James J Nedumpara and Archana Subramanian

In December 2001, China joined the World Trade Organization (WTO) after 14 long years of arduous negotiations. One of the most debated issues during the accession negotiations was the treatment of China as a non- market economy — an economy where costs and prices are not dependent on market forces of demand and supply. This classification has resulted in WTO Members resorting to a differential treatment of Chinese imports in anti- dumping investigations, especially with the use of the “surrogate country” — a third country which is at the same level of economic development — for the determination of Chinese home market cost or prices for comparison purposes. The use of this method against Chinese products stems from art.15(a)(ii) of China’s Accession Protocol to the WTO. While the second sentence of art.15(d) of China’s Accession Protocol prescribes an expiry date for the use of non- Chinese costs and prices, there are enough indications at different places in art.15 to support the continued application of the surrogate country method. It is within this framework that this article evaluates the text and context of China’s Accession Protocol. It is argued that the expiry of art.15 subpara.(a)(ii) does not alter the scenario prevailing before 11 December 2016. At best, subpara. (a)(ii) is a mere tautological expression, whose expiry is inconsequential in the light of an indirect authorisation to use surrogate prices in subpara.(a)(i). The article argues that irreconcilable differences exist among the multiple strands of legal interpretation of art.15 and may require an adjudicative decision at the highest level, which could perhaps lay this controversy to rest.

China; accession protocol; anti-dumping; non-market economies; surrogate method; normal value; price comparison; WTO
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“When is China Paraguay?” is part title of an article by Professor William P Alford explaining the operation of anti-dumping investigations against non-market economies (NMEs).1 The reference to Paraguay is because of the reliance of the United States Department of Commerce (USDOC) on prices in Paraguay in its anti- dumping investigation on natural menthol against China in 1981.2 As Alford’s title of the article suggests, NME treatment reflects a certain type of country replacement, base shifting and significant amount of arbitrariness and random selections in the use of benchmark prices for comparison in anti-dumping actions.

Anti-dumping duty is a duty imposed by an importing country to offset the differences between the normal value (technical nomenclature for the home market price) and the export price of a product.3 China was not the only country that was treated as an NME when Alford’s article was published.4 A large number of communist countries were subject to this treatment in anti-dumping investigations (especially during 1960–1995) on the presumption that in those countries excessive state interference rendered the domestic prices extremely unreliable for most commodities.

NMEs constitute a major problem in international trade law, especially in anti-dumping law. To find out whether the domestic sales are below cost, all anti- dumping investigations require a domestic reference price, which is formally known as the “normal value”. This will help to determine whether there is price discrimination between the domestic price and the export price of the same goods. In market economies (which operate on market principles), the price discrimination is established on the basis of comparison between the export and domestic price. However, NMEs are typically centrally planned economies, and the domestic or even export prices in these economies could be established by the State or could be State directed. In other words, it is assumed that market principles of demand and supply are not at work in NMEs to such an extent that often the sale price does not reflect what should be its fair price.5 In an NME, policies including production, investment and pricing need not be subject to commercial considerations and could be often controlled or mandated by the State.