One such subject is something I've repeatedly advocated here and in other papers: why the United States should designate China a "market economy" under the US anti-dumping law. In making my case, I discuss (among many other things) why China's NME "graduation" is - contrary to popular wisdom - completely within the Department of Commerce's ample discretion to do so. I provide a lot of evidence supporting this fact, and one pretty cool thing that got left on the cutting room floor is a really, really detailed chart which hits my point home (albeit in an admittedly long-winded manner).
In the paper, I recount how DOC reversed its decades-old policy of refusing to apply the US countervailing duty law to imports from NMEs. I then state:
DOC’s policy reversal revealed the abundant discretion that it has with respect to NME decisions. In issuing memoranda in two separate investigations only a few months apart—an August 2006 NME memorandum in an anti-dumping investigation of Chinese lined paper and a March 2007 memorandum reversing previous policy (announced in the Georgetown Steel case) in the first CVD investigation of Chinese coated paper —DOC used the same evidence to come to precisely the opposite conclusions about the Chinese economy. In both cases, DOC examined the macroeconomic factors that are required for an NME analysis under U.S. law (currency, wages, investment, state ownership, government control over production and prices, and “other factors”) and... concluded that (i) China is no longer a Soviet-style economy; (ii) prices and costs are too unreliable for the purposes of determining the fair market value of merchandise; but (iii) prices and costs are sufficiently reliable for the identification and quantification of a subsidy benefit.The following chart details DOC's conclusions on each NME factor and supports the broader conclusions that are excerpted above. But because we (fortunately?) don't have to deal with word/page limits here on the interwebs, the chart isn't dead and instead you lucky folks get to view it here. Enjoy!
Factor
|
NME Memorandum
(Aug. 30, 2006) |
(Mar. 29, 2007) |
Comparison
|
Overall DOC conclusions
|
China
is no longer a Soviet-style command economy but remains an NME for purposes
of the U.S. AD law: “[I]t does not 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.”
|
DOC
concludes that (i)
|
|
Factor 1 – the
extent to which the currency of the foreign country is convertible into the
currency of other countries.
|
“While
|
Both
memoranda allege that the RMB is not fully convertible and that restrictions
exist on the FOREX market and on capital account transactions.
|
|
Factor 2 - the extent to
which wage rates in the foreign country are determined by free bargaining
between labor and management.
|
“Wages
between employer and employee appear to be negotiated, as opposed to
government-set, as evidenced by the variability in wages across regions,
sectors, and enterprise demands. Certain rights, such as the right to
compensation and choice of employment, are afforded to workers; employers,
while hampered in the ability to reduce staff, are generally free to make
independent decisions regarding labor. However, there are a number of
important institutional constraints on the extent to which market forces can
act upon the formation of wages.” (p. 22)
|
“[L]abor
regulations in the early 1990s abolished central planning for labor
allocation. The current Labor Law
grants the right to set wages above the government-set minimum wage to all
enterprises, including foreign-invested enterprises…. The fact that enterprises generally are
free to set wages and the majority of prices does not ipso facto lead to the
conclusion that wages and prices are market-based in all instances.” (p. 5)
|
Both
memoranda’s analyses are essentially the same – both concluded that wage
rates are not necessarily freely negotiated, and that institutional
constraints limit the influence of market forces on wages.
|
Factor 3 - the extent to
which joint ventures or other investments by firms of other foreign countries
are permitted in the foreign country
|
“
|
“By
1998… the PRC Government had given foreign trading rights to over 200,000
firms. Although China continues to
maintain some import price controls through the use of [state trading
enterprises], the PRC Government has dismantled its monopoly over foreign
trade and finally extended foreign trading rights to all [foreign invested
enterprises] in accordance with its WTO accession obligations…. [State-owned enterprises’] have the legal
right and obligation to act as independent economic entities under the 1994
Company Law…, including independent import and export decisions on both
amounts and price. However, significant non-market forces may also constrain
the actions of SOEs.” (pp. 7-8)
|
Both
memoranda found that, even though
|
Factor 4 - the extent of
government ownership or control of the means of production
|
“
China’s
land laws, regulations, and statements, although often vague and
contradictory, seem to support the provision of secure land-use rights to
farmers and an open, transparent system for transferring commercial land-use
rights. In practice, however, laws and regulations are regularly violated by
individuals and local governments.” (p. 46)
|
“Starting
in the 1990s, the PRC Government began to allow the development of a private
industrial sector, which today dominates most of the industries in which the
PRC Government has not explicitly preserved a leading role for the SOEs. Despite continuing limitations on private
property rights, the private sector’s limited access to bank credit and a
difficult legal environment for business, entrepreneurship is flourishing in
|
Both
memoranda conclude that, although the government has withdrawn from certain
sectors but has maintained its presence in sectors such as finance, energy,
and in the “core” or “pillar” industries: a significant degree of
state-planned and state-driven development can be found; property rights are
poorly enforced; legislation is not respected; and state-owned enterprises
often receive land-use rights free of charge.
|
Factor 5 - the extent of
government control over the allocation of resources and over the price and
output decisions of enterprises
|
“The era of
Nevertheless, the PRC
government, at all levels, remains deeply entrenched in resource allocation.
Importantly, the various levels of government in
|
“[A]lthough price
controls and guidance remain on certain ‘essential’ goods and services in
“The PRC Government no
longer allocates most resources in the economy directly through budgetary
outlays, as was the case in these traditional Soviet-style command economies.
…. Banks were afforded legal autonomy from the state in most matters, which
allowed them to lend, at least in theory, having regard to commercial
considerations.
Instead of directly
allocating all financial resources in the economy, the PRC central and local
government’s primary levers of economic and financial control lie in its use
of administrative measures (which allow for ad hoc discretionary policy
implementation), five-year plans and industrial policies which may serve as
guidance for lending and growth, and decentralized (local) control over the
banking sector. The near-complete state ownership of the commercial banking
sector enables the government to use non-direct measures to guide the
allocation of credit.” (pp. 8-9)
|
In both memoranda, DOC
concluded that most prices in
|
Factor 6 - such other factors as the administering
authority considers appropriate
|
The memorandum analyzed
other “economic reform issues”: trade liberalization; rule of law; property
rights and bankruptcy; corruption; and Guanxi, the use of personal
connections to circumvent law.
|
These factors are not
addressed.
|
DOC’s failure to take
this information into account in the Georgetown
Steel Memorandum indicates a selective use of facts.
|
2 comments:
After editing that unwieldy beast of a rant, I'm now expected to read more...from you? After those Gilligan's Island reruns maybe.
You'll read more and like it.
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