China loses ‘soft power’ edge ahead of G20 summit

Sino-EU relations are dented by trade disputes as well as dissident’s illness 
By Tom Mitchell in Beijing

Until late last month Xi Jinping was looking forward to easy “soft power” victories at this week’s meetings with Angela Merkel in Berlin and the G20 summit in Hamburg — the latest opportunities for China to shine on a global stage.
But news that the country’s most famous political prisoner is gravely ill has thrown a spanner in the works, exposing the deep gulf that remains between Beijing and Berlin, while lingering trade and economic disputes continue to complicate Sino-EU relations.
“For Beijing the goal is to present itself as a generous, co-operative and friendly power,” says Sebastian Heilmann, president of the Mercator Institute for China Studies in Berlin.
“However, the two countries continue to have completely different understandings of basic political order, rule of law and civil society.” 
That divide has been evident since Chinese authorities confirmed last month that Liu Xiaobo, the Nobel Peace Prize laureate serving an 11-year term for subversion, was in hospital with late-stage liver cancer.
In its attempt to contain the international outcry that followed, the Chinese government has veered between stern rhetoric — warning that Mr Liu was a “criminal” unworthy of international sympathy — and attempts to show he was being treated with compassion.
Days after summoning western diplomats to private meetings to advise them that Mr Liu was too ill to travel abroad for medical treatment, Chinese officials on Wednesday invited German and US doctors to visit him in the northeastern city of Shenyang.
The same day, Xi was focused on panda and football diplomacy in Berlin.
He and the German chancellor visited Berlin Zoo, which recently received two new giant pandas from China, and watched a football match together.
People briefed on the leaders’ meetings say Ms Merkel raised Mr Liu’s condition and offered to have him treated in Germany. 
On Wednesday, a German foreign ministry official said only that Berlin supported a “humanitarian solution” for Mr Liu.
Mr Liu’s illness is a reminder that while Beijing and Berlin will present a united front at the G20 summit when it comes to arguments with US president Donald Trump over “global commons” issues such as trade and climate change, Asia and Europe’s two largest economies have stark differences.
Ms Merkel is critical of the market access barriers German companies face in China and has also expressed concerns about Chinese corporate acquisitions in Europe.
These issues came to the fore early last month when Li Keqiang visited Berlin and Brussels.
Li arrived just after Mr Trump had raised doubts about his administration’s commitment to the Nato alliance, clashed with Ms Merkel and other G7 leaders in Sicily on issues from Nato to trade, and formally announced the US would withdraw from the Paris accord on climate change.
But China’s premier achieved the geopolitical equivalent of missing an open goal.
According to three people briefed on Li’s discussions in Brussels, the two sides initially agreed to put aside a disagreement over whether China should be granted “market economy status” by the World Trade Organisation, paving the way for a joint statement in defence of the Paris accord.
If granted, market economy status would make it more difficult to penalise Chinese exporters for dumping. 
EU negotiators were instead shocked when, after a break in the talks, their Chinese counterparts raised the MES issue again, scuppering plans for the joint statement on climate. 
Chinese analysts suggest Beijing has learnt its lesson from Li’s rocky European tour.
“After Trump’s election and Brexit, China and Germany need each other to protect globalisation,” says Ding Chun, a European expert at Fudan University in Shanghai.
“Market economy status should not be a big issue this time.”

No Market for Rogue Thief

Trump trade tsar warns against China ‘market economy’ status
Robert Lighthizer says a change in standing of country by WTO would be ‘cataclysmic’
By Shawn Donnan in Washington

Robert Lighthizer, US trade representative, during his Senate confirmation hearing in March.

Donald Trump’s trade tsar has fired a warning shot at both Beijing and the World Trade Organisation, cautioning that any decision to label China a “market economy” would have “cataclysmic” consequences for the body.
Testifying before Congress on Wednesday, Robert Lighthizer said the US was eager to see changes in the WTO’s dispute resolution system, arguing that the country had unfairly ended up as the top target for complaints in the global trade court.
But the US trade representative singled out a dispute brought last December by China against the EU and US over whether it should be deemed a market economy as the “most serious litigation that we have at the WTO right now”.
“I have made it very clear that a bad decision with respect to the non-market economy status of China would be cataclysmic for the WTO,” he said.
Mr Lighthizer did not say what US action that would lead to and he added he was “assuming . . . that the WTO is going to do the right thing”. 

