EU ruling damages Beijing's trade status
By Paul Meller (International Herald Tribune)
Tuesday, June 29, 2004

BRUSSELS: It may be one of the most dynamic places in the world to do business, but technically at least, China is not yet a "market economy," the European Commission concluded in a report Monday.

State interference in industry, combined with a lack of adequate accounting, property and bankruptcy laws, mean China must continue to be classified as a "transitional economy," for the purposes of settling trade disputes with the European Union, the commission said in a preliminary assessment.

When a member of the World Trade Organization fear that a foreign company is selling goods in its market at below cost, the country can impose so-called anti-dumping duties on the importer. Companies in countries with market-economy status are trusted to submit their own cost and price information to the EU's customs authorities. But the cost and price of imports from countries considered to be in economic transition are compared with similar products from other transitional economies in order to gauge whether the importer is selling at below cost.

"It is purely a technical classification. We are not casting judgment on the entire Chinese economy," said Arancha Gonzalez, an EU spokeswoman.

But for the Chinese government the issue is not just technical; the words "market economy status" are loaded with political significance. When China joined the WTO in 2001, it agreed to be classified by its trading partners as a transition economy for up to 15 years, but has since tried to shake off the label.

Prime Minister Wen Jiabao raised the issue during an official visit to Brussels last month, after his government first requested the change in status a year ago.

Kezhong Lei, a spokesman for the Chinese government in Brussels, said after he heard about the Commission report: "We are a market economy. That's a fact known to all." He added, "We hope the EU has a positive decision concerning our market economy status as early as possible because it is already a fact."

The EU changed its rules four years ago to allow it to grant market economy status to individual companies from transitional economies, if they could provide reliable enough information. Since then, 111 Chinese companies have requested the change in status but only 28 have been granted it.

The EU has 32 anti-dumping disputes with Chinese exporters, including cases involving the makers of bicycles and bike parts, and a further 22 cases are under investigation. The United States, which is imposing anti-dumping duties on 52 Chinese exporters, including exporters of steel concrete reinforcing bars.

Like the EU, the United States has so far refused to grant China market economy status, but New Zealand, Singapore and Malaysia have done so, and Australia is considering following suit.

China overtook the United States as a recipient of foreign direct investment in 2003 as companies broadened their strategies in emerging markets, according to a report published Monday, The Associated Press reported from Paris.

The Organization for Economic Cooperation and Development said America was the worst hit by falling inflows of foreign direct investment to its 30 industrialized member countries. Investment into the United States declined to $40 billion last year from $72 billion in 2002 and $167 billion in 2001, while foreign direct investment in China dipped only slightly to $53 billion from $55 billion - leaving China as the world's biggest recipient of investment, excluding Luxembourg, a tax haven.