China and the United States have started a preliminary process on US granting market economy status to China. But experts believe the US' dropping of China's classification as a non-market economy is still some time away.

The US Department of Commerce has scheduled a public hearing on June 3 on whether to designate China as a "market economy" under US anti-dumping laws.

An official from the Ministry of Commerce (MOFCOM), a vice-chairman of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME) and a Hong Kong company have registered to participate in the hearing, according to an unnamed ministry official.

Many US companies and organizations also requested participation in the hearing and have prepared hefty documents.

The hearing is set to identify relevant topics and issues for discussion by a China-US working group on the market economy status, which were decided by a Joint Commission on Commerce and Trade (JCCT) meeting on April 21, the official said.

China made far-reaching concessions to the US in a number of areas at the meeting. In return, Beijing received assurances from Washington that the US Government would assist China's reform efforts to enable the country to be recognized as a market economy under US trade law.

Towards this end, Washington and Beijing agreed to form a working group to discuss a range of issues that are relevant to considering China as a market economy.

Among the specific issues to be addressed are the structural characteristics of the Chinese economy, including China's banking sector and State-owned enterprises, as well as central, provincial and regional governmental policies and practices such as tax incentives and other export promotion instruments, that have the potential to distort the market and Sino-US trade.

However, trade analysts said the move represents no imminent decision and designating China a market economy under US trade law is still some time away.

Countries must meet six criteria under the US Tariff Act of 1930 to be designated as market economies.

Among them, labor and currency rates will be the two most difficult points and take most energy to solve, said Zhang Xiaoji, an expert from the State Council Development and Research Center.

Li Xiaoxi, an economics professor at Beijing Normal University, said despite the six criteria, the US definition between "market" and "non-market" economies was not based on universal norms and it had granted the status to Russia.

At the same time, other countries have agreed to discuss the market economy issue with China. New Zealand and Singapore have already granted the status to China.

"The issue is negotiable and I believe the US side will put forward many requests in process," Li said.

As US Trade Representative Robert Zoellick observed in a statement: "These statutory criteria, together with China's strong interest in being recognized as a market economy under US laws, provide us with significant leverage on labor, currency, subsidy and other issues, and we plan to use it".

Since China is considered a non-market economy country, prices and costs of Chinese exporters are regarded as unreliable and thus not used for calculating dumping margins. Instead, the US Department of Commerce selects the prices of inputs and profit percentages from a surrogate market economy to calculate a theoretical price that would be charged in China, which clearly constitutes a disadvantage for Chinese companies.

Anti-dumping investigations are widely viewed by the US domestic industry as the most potent way to restrict imports from China, Zhang said.

Last year, approximately 50 per cent of all dumping cases accepted by the Bush administration were against Chinese imports.

"There is little indication that this trend will be reversed any time soon," he said.

(China Daily May 25, 2004)