Surrogate country approach in anti-dumping investigation unfair to China: Expert

WASHINGTON — The surrogate country approach which allows World Trade Organization (WTO) members to slap far greater tariffs in anti-dumping investigations is unfair to China, a trade expert told Xinhua in a recent interview.

"Currently the rules are very much what I call unfair to China. They allow countries to slap tariffs which are far greater than anyone would reasonably argue are appropriate," said Yukon Huang, former World Bank country director for China.

"That kind of flexibility is ... arbitrary, it leads to comparisons which are not actually fair or appropriate to China," added Huang, now a senior fellow at the Carnegie Endowment for International Peace.

The rules that the expert referred to are the "surrogate country approach" under which WTO members could determine whether China is exporting products below market value by comparing their prices with prices and costs in a third country and levy high tariffs against China in anti-dumping investigations.

In accordance with Article 15 of the protocol on China's accession to the WTO in 2001, the surrogate country approach expired on Dec 11, 2016.

However, some WTO members, including the United States and the European Union (EU), didn't want to drop the surrogate country approach, and have tried to mix the concepts of the surrogate country approach and the market economy status in order to pursue protectionism practice against Chinese exports.

"I don't think the issue should be whether China is a market economy or not a market economy," said Huang.

"Right now using a third country comparison" to judge the cost structure of what's happening in China is unreasonable as "the conditions in other countries are totally irrelevant," he added.

According to the expert, the reason that China became an efficient low cost producer is not because there are distortions in the Chinese market or China is not a market economy.

China's well-developed production and resources networks and relatively competitive labor costs allow it to produce many items at a fairly low cost, said Huang. Other countries don't have such comparative advantages, he added.

Huang said China has made significant progress in moving towards a market economy, with the role of market and non-state enterprises becoming larger than 10 or 15 years ago.

"There should be more discussions about what is an appropriate system to apply in judging whether China is dumping or not dumping, the current rules, using third country comparisons of costs, is in my view not sensible, it's not valid conceptually," said the expert.

China has been urging WTO members, including the United States, to fulfill their WTO obligations by abandoning the surrogate country approach, and called on them to determine the anti-dumping measures against China on the basis of the actual prices and costs of Chinese enterprises in accordance with the WTO rules.

When talking about the recent trade enforcement actions adopted by the US government against China, Huang suggested that "the answer should be liberalization of policies on both sides that benefits both countries."

He cited the 100-day economic cooperation plan reached during the Mar-a-Lago meeting between Chinese President Xi Jinping and his US counterpart Donald Trump as an example of China-US cooperation. The plan really addressed liberalizing and opening up markets on both sides, said Huang.

He called on China to further open up its service sector to foreign investment and suggested that United States should make its foreign investment review process clearer and more transparent.