The ongoing trade war with the United States was an important factor in China's decision to halt a case against the refusal of the European Union to grant Beijing "market economy" status at the World Trade Organisation, analysts say.
The pursuit of market economy status has been a long-term strategic goal for China, since it would enable it to avoid the anti-dumping cases it often faces because of its model of selling cheap goods to developed markets. It would also be a symbolic recognition of China's arrival as a mature economy itself and a tip of the hat to the "socialist market economy model" for policymakers in Beijing.
However, the rapidly changing international trade landscape has caused China to re-evaluate its priorities, with the trade war forcing China to take "a step back" from World Trade Organisation (WTO) reform, according to experts in the mainland.
Su Qingyi, a senior research fellow at the Institute of World Economics and Politics under the Chinese Academy of Social Sciences, said the trade war has made it more difficult for the multilateral trade system to function. "The WTO system will remain, but reform of the WTO is a long-term process," Su said.
Ying Pinguang, an associate dean at the School of WTO Research and Education at the Shanghai University of International Business and Economics, suggested that Beijing's dropping of the case could be viewed as a goodwill gesture designed to help reignite negotiations over an end to the trade war.
"The US halted a WTO dispute over China's intellectual property rights a few days ago, so, it could be part of a broad negotiation strategy," Ying said.
Ying was referring to a request by the US last Friday that the WTO suspend its dispute over China's intellectual property practices for six months. The US notice gave no reason for the requested postponement.
A WTO dispute settlement panel said on Monday that Beijing had requested to suspend legal proceedings on May 7. There were media reports in late-April that China would lose the lawsuit and that the WTO panel's reasoning would be highly critical of Beijing. A Reuters report said this week said of China's case: "They lost so much that they did not even want the world to see the panel's reasoning."
China's Ministry of Commerce did not respond to questions on why China decided to end its market economy case at the WTO.
While China's lobbying persuaded countries from Russia to Australia to recognise it as a market economy, it has failed to convince the US and EU to follow suit, a bitter pill to swallow for the government, which believed that it should have been granted that status automatically after 15 years of WTO membership.
China filed a challenge against the EU, but not the US, at the WTO in December 2016 in an attempt to resolve the issue.
However, US President Donald Trump's tariffs on China, enforced not for dumping but on national security grounds, made the market economy case largely moot. Washington has gone on to slap tariffs on US$250 billion worth of Chinese imports and is threatening to further tariffs on the remaining US$300 billion of imports that have avoided tariffs so far.
The US claims China has not lived up to the commitments it made when it joined the WTO in 2001, while China argues that US tariffs violate WTO rules.
The argument over whether China should be treated as a market economy is just one of the differences between China and its major trade partners, including the US, EU and Japan, at the WTO. Other issues include China's "developing country" status and the role of the state in directing and subsidising the economy.
China's decision to not pursue market economy status means that the EU can keep using third-country costs to calculate the "fair price" of Chinese products instead of taking China's quoted prices at face value. However, since it will see a maintenance of the status quo, there will be little economic impact.
At the same time, China's retreat shows a seismic shift from a year earlier.
At a press conference on June 28 2018, Chinese vice-commerce minister Wang Shouwen said China's WTO entry agreement is "very clear, with black words on white paper". He claimed the agreement showed that other WTO members would not use third-country calculation for prices 15 years after China's ascension to the WTO.
"We believe the WTO will make a fair judgment," Wang said at the time.
Furthermore, at a meeting in Geneva last July, Zhang Xiangchen, China's ambassador to the WTO, lashed out at the US for labelling China a "non-market economy".
"We cannot find the definition of 'market economy' anywhere in the WTO rule book. There is no one-size-fits-all 'market economy' standard in the world," Zhang said.
WTO reform is expected to be on the agenda at the G20 Summit of leaders in Osaka, Japan on June 28 and 29.
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