But the warning pointed to how the Trump administration is scrambling the US relationship with the WTO and other multilateral institutions it helped create following the second world war.
During his campaign for president Mr Trump threatened at one point to pull the US out of the WTO. While his administration has since moderated its tone it has also made its sceptical view of the Geneva-based body clear since taking office.
Mr Lighthizer is a longstanding critic of the WTO and has argued for the US to take a far more muscular approach to its relationship with both the trade body and China. 

In written testimony to Congress in 2010 he called for the US to end what he called its “unthinking, simplistic and slavish dedication” to WTO rules.
The issue of China’s market economy status in the WTO also falls within one of Mr Lighthizer’s areas of expertise. 

He is a former trade lawyer who made his fortune bringing anti-dumping cases on behalf of the US steel industry.
Beijing contends that the agreement when it joined the WTO in December 2001 was that it would automatically be awarded market economy status for the purpose of the calculations used in anti-dumping cases. 

Currently, its non-market economy status means that the US and other countries can use prices in third countries to determine the size of punitive tariffs used to combat dumping, or the selling below cost of products, by Chinese companies.
In written testimony submitted on Wednesday, Mr Lighthizer said he had already begun discussions with the WTO’s director-general, Brazilian Roberto Azevedo, and others about reforming the WTO’s dispute system.
“This is now a topic of serious discussion at the WTO,” he wrote. 

“We expect to see meaningful changes in order to maintain the relevance of the system.”
But Mr Lighthizer also made clear that he expected very little to come out of broader WTO negotiations in the short term.
The Trump administration has so far taken a more cautious approach towards trade with China than the president promised during his campaign. 

On the campaign trail Trump railed against the US’s $300bn annual trade deficit with Beijing and threatened to impose tariffs on Chinese goods and label China a currency manipulator.
After a meeting with Xi Jinping earlier this year Trump announced a 100-day plan to tackle trade issues and promised a friendlier tone if Beijing reined in North Korea. 

As part of that process Washington and Beijing announced an interim deal last month that allowed a resumption of US beef exports to China and paved the way for other measures including additional US LNG exports.
But Mr Lighthizer said on Wednesday that this was just one strand of discussions and warned that many other tough negotiations lay ahead. 

Among the issues the US was now focusing on were new barriers to US tech companies doing business in China, he said.
“The pressure is still on,” he said. 

“The trade deficit still hasn’t come down.”

China Doesn't Deserve Its 'Market Economy' Status By WTO

There is no automatic provision for China to be accorded market economy status

By Douglas Bulloch 

China's status in the WTO will attract increasing attention over the next few weeks and months. 

Not only has recent Twitter activity from the U.S. President drawn attention to long-standing arguments over whether China has really lived up to the conditions of its accession agreement, but Dec. 11 marked the 15th anniversary of that accession.
According to Beijing, this anniversary marks the point at which China "automatically" gains 'market economy status' within the WTO, thus constraining the potential use of anti-dumping measures against China by the U.S. and the EU, who are holding out against such recognition.

Steelworkers hold placards as they protest in front of the European Commission building during a demonstration of steelworkers around the EU quarter of Brussels on Monday, Feb. 15, 2016. Thousands of steel workers from across the European Union demonstrated against the import of cheap Chinese products and warned EU leaders not to acerbate the situation by granting Beijing market economy status. Sign reads 'Stop China Dumping'.

Devil in the Detail
A closer look at the treaty reveals this to be a generous interpretation, but not without some justification. 

In fact, Article 15 of the treaty provides importers with the means to enact anti-dumping measures according to two broad approaches. 

First of all, and generally, "the importing WTO Member shall use Chinese prices or costs for the industry under investigation in determining price comparability."
However, in Paragraph (a), subsection (ii), it states that "[t]he 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."
Clearly the agreement was written to incentivize China to 'show that market economy conditions prevail' before anyone was obliged to treat them as a 'market economy' when considering whether China was guilty of 'dumping' or not. 

Until they do so, foreign importers are allowed under WTO rules to compare prices and conditions in China to those in other countries when assessing the nature and extent of any suspected dumping practices. 

The alternative, using Chinese prices, makes the foreign importer dependent on information provided by China, and might make it harder -- though not impossible -- to demonstrate unambiguously that dumping is actually taking place.

'Market Economy Status' is Not Automatic
Until now, the onus was on the Chinese producer to prove that 'market economy' conditions prevailed in that particular sector in China. 

But there is a further clause -- Article 15 (d) -- in the agreement that states "the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession."
Now, therefore, China are demanding that they be recognized as a 'market economy' in line with their interpretation of the agreement. 

Unfortunately this is not, technically, what the agreement says. 

