well as the biggest victim of anti-dumping and other trading remedy measures.

What are the incentives behind these cases? And with Chinese defenders winning no more than 40 percent of these cases, what has pushed Chinese enterprises to the ropes? Standing at the center of the problem is the issue of China's full market economy status.

Who's the injured?

Chinese TVs in anti-dumping case

.Chinese exports have been exposed to anti-dumping cased by other countries since the EU launched an anti-dumping investigation on China's saccharin exports in 1979. By February 2004, foreign countries have filed as many as more than 610 anti-dumping lawsuits against Chinese products, which have affected over USD 10 billion worth of Chinese exports.

The market economy status is an important concept used in determining the range of dumping at the time of conducting anti-dumping investigation. If the sponsored country of the anti-dumping case believes the commodity exporter investigated is a "market economy" country, then, at the time of conducting anti-dumping investigation, it must calculate the normal price of the product in accordance with the actual cost and price of the product in the producing country; if the commodity exporter investigated is regarded as a "non-market economy" country, then, the cost data from a market economy country (i.e., substitute country) will be used to calculate the so-called normal value, whose developmental level is approximately equal to that of the exporting country, and then the range of dumping will be determined, the original data of the exporting country will not be used.

Article 15 of the Document on China's accession to the WTO conditionally defines China as a non-market economy country and this situation will last as long as 15 years. A non-market economy status will bring about three major negative effects on China.

Firstly, it will put Chinese export enterprises in an extremely disadvantaged position in response to the prosecution of foreign anti-dumping cases and will become the main reason for Chinese enterprises losing a lawsuit. Since China is not regarded as a market economy country, it is impossible to calculate Chinese enterprises' production cost, as a result, a third country substitute method is adopted by other WTO member countries.

But substitute countries (regions) are chosen more at random as there is no detailed criterions for choosing reference countries (regions). There was up to about 100 percent disparity in dumping margin when different references were adopted.

Markets with much more expensive labor costs or much more developed economies than China have been taken as references. In the 1990s, Singapore was taken as a substitute country's method for calculating cost in the EU's anti-dumping against China's color television sets. At that time, Singapore's labor cost was over 20 times higher than China's cost, Chinese products naturally were counted as dumping.

Secondly, the fact that it is difficult for Chinese enterprises to win the lawsuit objectively further stimulate certain WTO member countries to bring more anti-dumping suits against Chinese products, at the same time, it dampens Chinese enterprises' enthusiasm to respond to the prosecution of cases, thus forming a vicious circle. Under the Chinese side's sustained representations and protests, relevant countries have made some concessions to China, but the general result remains unsatisfactory.

Thirdly, the non-market economy status denies the achievements and status quo of China's establishment of a market economy and thus tarnishes China's international image.

Chinese exports have been exposed to anti-dumping cased by other countries since the EU launched an anti-dumping investigation on China's saccharin exports in 1979. By February 2004, foreign countries have filed as many as more than 610 anti-dumping lawsuits against Chinese products, which have affected over USD 10 billion worth of Chinese exports.

The United States has persisted in frequently waving the anti-dumping big stick against China. If China is granted a market economy status, then other countries, while conducting anti-dumping investigation of Chinese products, must calculate the normal prices, based on the domestic actual costs and prices of these products, rather than adopt the market prices of a third country (substitute country) which have nothing to do with the Chinese economy. The "sharpened sword" used by the United States and the EU against Chinese products will lose its previous powerful lethal force.

Is China a market economy?

China has scored remarkable achievements on its way to market economy for the past 25 years, which is obvious to all. Nicholas R. Lardy from Institute for International Economics views China one of the most liberalized countries out of all emerging economies. In their ranking of free economies in the world. Prestigious think tanks like Heritage Foundation and the Fraser Institute put China 10 to 15 notches ahead of Russia which is regarded as a market economy by US.

At a press conference on June 23, Cao Yushu, a spokesman for State Development and Reform Commission insisted that China's market economy is a "genuine fact".

One of the most important reasons for US refusing to regard China as a market economy, he argued, is exchange rate. But China is not the only one in the world which floats its exchange rates within a specific band. 42 countries and regions, such as Switzerland and Hong Kong, have the similar exchange rates system as China does. They are market economies. So why should not China be recognized as a market economy?

Cao also reminded the audience of the facts that more than 96 percent of commodities in China are priced by the market and that directive planning for industrial production and selling covers no more than five categories, including tobacco whose production and selling are monopolized by government appointed operators in many countries.

A report by a Li Xiaoxi, a Chinese economist, proves with the following evidence that China's market degree already stood at 69 percent as early as 2001, well-above the world's benchmark for market economy.

Official data shows that, by August 2003, 1.27 million companies in China sought reasonable wage systems through equal negotiation between employers and their employees. Chinese employers and employees are fully aware of their rights in pursuing wages.

The country did not delay in opening its business, trade and industry sectors to foreign companies when it joined the WTO. Currently, distribution, retail and foreign trade, and financial service sectors are opening up to embrace foreign competition. China has also loosened its export controls and imports tariffs, further bringing the country into world markets.

In China, government now administers production to a limited extent, and does not intervene in specific productive activities, China only applies directive plans to the production of five products timber, gold, cigarettes, edible salt and natural gases. The relation between government and SOEs is similar to that of assets owner and firms instead of a simple administrative tie.

Except for those related to national and economic security, all commodities in China are priced on the basis of the market. The country has lifted controls on circulation and collection of agricultural produce.

The currency became fully convertible under the current account in 1996. And convertibility is now strictly prohibited only in 20 per cent of the 43 sub-categories of the financial and capital account, with about half of the sub-categories fully open or only slightly controlled.

So, Why not?

There is fundamental background against which anti-dumping lawsuit is resorted to in the age of economic globalization. As the international industries are further restructured and resources are mobilized around the world in an optimized way, many used-to-be labor intensive industries have been gradually transferred to the developing countries from the developed.

However, the labor-intensive industries still in the hands of developed countries will be unavoidably hit by products from developing countries of relatively lower labor costs. When they are in the disadvantageous position in the competition, they resort to anti-dumping, a means of protectionism, rather than restructuring their industries.

Politics looms behind the "economic issue". US is willing to grant the market economy status to nations like India and Russia in favor of their "democratic system". However, it is not ready to understand China's "socialist market economy". EU accepts former Independent Commonwealth countries as market economies. But it hesitates on recognizing China as a market economy under the shadow of US clout.

As US presidential election approaches, the Bush administration is under mounting pressure of safeguarding domestic jobs which are claimed to be "outsourced" to Chinese manufacturers. Another very important factor is America's trade deficit with China.

Take the case of color TV for example. There is hardly any "American" TV producer in US market. So whose interest is affected actually there? The maneuvers behind were Japanese color TV giants including SONY, PANASONIC, SANYO, TOSHIBA and ORTON etc. who, from the very beginning of the "anti-dumping case", provided applicants with wholehearted support from information, statistics to technology. On the one hand they do not want to lose the huge market of China yet on the other they do hope China will lose the so-called color TV "anti-dumping case" so that Japan's products can enter the US market. But the key is, for US, Japan is an "alliance".

By People's Daily Online