India’s Commerce Ministry is assessing the implications of the likelihood of China being granted “Market Economy Status” (MES) from December this year under the World Trade Organisation (WTO) norms.

This comes against the backdrop of instances of India's manufacturers in steel, chemicals, electrical and electronics sectors being “severely hurt” by “unfairly low-priced” imports from China, and the extensive usage of anti-dumping duty by India to offset the losses caused to the local manufacturers due to dumping.

Of the 535 cases where anti-dumping duties were imposed by India from 1994-2014, a maximum of 134 has been on goods from China.

Beijing has cited the 2001 agreement on China joining the WTO to say that WTO-member countries had then decided to deem China as a 'market economy' from December 2016 while adjudicating anti-dumping cases.

Official sources told The Hindu that since the main impact of China being granted MES would be on 'anti-dumping' cases, the Directorate General of Anti-Dumping and Allied Duties (or DGAD, an autonomous body under the commerce ministry) has begun consultations with stakeholders including international trade experts and lawyers on the issue.

Unfair trade

Dumping is an unfair trade practice of exporting goods to another country at a price lesser than what is paid in the exporting nation or their normal production cost, thereby distorting international trade and causing injury to the domestic manufacturers of the goods in the importing country.

As per the 2001 agreement (Protocol on the accession of China to the WTO), in calculating the 'normal value' of the exported goods while adjudicating anti-dumping cases, the WTO member nations could for 15 years (that is till December 2016) ignore selling price and production costs in China.

They could instead calculate the ‘dumping margin’ on the basis of a comparable export price to an appropriate third country and by 'constructing' the production cost with 'reasonable' additions.

This permission to compare prices or costs with external benchmarks to calculate the 'normal value' and 'dumping margin' has often led to many countries using the anti-dumping route extensively against China and imposing high anti-dumping duties.

The 15-year time period was given to China to carry out internal reforms and transition into a 'market economy.' Like India, the European Union (EU) is also undertaking stakeholder consultations on the ramifications of granting MES to China.

Once China is granted MES, it will severely limit India's ability to resort to anti-dumping as the authorities (DGAD) will have to accept the production costs and selling price in China as the benchmark, the sources said. They added that it will in turn mean lesser chances of anti-dumping duties being imposed or lesser anti-dumping duties even if they are imposed.

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 government influence in China that in turn causes distortions in international trade.

These countries have also been citing factors such as huge Chinese government subsidies, 'price fixing', 'absence' of proper business accounting standards, besides lack of transparency in not just loan rates, but also in minimum wages and property rights in China.

(This article first appeared in The Hindu dated February 22, 2016)

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