China is, however, correct that the agreement should limit the ability of foreign importers to use non-Chinese prices as a reference point for their anti-dumping actions.
In other words, the mere fact that 15 years have passed since the signing of the agreement should entail that the methodology by which foreign importers are permitted to calculate whether dumping has taken place is constrained, but there is no automatic provision for China to be accorded 'market economy' status.
Indeed, if China were to be considered a 'market economy' the relevant importer would be forswearing the need for anti-dumping measures altogether, which, in the current climate, is unlikely to happen.
More importantly, according to the agreement, there is no basis for it to happen. 

The onus remains on China to prove that it is a 'market economy'. 

Indeed, the fact that China have been simply running out the clock on Article 15 could be taken as evidence in itself for the fact that China is not a 'market economy.' 

They have had 15 years to demonstrate that they are a 'market economy' after all, and even today it may be arguable true of some sectors, but it is not -- on the whole -- taken seriously.

Xi Jinping (right) shakes hands with Director-General of the World Trade Organization (WTO) Roberto Azevedo to the G20 Summit at the Hangzhou International Expo Center on September 4, 2016 in Hangzhou, China.

Diplomatic Pressure
Furthermore, it should be noted that many countries have granted 'market economy status' to China, although they tend to be countries that export to China under a Free Trade agreement. 

In each case, the granting of 'market economy status' was a consequence of diplomatic agreement rather than technical proof, and even these countries still apply anti-dumping measures on Chinese products. 

Australia, for example, recognized China as 'market economy' as long ago as 2006, yet still applied anti-dumping measures on Chinese steel earlier this year.
The difficulty China will face is that this rather technical issue will now simply be added to the great number of other disputes over whether China has actually lived up to the conditions in its WTO accession agreement. 

These are detailed annually in a report to U.S. Congress by the U.S. Trade Representative (December 2015 edition can be downloaded here, 2016 edition pending).
There is, however, the prospect of diplomatic pressure coming from China at being refused 'market economy' status: threats even of a 'trade war' from some quarters. 

Nevertheless, given the wider climate in which China's trading relations are coming into question, this issue may have to take its place in a long line of ongoing problems with a diminishing likelihood of resolution. 

In any event, China is not a market economy and there are limits to the ability of diplomacy to turn fiction into fact.

Finally, World Loses Patience With Anti­-Competitive China Trade Practices

China has maliciously dumped products to eliminate not only competitors but also entire industries, as it did in solar panels. 
By Gordon G. Chang

Friday, Shen Danyang, Commerce Ministry spokesman, said Beijing will employ “necessary measures” against World Trade Organization members that do not treat China as a market economy after December 11.
His country, he said, will “resolutely defend its lawful rights and interests against the members who persist with the ‘surrogate country’ approach in their antidumping investigations into Chinese products.”
China is legally entitled to be treated as a market economy for anti­dumping purposes, but many WTO members will not accord it such status.
Today is the 15 anniversary of China joining the global trading body.
Its accession agreement appears to provide that other members are required to grant it MES, market­economy status.
Having such status makes it more difficult to prove that China has, for WTO purposes, “dumped” its products in another country, in other words, sold goods so that their price in the importing market is below the price of those same goods in China.
If China has MES, complaining nations must, for purposes of determining the existence of dumping, use China’s domestic prices when they make the comparison with export prices.
If, however, China does not have such status, complainers can use prices in so­-called surrogate countries, countries other than China.
Prices in those other countries are almost always higher than China’s, making dumping allegations against China relatively easy to prove.
Although technical arguments can be made to the contrary, the better interpretation is that Article 15 of China’s accession protocol automatically grants market ­economy status on the 15th anniversary of its membership.
That is how other nations in fact have read their obligations up to now.
Now, however, China’s trading partners are reading the accession protocol differently.
Japan, last week, and the U.S., before then, have stated they will not grant China market­ economy status.
As Commerce Secretary Penny Pritzker told Chinese officials last month, “it is not ripe for us to change our protocols.”
The European Union is not as direct as Secretary Pritzker.
It has devised a “country­ neutral” rule that permits it to use third­ country prices for anti­dumping purposes to counteract subsidies and other forms of state intervention.
Shen, not surprisingly, said the new EU rules are “disappointing.”
It is, in one sense, disappointing that major trading nations are welshing on their agreements.
If the international community wants China to abide by its trade obligations, other nations should abide by theirs.
As Claude Barfield of the American Enterprise Institute has written, “a deal is a deal and should be honored.”
Yet there are, aside from arguments based on the technical wording of China’s accession protocol, good reasons for other nations to reconsider their deal with China.
As Robert Pittenger, Republican Congressman from North Carolina, wrote on the Fox News Opinion site, “Why should we reward anti­-competitive practices?”
Virtually everybody 15 years ago thought China would evolve into a market economy by now. Almost nobody saw the rise of leaders like Hu Jintao and Xi Jinping, economic nationalists, who sought to close off the Chinese economy.
Xi, in particular, has used Beijing’s resources to bolster state­-owned enterprises as he has pursued his “Chinese dream,” his signature concept contemplating a China dominated by a strong party­-state.
His moves have resulted in many regressive trends including the market playing less of a role in setting prices.
Most observers believe Beijing will take a case to the WTO’s dispute resolution process if some nation does not use China’s own prices in a dumping case.
Chinese officials will feel aggrieved that others are not honoring their promises to China, but they should remember they have routinely violated their WTO obligations and forced others to go through the WTO process, wasting years in the process.
They should also remember the Gordon G. Chang corollary of Confucius’s Golden Rule.
Confucius famously said, “Do unto others as you would have them do unto you,” and I say “Others will do unto you what you have done unto them.” 
China has maliciously dumped products to eliminate not only competitors but also entire industries, as it did in solar panels.
The Wall Street Journal reports that Beijing is now going after the semiconductor and mobile phone sectors.
And don’t forget steel.
China has been “pumping out” more of the product “than the world wants or needs,” and that does not make China look market­-oriented.
The WTO is not a “suicide pact,” and countries are not—and should not—allow China to continue to game the system in such a destructive matter. 

