Last year, as a result of the expiration of certain language in China’s World Trade Organization (“WTO”) Protocol, the U.S. Department of Commerce conducted a review of its designation of China as a non-market economy country for purposes of the U.S. antidumping laws. The Department announced the results of its review of China’s status on October 26, 2017, concluding that China continued to be a non-market economy country. Further, none of the USMCA member countries have a free trade agreement with China. As a result, China would be considered a “non-market country” for purposes of the USMCA.

Article 32.10 requires a USMCA member country seeking to negotiate a free trade agreement with China, or any other “non-market country” to:

1. Inform the other member countries of their intention to negotiate such an agreement, at least three months prior to commencing negotiations;
2. Upon request of another USMCA member country, provide “as much information as possible” regarding the negotiating objectives; and
3. Provide the other USMCA member countries an opportunity to review the full text of the agreement at least 30 days before the date of signature.

This provision, as well as a number of other provisions aimed at strengthening trade enforcement, including Article 10, Section C, regarding the prevention of duty evasion of antidumping, countervailing, and safeguard duties, reflect the Trump administration’s strong stance against unfair trade practices by China.

As we have reported here and here, the question of whether the United States would continue to treat China as an non-market economy (“NME”) for purposes of the Department of Commerce’s antidumping duty analysis was recently decided by the Administration. In a 200-page memorandum issued at the end of October, Commerce announced that it would continue to apply alternative dumping methodologies with respect to China given the substantial evidence that China continues to be an NME.

That has not stopped China from initiating dispute settlement proceedings at the World Trade Organization (“WTO”) against the European Union (DS516) and the United States (DS515). In each dispute, China is challenging the WTO member’s applied antidumping duty methodology with respect to imports from China, which China believes are prohibited under a provision of its 2001 Protocol of Accession to the WTO and inconsistent with provisions of the WTO Antidumping Duty Agreement and the General Agreement on Trade and Tariffs (“GATT 1994”).

In the United States dispute, China requested additional consultations with the United States in early November in light of the October memo announcing the United States’ ongoing treatment of China as an NME.

In the EU dispute, a dispute settlement panel was composed in July 2017, and the parties have been filing legal briefs. The United States, as a third party to the EU proceeding, filed its brief last week that presents the United States first legal analysis of this issue with respect to WTO law.

The United States’ argument rests on the interpretation of the GATT 1994 and WTO Antidumping Duty Agreement as recognizing that NME prices are distorted and unreliable, and, thus, unsuitable for the price comparability determination required in an antidumping price comparison. According to the United States, this basic principle – and the authority to reject and replace NME prices for purposes of antidumping comparisons – predates and is not extinguished by China’s Protocol of Accession. In support of this argument, the United States cites to the WTO accession documents of Poland, Romania, and Hungary (NMEs at the time of their accession in the 1960s and 1970s) that affirmed WTO members’ ability to adopt alternative antidumping methodologies unless market economy conditions prevail.

This briefing and argument phase, prior to the dispute settlement panel’s final report to the parties, will take at least six months, and likely longer. The panel’s findings will be subject to appeal, and, if appealed, the entire dispute process may take 18 months to two years. In addition to the United States, Australia, Bahrain, Brazil, Canada, Colombia, Ecuador, India, Indonesia, Japan, Kazakhstan, South Korea, Mexico, Norway, Russia, Taiwan, Turkey, and the United Arab Emirates have joined as third parties in the EU dispute.