Criteria of Market Economy

Updated: 2006-10-09 16:11

3. Costs and Prices of Production Factors

The US Department of Commerce is concerned with the extent of control on the allocation of resources by the government, and with whether the inputs in products are paid at market prices; The EU is concerned with whether the market can determine the prices of the input factors and the trustworthiness of enterprises' costs; The Canadian government is concerned with how the decisions are made in respect of the prices of the input factors such as raw materials, energy, labor costs as well as output quantity and pricing in the state-owned enterprises. All in all, the EU and the North American countries are concerned with whether the production factors such as raw materials and labor input by enterprises are paid at market prices. This is understandable as the prices of inputs will affect the costs of the outputs and will directly influence the prices of the products and is therefore in direct connection with the anti-dumping cases. For this reason, any importing country would be particularly concerned with the trustworthiness of the costs and the rules governing the formation of prices of the products from an exporting country. We may call this the "marketization of production factors".

4. Trade Environment

The EU and the American countries are concerned that in trade activities, international and domestic alike, are transactions carried out freely or subject to restrictions. Are well-developed market infrastructure, market legislation and judicial system available? Are market intermediaries independent and what roles are they playing? Do enterprises have autonomy in determining their prices according to the trade policy? How does the government exercise control over exports and exporting enterprises? Can enterprises carry out business activities independently? All these issues are related to trade environment and conditions, we may call them the issues for the "fairness of trade environment".

5. Financial Parameters

The EU and the American countries are especially keen about if the interest rates and exchange rates of the country under anti-dumping investigation are determined by the market. Is the local currency convertible and to what extent is it convertible? Are there different interest rates for different enterprises, departments of domestic and foreign trade and different industries? Is the enterprise's financial status not distorted by the former non-market economy system? Are enterprises free to transfer the profits or capital? Do enterprises enjoy autonomy in swap and deposit of foreign exchanges? In a word, the apprehension is about the way in which the two financial parameters, namely the interest rate and the exchange rate. are formed and the fairness in the application Of them, thereby touching upon the principles underlying the formation of these parameters, i.e. the rationalization of the financial structure. We here-by will call this the "rationalization of financial parameters".

Obviously, the above five key factors are put forward on the basis of our knowledge and understanding of the theory and reality of the modern market economy, having taken into full consideration of the criteria of market economy put forward by the EU, the USA and Canada for anti-dumping purposes, and are closely focused on the matter of fairness in trade. We are of the opinion that as a pragmatic approach, comparisons and discussions on the basis of these five factors as our market economy criteria will facilitate our direct dialogue with the EU, the USA and other countries.

Taking these five key factors as criteria to make judgments duly differs from the classification of market economy or marketization made by domestic academic circles. Some scholars insist that consisting of three major industries, a market economy should be divided into three sectors for measurement; some emphasize that due to its components of seven types of markets, it can be classified into seven segments for measurement; moreover, some pinpoint that the measurement should begin by these three key factors of government, enterprise and market etc. Various classifications are based on relevant grounds. Suppose one was taking apart an elephant. One would first of all be confronted with how to break up it? What would be the special concern, the structure of head, body and legs, the components of respiratory system, nervous system and skeletal & muscular system, or the environment focusing on the classification according to internal and external causes, etc.? Corresponding factor indices may be worked out directly through classification. The key is, we believe, that the classification should be centered on the purpose of the research. For professional study, market specialists naturally lay stress on market classification indices; for theoretical research, on overall condition of market economy; for anti-dumping, however, on requirements of questionnaires and relevant legal indices of countries concerned. Given that our market economy research targets on the practical application to anti-dumping cases, we have concluded these "five key factors" out of standards of major anti-dumping countries concerned, as a basis for discussion. Obviously, there are two distinctive points within the five key factors: first, the emphasis is on the symbol of classification indices, rather than the overall integration of a market economy, i.e., conducting comprehensive analysis by taking the most influential five factors on trade in market economy as the symbolic indices for judgment. Second, the stress is laid on concerned issues related to fair trade to classify and deal with, rather than on logicality of market economy theory to make classification.


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