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1 1 (January 10, 2019)

handle is hein.crs/govxzf0001 and id is 1 raw text is: Conresionl eserchSeric Updated January 10, 2019 China's Status as a Nonmarket Economy (NME) When China joined the World Trade Organization (WTO) in 2001, it agreed to allow other WTO members to continue to use an alternative (surrogate country) methodology for assessing prices and costs on products subject to anti- dumping (AD) measures. This occurred because other WTO members argued that distortions in the Chinese economy caused by government intervention would make it impractical in many cases to use Chinese prices and costs for determining dumping margins. China contends that language in its WTO accession protocol required all WTO members to terminate their use of the alternative methodology by December 11, 2016, including the United States, which has classified China as a nonmarket economy (NME) for trade remedy cases since 1981. The United States and other WTO members argue that that the WTO language did not automatically obligate them to extend market economy status (MES) to China. On December 12, 2016, China initiated a WTO dispute settlement case against the United States and the European Union for not affording China MES status. The Mechanics of NME Treatment and Dumping U.S. AD measures provide U.S. firms and workers a mechanism to seek relief from the potential injurious effects of foreign firms that attempt to sell products in the United States at less than fair value, which generally means at prices below those sold in their home market. If the Commerce Department determines that dumping has occurred, and the U.S. International Trade Commission (USITC) finds that it has caused or threatens to cause material injury (such as declining profits or market share) to a U.S. industry, Commerce issues an order imposing additional duties on the targeted imports that attempts to offset the market distorting effects of the dumping. China is the largest target of U.S. AD orders, which totaled 120 through December 14, 2018 (34% of total). Figure I. Major Targets of U.S. AD Orders (In place as of December 14, 2018) 140 120 120 100 80 60 40 23 20 20 20 China India S. Korea Taiwan Source: U.S. International Trade Commission. Since 2007, the Commerce Department has also employed countervailing duty (CVD) measures against NMEs to counter subsidies given to their exporters. Commerce often initiates both AD and CVD investigations against Chinese and other entities for the same products and issues separate AD and CVD duty rate orders. Under U.S. law, a NME means any foreign country that the U.S. Department of Commerce deems not to operate on market principles of cost or pricing structures, so that sales of merchandise in such country do not reflect the fair value of the merchandise. The NME designation is significant because the use of a surrogate country to construct a product's normal value in an AD investigation is thought by many analysts to often result in the imposition of higher AD rates than would occur if the producer's/exporter's prices and costs were used. In AD cases for NMEs, Commerce assumes that market mechanisms do not exist for the calculation of prices and costs for the products subject to an AD investigation and imposes a NME country-wide AD duty rate against all imports except for those firms that can demonstrate that they are operating in absence of government control in law and in fact (they may receive a separate AD rate). For the country-wide AD rate, Commerce seeks to determine which market economies (MEs) are closest to the NME in terms of development, based on the World Bank's measurements of gross national income on a purchasing power parity basis. In the case of China, Commerce, in recent AD cases, has identified Bulgaria, Ecuador, Romania, South Africa, Thailand, and Mexico as meeting this criterion. From this list, Commerce seeks to identify a country that manufactures products similar to the targeted products made by the NME under investigation. It then takes the prices and costs in the surrogate country and compares them to the prices of the goods exported by the NME to the United States to determine the AD margins, which are imposed if the material injury test is also met. How Can China Achieve. MES Uinder US Law? Currently, there are 11 countries designated by Commerce as a NME, including Belarus, Georgia, the Kyrgyz Republic, the People's Republic of China, the Republic of Armenia, the Republic of Azerbaijan, the Republic of Moldova, the Republic of Tajikistan, the Republic of Uzbekistan the Socialist Republic of Vietnam, and Turkmenistan. Several countries have had their NME status changed to MES by Commerce over the years, such as Poland (1993), Russia (2002), and Ukraine (2006). In order for a NME to have its designation changed to MES, the government of that country must make a formal request for review, or back a claim by a respondent in a U.S. AD JaPa i investigation that the country has a ME. The Commerce Department must investigate the request and consider six major factors: (1) the extent to which the currency of the foreign country is convertible into the currency of other countries; (2) the extent to which wage rates in the foreign https://crsreports.congress.gov

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