If you don't believe in the 2012 myth, do you believe in the 2016 myth?

I've been asked by a colleague to comment on this post by Bernard O'Connor at VoxEU. In the post, he claims that the view that China will automatically get market economy status (MES) after 2016 is "an urban myth that seems to have gone global. It has gone viral even in a world were the underlying agreements are freely available to all on the Internet."

His key message is this:

"The 2016 myth seems to have been born in paragraph (d) of Article 15. This paragraph provides that China must establish whether it is a market economy according to the law of the importing WTO member. If it can establish that it is a market economy then some of the transitional provisions on comparison methodologies will terminate. However, there are no dates in relation to China establishing that it is a market economy.

The paragraph further provides that one specific comparison methodology set out in one subparagraph of the Article will expire, in any event, fifteen years after Chinese accession. China became a WTO member in Doha in December 2001. Add fifteen years and you get 2016.

This provision does not say that China will get market-economy status. It just says that a very specific provision of Article 15 will cease to apply. The other parts of Article 15 continue to apply. And to interpret the expiry of one subparagraph as a deadline for the granting of market-economy status is not only to read into the Article something that is not there, but it is also to negate all the other provisions, something that international treaty interpretation simply does not allow. The expiry of one subparagraph does not change the rest of the law."

This is what Art 15 of China's Accession Protocol says:

"Article VI of the GATT 1994, the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 ("Anti-Dumping Agreement") and the SCM Agreement shall apply in proceedings involving imports of Chinese origin into a WTO Member consistent with the following:

(a) In determining price comparability under Article VI of the GATT 1994 and the Anti Dumping Agreement, the importing WTO Member shall use either Chinese prices or costs for the industry under investigation or a methodology that is not based on a strict comparison with domestic prices or costs in China based on the following rules:

(i) If the producers under investigation can clearly show that market economy conditions prevail in the industry producing the like product with regard to the manufacture, production and sale of that product, the importing WTO Member shall use Chinese prices or costs for the industry under investigation in determining price comparability;

(ii) The importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product.


(b) In proceedings under Parts II, III and V of the SCM Agreement, when addressing subsidies described in Articles 14(a), 14(b), 14(c) and 14(d), relevant provisions of the SCM Agreement shall apply;  however, if there are special difficulties in that application, the importing WTO Member may then use methodologies for identifying and measuring the subsidy benefit which take into account the possibility that prevailing terms and conditions in China may not always be available as appropriate benchmarks.  In applying such methodologies, where practicable, the importing WTO Member should adjust such prevailing terms and conditions before considering the use of terms and conditions prevailing outside China.

(c) The importing WTO Member shall notify methodologies used in accordance with subparagraph (a) to the Committee on Anti-Dumping Practices and shall notify methodologies used in accordance with subparagraph (b) to the Committee on Subsidies and Countervailing Measures.

(d) Once China has established, under the national law of the importing WTO Member, that it is a market economy, the provisions of subparagraph (a) shall be terminated provided that the importing Member's national law contains market economy criteria as of the date of accession.  In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession.  In addition, should China establish, pursuant to the national law of the importing WTO Member, that market economy conditions prevail in a particular industry or sector, the non market economy provisions of subparagraph (a) shall no longer apply to that industry or sector."

Basically, para (a) contains 2 scenarios:
i. if producers can prove market economy conditions, then the importing country has to use China's own costs;
ii. if the producers cannot prove market economy conditions, then the investigating authority may use a surrogate price, say price in India or Singapore.

By stating that "the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession", para (d) basically states that (a.ii) will not apply after 2016. Instead, only (a.i) will apply, which means that the investigating authorities have to use China;s own costs NO MATTER WHETHER the producers can prove market economy conditions. THIS MEANS CHINA WILL GET MARKET ECONOMY STATUS POST 2016.

Of course, O'Connor is technically correct as Art 15 NEVER EXPLICITLY state that WTO Members have to GRANT China market economy status. Instead, it only states that they MAY NOT CONTINUE TO APPLY THE NON-MARKET ECONOMY METHODOLOGY post 2016. O'Connor's theory could be correct is there are 3 possibilities, i.e., ME, NME, & something else. Is there a "something else" category? No. Because para (a) only list 2 scenarios, i.e, (i) & (ii). Furthermore, para (a) starts by stating that  the importing WTO Member shall use "either Chinese prices OR [the NME] methodology". Thus, there are ONLY TWO scenarios. By excluding the NME scenario through para (d), the only conclusion we can draw is that China will be treated as a ME post 2016.

O'Connor further states that "to interpret the expiry of one subparagraph as a deadline for the granting of market-economy status is not only to read into the Article something that is not there, but it is also to negate all the other provisions, something that international treaty interpretation simply does not allow. The expiry of one subparagraph does not change the rest of the law." My responses are:

1. Technically speaking, the EU can still refuse to grant China MES post 2016. However, doing that would be in violation of EU's WTO obligations, as Art 15(d) has expired, and the EU cannot continue to use it as justification for refusal to grant China MES.

2. The EU might cite to the 2nd supplementary provision to para 1 of GATT Art. VI as the basis for its denial of MES to China, but this provision requires the exporting country to have "a COMPLETE or substantial complete monopoly of its trade AND where ALL domestic prices are fixed by the State". This has not been the case in China since the mid-90s, and it is unlikely that it will be the case in 2016. Thus EU cannot cite this article.

3. In essence, while I agree with O'Connor that the expiry of this provision doesn't mandate the granting of MES to China by the EU, I do not agree that this means that China shall not be treated as a ME post 2016. The truth is that, whether the EU grants MES or not post 2016, the EU IS OBLIGED to treat China as a ME, otherwise it will be found in violation of its WTO obligation. While O'Connor is technically correct by stating that "to interpret the expiry of one subparagraph as a deadline for the granting of market-economy status is ... to read into the Article something that is not there", by refusing to acknowledge the de facto (and de jure as well) automatic MES China is entitled to post 2016, he made an even bigger mistake by "omitting something which is there" or failing to interpret the treaty language in its ordinary meaning and proper context.

4. O'Conner also claims that the interpretation of automatic MES post 2016 "negates all the other provisions" and attempts to "change the rest of the law". Again this claim is flawed because the other paras in Art 15 DO NOT MENTION the NME issue and thus are IRRELEVANT TO THE QUESTION. For example, if I say:

I. The sun has different temperatures in a day:
a. it is hot in the daytime
b. it is cold in the nighttime
II. The sun is big
III. The sun is round.

If we discover that I.b is wrong because the sun is hot even in the night, how can you say that II and III has also been negated by the discovery of this mistake?