CIBEL Lunchtime Talk on ‘China and the Continued Use of Surrogate Price Methodology in Anti-dumping: An Analysis of Article 15 of China’s Accession Protocol and Member Practices’, delivered by Dr. James J. Nedumpara on 8 August 2017

Author
Xiaomeng Qu, Ph.D. Candidate, Faculty of Law, UNSW Australia

Background
In December 2001, China joined the World Trade Organization (WTO) after 14 years of negotiations. One of the keenly debated issues during the accession negotiations was the treatment of China as a non-market economy (NME) – 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. This is evident by the use of the so-called ‘surrogate country’ methodology in the determination of Chinese producers’ domestic prices for comparison purposes. With the expiry of subparagraph (a) (ii) of Article 15 of China’s Accession Protocol, there is controversy about the fate of the surrogate methodology.

NME Practice in the GATT
The issue of NME was first put forward by the GATT. GATT Article VI, Second Ad note states: “It is recognized that, in the case of imports from a country which has a complete or substantially complete monopoly of its trade and where the domestic prices are fixed by the State, special difficulties may exist in determining price comparability for the purposes of paragraph 1, and in such cases importing contracting parties may find it necessary to take into account the possibility that a strict comparison with domestic prices in such a country may not always be appropriate.” During the Pre-GATT period, several East European countries and Communist countries were subject to NME treatment.

China and NME
China has been subjected to the NME treatment for many years, and had to accept the surrogate methodology, which stems from Article 15 of China’s Accession Protocol to the WTO. However, Article 15 also empowers China to stop the surrogate methodology after a 15-year transition period, allowing it the chance to receive Market Economy Treatment (MET) . This means normal value would be determined on the basis of the price paid/payable by independent customers in China rather than surrogate prices. With the expiry of subparagraph (a) (ii), the issue of the relation between the use of Article 15 of China’s Accession Protocol and China’s NME status is again in question.

Possible Interpretations
There are two possible interpretations. One is that China's market economy status should be accepted automatically and the use of surrogate price methodology in anti-dumping should be discontinued. The opposite view is that the designation as NME is based on national laws and that the surrogate methodology could independently exist. This would mean that if the Chinese exporter cannot clearly show ME conditions prevail in the industry under investigation, the investigating agency is not bound to use Chinese prices. What the agency should do is unclear. However, a reference to the chapeau of 15 implies that the surrogate methodology could be applicable. Dr. James J. Nedumpara also provides “a contrario” interpretation, with an illustrative example of aircraft case of Brazil. My understanding of this is that if a Chinese exporter can demonstrate the industry producing and selling the product is not under the NME conditions, then other countries would not able to use the surrogate methodology.

In summary , Article 15 provides a delicate interpretative issue. Dr. James J. Nedumpara believed the use of “a contrario” argument to Article 15 (a) (i) would be important in the future. Also, it could be a useful context in interpreting Article 2.2.1.1 of the Antidumping Agreement for ‘actual cost and prices’. Globally, it is possible for other countries to use approaches which are similar to India’s NME treatment, but ultimately a better strategy is the use of CVD measures