World Economy

Japan Says Won’t Recognize China as Market Economy

China is under pressure to deal with its steel oversupply and other economic distortions.China is under pressure to deal with its steel oversupply and other economic distortions.

The Japanese government intends not to recognize China as a “market economy” under the World Trade Organization without changes to the country’s policies, a stance that will leave tariffs as a ready option for Tokyo against unfairly cheap Chinese exports.

The US and the European Union have indicated they will take the same approach. Japan seeks a united front with other advanced economies to pressure China to deal with its steel oversupply and other economic distortions, Nikkei reported.

China, which joined the WTO in 2001, is pushing to gain automatic market economy status effective Dec. 11 after the expiration of a 15-year provision that lets trade partners treat the nation as a non-market economy.

Continuing to treat China in this way would let Japan use third-country prices as a benchmark to determine whether Chinese producers are engaging in dumping, or exporting products for less than they sell in the home market. This would make for easier determinations—and retaliatory action with anti-dumping tariffs—than relying on China’s opaque domestic prices as a reference.

China has indicated it may retaliate as well in response to tariffs by countries that do not recognize Beijing’s market economy status.

An approaching WTO deadline makes higher prices likelier for European goods made with parts and materials imported from China, according to The Wall Street Journal. 

On Dec. 11, the European Union could grant China “market economy status”, making it harder under WTO rules for the EU to protect its industries from what it deems as unfair trade practices by Beijing. Or, the EU could draft new trade rules that do away with the distinction between market and nonmarket economies that the bloc has used in the past. 

The odds are against China getting the market title by the deadline, said Edwin Vermulst, a partner at Brussels-based law firm VVGB Advocaten. “There is simply too much pressure from southern EU states and industrial sectors with a protectionist agenda to maintain, or even increase, the high level of duties,” Vermulst said.

Meanwhile, the Chinese business community has called on the European Union to eliminate trade barriers against mainland companies—and to fully recognize its international commitments under the WTO, a senior trade official said.

“In order to maintain the two parties’ healthy economic and trade relations, we hope that the European Union will uphold WTO principles and recognize its international commitments,” said Wang Jinzhen, vice-chairman of the China Council for the Promotion of International Trade.

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