Will Nonmarket Economy Methodology Go Quietly into the Night?

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from CATO Institute,

U.S. Antidumping Policy toward China after 2016.

he use of antidumping measures to protect certain domestic industries may be the most widely abused trade policy instrument worldwide. The U.S. government has been persistent in its efforts to find creative ways to inflate and impose antidumping duties on goods used by American consumers and businesses, occasionally running afoul of the law or U.S. obligations under the World Trade Organization (WTO). But U.S. authorities reserve their most punitive and abusive practices for goods from China.

In those cases, the United States sets antidumping duties using what is called nonmarket economy (NME) methodology. The practice gives license to the U.S. Department of Commerce to ignore Chinese producers’ cost and price data and to turn, instead, to estimates for those data that are usually punitive and almost always unrealistic.

Current WTO rules permit the United States to maintain this discriminatory approach, which China agreed to as a condition of its accession to the WTO, but that condition will expire in December 2016. If that deadline passes without the U.S. practice having changed, it will become grossly out of sync with WTO rules. Absent a major change in the mindset of U.S. trade officials with respect to Chinese treatment in antidumping proceedings, it is unlikely that the United States will bring its policy into compliance.

Willful Ignorance
One possibility is for U.S. authorities to completely ignore the expiration of China’s NME
exception. There is no automatic trigger in U.S.
law that would end the use of NME methodology. Rather, Commerce has to decide that China
is no longer an NME based on the factors in the
NME test. As discussed above, the outcome of
that test is purely political.
That means the Obama administration currently has the power to end China’s NME designation if it so chooses. The deadline to do so is
just before the end of his second term. Stubbornly ignoring that deadline would completely disregard the agreement made when China joined
the WTO and would violate international trade
rules. But, that fact has not prevented lobbyists
and representatives of protection-seeking industries from advocating just such an approach.

Some commentators have begun to present an argument that the permission to treat
China as an NME does not actually expire
in 2016.

They argue that only one portion
of the NME section will expire, and that the
remaining portions—which require that countries offer the NME and MOI tests to Chinese
producers—are still in effect. The argument,
while appealing to antidumping petitioners
and their lawyers, is fundamentally lacking because the part that expires is the one provision
that expressly permits NME treatment. The
fact that everyone has understood for over 10
years, without controversy, that the NME per mission would expire at the 2016 deadline also
makes it difficult to take seriously a previously
unconsidered argument to the contrary.

The policy that would best serve a strong U.S. trade agenda and the American public is to end NME treatment of China by no later than December 2016. China’s NME designation currently serves as an excuse for lawless protectionism, which not only inflames trade relations, but imposes enormous costs on downstream U.S. industries and consumers. Nondiscriminatory treatment of Chinese imports would bring U.S. trade policy into compliance with WTO rules while reducing the distorting effect of antidumping measures on the U.S. economy.

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