One way or another, they will protect their industries from increasingly predatory behavior.
So what can other countries do?
They may force a renegotiation of the WTO agreement, withdraw from the pact altogether, or simply club China into not complaining.
China’s trade partners, especially those running deficits with Beijing, can do almost anything they want.
Why?
As George Friedman’s Geopolitical Futures tells us, “China must have access to U.S. consumer markets, and Donald Trump knows it.”
The president has already weighed in on the market­ economy issue, saying China is not one.
Moreover, last Thursday he accused the Chinese of “product dumping.”
As he declared at his rally in Des Moines, “They haven’t played by the rules, and I know it’s time they’re going to start.”
“We are playing by the rules and you need to keep your promise,”said Xue Rongjiu of China’s State Council, speaking this month.
“It’s unfair to blame China for your problems, which have resulted from bad management and operations.”
No, Xue, our problems result from your country’s bad behavior. 
As evident in recent days, China’s major export markets have just signaled their patience with Beijing has run out.
Chinese officials can huff and puff, but there is not much they can do when others just refuse to buy their goods.
It’s called a trade war, and other nations are beginning to recognize it exists and are starting to respond.

U.S. Won’t Grant China Market Economy Status, Senior Administration Official Says

China’s failure to allow market-driven economy have fueled trade tensions
By IAN TALLEY

Containers are unloaded from a cargo ship at a port in Rizhao in China's Shandong province. A senior U.S. officials said Friday that the U.S. administration won’t grant China the official market economy status. 

WASHINGTON—The Obama administration has decided it won’t grant China the official market-economy status Beijing doesn't deserve, a move sure to raise tension, as China pushes the U.S. and other countries to ratchet down import tariffs.
China contends Washington and other members of the World Trade Organization should grant it market-economy status on Sunday, the 15th-anniversary of its WTO accession, under the terms of its joining the group.
But the Obama administration disagrees. 

“The U.S. is not changing China’s status as a non-market-economy,” a senior U.S. administration official said in an interview. 

“China’s protocol of accession to the WTO doesn't require the U.S. or any other WTO member to automatically grant China market-economy status after December 11 2016.”
Market-economy status can dramatically lower tariffs WTO members can apply in cases charging another country with violating trade terms.
The incoming Donald Trump White House isn’t likely to reverse the Obama administration’s decision, given the president and his transition team have said they plan to place higher tariffs on Chinese imports, blaming Beijing for many of the American economy’s ailments.
Mr. Trump, at a rally in Iowa on Thursday, said: “China is not a market economy.” 

He cited dumping of artificially low-price goods on the U.S. market and theft of intellectual property by Chinese companies. 

“They haven’t played by the rules, and they know it’s time that they’re going to start,” he said.
Meanwhile, the Obama administration says China must formally file a case challenging U.S. treatment, something Beijing has yet to do.
Even though the senior Obama administration official said the U.S. would have to decide on the merits of a challenge, the person signaled Washington wouldn’t likely change its outlook. 

“If China wants to benefit from treatment as a market-economy country, it must change its own practices to let the market play a decisive role in the economy,” the official said.
Tension between the U.S. and China has been elevated in recent years over a host strategic and economic issues. 

