Mon, Dec 27, 2004 - Page 10 News List

China `waging economic battle' with US, EU

PROXY WARS Beijing wants to be treated as though it had already achieved market economy status by the world's powers, and is lining up small allies to make its case


When Venezuela recognized China's status as a market economy last week, Beijing secured yet another pawn in a low-key battle it is waging against the US and Europe, analysts said.

It is a battle for the two dominant powers in world trade to also grant China the much-coveted market economy label, and the stakes can be counted in billions of dollars.

"They're signing up more and more countries to acknowledge their market economy status to increase their bargaining power in the World Trade Organization [WTO]," said Andreas Lauffs, a trade lawyer at Baker McKenzie.

With Venezuela's nod, which comes on the heels of a similar move by Pakistan earlier in December, a total of 27 countries have recognized China's full market economy status, ranging from Brazil and Russia to Armenia.

Market economy status is crucial because it helps Chinese companies which run the risk of anti-dumping charges.

It would force countries conducting investigations to use prices charged for the same goods in China rather than in third countries such as India, as they are currently entitled to do.

The only problem is China itself agreed to being treated as a non-market economy until 2016 as part of the terms enabling it to enter the WTO in late 2001, but now analysts say that was just to make sure a deal was done.

"If we hadn't agreed to 15 years with non-market economy status, we would not have been allowed to join the WTO," said Hua Xiaohong, a professor at China National Institute of WTO. "It was the result of the negotiations."

China has spent the years since joining the WTO trying to convince trading partners to treat it as a market economy.

But Beijing has had only partial success. Most of the countries which have signed up so far have been peripheral in terms of China's trade.

"For countries like New Zealand and Pakistan, their trade volume with China is so small that they don't care," Hua said.

Larger countries, such as Australia, are studying the feasibility of switching China's status, but the US and the EU remain the big prizes.

The EU last turned down a formal request from China in June, concluding that the Chinese economy suffered from too much state interference, weak rule of law and poor corporate governance.

The Bush administration is also unwilling, or politically unable, to switch China's status.

China says that its treatment at the hands of the US and EU is inconsistent. For example, it notes that Russia is considered a market economy by the EU.

It also says that its unique pool of cheap labor is the driving force behind China's price advantage, and that no other country in the world can be used as a comparative yardstick on that basis.

As with China's demand for a EU lifting of the arms embargo imposed after the 1989 massacre of a pro-democracy movement, analysts said that the current mood in Brussels was more accommodating.

"China is going to be successful in the end because the EU at the moment is very much in favor of China," said Sebastian Bersick, a research fellow with the European Institute for Asian Studies in Brussels. "It's only a question of when it is going to happen."

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