Fifteen years ago, on Dec. 11, 2001, China joined the World Trade Organization. As part of that deal, China was to be recognized for the first 15 years of membership as a "nonmarket economy," a status that made it easier for other countries to sue it for violating antidumping rules. Beijing believed, however, that at the end of that 15-year period, it would graduate to "market economy status" (MES) and new rules would apply.
Beijing has been angry to discover that its transition to MES was not automatic. That grievance has been intensified by the discovery that its main trading partners now refuse to confer that status. They believe that China is exporting unemployment by keeping export prices artificially low to spur domestic production. Adding insult to injury, the European Union last week filed a new dumping claim against China, alleging unfair practices in the steel sector. China has made great progress toward marketization of its economy, but to say it is a market economy goes too far. China needs to be reminded that it must play by internationally accepted rules before it is afforded the status it seeks. It cannot enjoy the advantages of market economy status while avoiding the costs it entails.
If China is considered a nonmarket economy, then its trade partners can use third country export prices as a benchmark for Chinese behavior. In other words, a country like Japan can use the price of Chinese exports in Canada to help determine if steel is being dumped — sold at artificially low prices — in Japan. If China is considered a MES, then the appropriate benchmark price is the domestic price charged in China.