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Manufacture This

The blog of the Alliance for American Manufacturing

But the fight is really about China’s non-market economy status.

Just in time for President Trump’s big diplomatic visit, a potential trade dispute between the United States and China is heating up at the World Trade Organization (WTO).

Reuters reports that China’s Ministry of Commerce asked the WTO for consultations after the Commerce Department announced preliminary anti-dumping margins of up to 162 percent on certain aluminum foil imports from China. The Commerce Department ruling follows a similar determination in August that issued countervailing duties of up to 80.97 percent.

As we noted when the Aluminum Association first filed the trade case back in March, it’s pretty clear that Chinese aluminum producers are benefiting from government subsidy programs to make everything from household foil to heavy duty stuff used in automotive goods and HVAC systems. Those products are then dumped into the U.S. market, priced far below fair market value.

As the United Steelworkers noted: "China has ravaged the entire aluminum sector with its unfair trade. Its rising overcapacity has depressed world prices, making it increasingly difficult for companies that abide by market economics to survive."

Meanwhile, the Commerce Department is also investigating whether surging aluminum imports in general are a threat to national security, since aluminum is needed to equip the military and build critical infrastructure. There’s just one American smelter operating that can make the high purity aluminum needed to build fighter jets like the F-35, for example.

As with a similar investigation into steel imports, we hope the Trump administration will wrap up the aluminum investigation as soon as possible. While Commerce’s ruling on aluminum foil imports is a step forward, more broad action is necessary to safeguard American industry from foreign threats.

But let’s take a step back and talk about this WTO case for a minute — because while it’s technically about aluminum foil, it’s not really about aluminum foil.

As Reuters notes, China claims that the United States made the ruling using “a now expired clause in China’s 2001 WTO accession deal that for years allowed other WTO members to use a third country’s prices to assess whether Chinese goods were being dumped.”

Since the clause is expired, China argues, the U.S. determination was improperly calculated. Instead of using a third country’s prices to determine tariff amounts, the United States should use numbers provided by China.

The clause China referenced comes from the agreement it struck when it entered the WTO back in 2001. China entered the WTO as a “non-market economy” since the Chinese government regularly intervened in its economy. The United States and other nations used a third country’s numbers as a surrogate in determining tariff amounts in trade cases, since Chinese numbers simply could not be trusted. China agreed not to challenge this system for 15 years.

The United States and other nations had hoped China would shift to a free market system during that time. That didn’t happen, of course — China continues to rely on state-owned enterprises and strictly limits access to its own market.

China hit the 15-year WTO mark in December 2016, and immediately began calling on the United States and others to grant it market economy status. Doing so would mean that the U.S. would have to use China’s unreliable numbers in determining future tariff amounts. In practice, this would gut our trade remedy system, leading to more dumped imports, lost jobs, and factory closures.

It's important to note that there was never any guarantee that China would just be handed market status. The Commerce Department actually has six criteria that must be considered before the United States will grant a nation market status; China doesn't meet any of the criteria.  

On Oct. 26, the Commerce Department issued a memo officially affirming China’s status as a non-market economy for the purposes of calculating antidumping margins in trade cases. The memo was issued as part of the preliminary ruling on the aluminum foil case — hence, China is aiming to take the aluminum foil case to the WTO.

Commerce did the right thing upholding China’s non-market status; China is clearly not a market economy and should not be granted market status just because it celebrated its 15-year WTO anniversary. American workers will be watching closely as this plays out.