The Obama administration has filed scores of anti-dumping and counter-valuing duties on Chinese imports, from shrimp to steel to solar cells. 

“Maintaining China’s status as a nonmarket economy is yet another step in the Obama administration’s vigorous enforcement of trade laws against China and holding China to its WTO commitments,” the senior official said.
But since Mr. Trump has put China in his trade-policy crosshairs, those strains are expected to intensify.
Although China’s leadership has said in recent years that it plans to make its economy more market-driven, U.S. officials and companies complain Beijing has made things more difficult.
China’s state-owned enterprises are still deeply integrated in nearly every aspect of the country’s economy and international acquisitions. 

U.S. companies complain government subsidies give Chinese firms an unfair advantage. 

That behavior by the Chinese has led to one of the biggest trade frictions in recent years: China’s huge excess steel production capacity that is pushing down prices globally.
Officials in Washington are also frustrated about the lack of access for U.S. investment in China. “China’s failure to take action and in some ways becoming even less open, has given rise to increased trade frictions and has led to global firms to question their ability to succeed in that market,” the official said.

Nation of Cheaters

Europe proposed a way to assess whether Chinese manufacturers are exporting at unfairly low prices.
by Reuters

China is disappointed that the European Union hasn’t completely recognized its market economy status, commerce ministry spokesman Shen Danyang said on Thursday in a sign that Beijing will continue to press the EU to relax its anti-dumping rules.
The EU and many of China’s other trading partners have been debating whether to grant China “market economy status” (MES) from mid-December, which Beijing says is its right 15 years after it joined the World Trade Organization. 

The United States has said China has not done enough to qualify.
The European Commission proposed on Wednesday a new way to assess whether Chinese manufacturers are exporting products, such as steel, at unfairly low prices.
China said it interpreted the proposal as canceling China’s “non-market economy status” but was disappointed the European Commission had introduced the “significant distortions” clause, Shen told a regular press briefing.
The proposal in general sets the normal reference value in dumping cases involving WTO members to domestic prices.
However, in the event of “significant distortions” affecting domestic prices, investigators can instead use international benchmark prices, the EU proposed.
The proposal “doesn’t completely nullify (China’s) ‘surrogate country’ status, it merely allows the status quo to covertly continue,” Shen said.
The new standard should be “fair, reasonable, transparent and should not just be a new form of discrimination,” he added.
EU trade ministers are expected to discuss the new anti-dumping measures at a meeting on Friday along with other plans to modernize the EU’s trade defense arsenal.

In China trade dispute, EU accuses government mouthpiece of censoring envoy

Reuters

A paramilitary policeman stands guard at the entrance to the European Union embassy in central Beijing, China December 13, 2011.

The European Union on Tuesday accused a Chinese government mouthpiece of censoring and twisting the words of its ambassador, amid a flare-up in trade disputes between the two economic giants.
In a news release, the European Union delegation in China alleged that the official China Daily newspaper had published an article on EU-China relations that "contained factual inaccuracies".
China Daily granted the EU ambassador a right to reply, but edited the article to change the meaning of his words, refusing to publish the piece unless the changes were accepted, the delegation said.
China Daily did not immediately respond to telephone calls seeking comment.
The EU delegation in China did not immediately respond to an e-mailed request for the China Daily-edited version of the ambassador's article.
The tension comes as the EU and China face off over several trade disputes, such as Chinese steel flooding the trading bloc at low prices and accusations of unfair market access for foreign companies in the world's second largest economy.
The European Union has been debating whether to grant China "market economy status", given the Chinese government's hand in guiding industry and markets.
China says the status is its right come December, which marks 15 years since it joined the WTO. Failure to do so could spark a trade war.
"Protectionism has dominated the minds of those in EU institutions," said the China Daily article which sparked the barbed exchange, published on Oct 25.
"The EU should remember that mutual cooperation is the only way ahead," it said.
Tuesday's news release included the original, unedited response to China Daily by the EU ambassador to China, Hans Dietmar Schweisgut.
The EU has engaged with China on several projects, from the Beijing-led Asian Infrastructure Investment Bank to the new Silk Road initiative, and remains in favor of free trade, he wrote.
"We also need fair trade," he said.
"Therefore modernizing the EU's trade defense instruments should not be seen as protectionism, but rather, as a mechanism to better promote free and, above all, fair, trade."
"The EU wants a China which is economically more open and stable, with significantly improved market access for foreign companies as well as a level playing field for fair competition and without discrimination against our commercial actors," Schweisgut wrote.
"Otherwise EU businesses cannot but conclude that the business climate for them in China continues to deteriorate."