New Zealand announced on April 14 that it regards China as a market economy--the first time a developed nation acknowledged China's market status.

This underlines the close ties between the two countries and stands as a breakthrough for China's trade sector as well.

Despite China's progress in building the market system over the past 20-odd years, major Western economies, including the United States and the European Union, have refused to recognize China's market economy status.

Rather, they have used the "non-market" label as a wild card to launch anti-dumping cases against Chinese products.

New Zealand's initiative will not only smooth China's trade to some extent, but also become a test case for unraveling the spat over China's trade status.

"Other members of the World Trade Organization (WTO) should consider granting China full market status as soon as possible, in a perspective respecting reality and the norms of fair trade," said Li Yushi, vice president of the Chinese Academy of International Trade and Economic Cooperation, a think-tank sponsored by the Ministry of Commerce.

The non-market treatment is very discriminatory in nature. The unfair aspect is that normal value of products from "non-market" origins are measured by costs in a so-called "surrogate" country.

As the materials and labor costs in a surrogate country can be much higher, exports from the so-called non-market origins are often ruled as being sold below the normal value and thus subject to exorbitantly high punitive anti-dumping duties.

For example, in an anti-dumping case launched by European companies against color TV sets China exported to Europe, EU Commission selected Singapore as the surrogate, where the labor cost is almost 20 times that of China.

The frequent anti-dumping cases Chinese TV makers suffered have betrayed some Western trade authorities' real motivation.

Why has China's TV-manufacturing industry, a highly market-oriented sector with fierce competition, had such unfavorable treatment under Western countries' "market economy" criteria?

The reason is simple: The more competitive the industry, the more likely it will become a target of importing countries' anti-dumping weapons so that local companies can benefit.

More and more countries have introduced anti-dumping codes over the past century. And anti-dumping has become one of the most controversial tools in global trade.

WTO data indicates that developed economies like the United States and the EU filed more than two-thirds of the world's anti-dumping suits between 1987 and 1994, during which industries in many developing countries were becoming more and more competitive.

As a major victim of Western countries' anti-dumping frenzy, China suffered great anti-dumping pressure in the past decades.

Things got better in 1997, when Australia acknowledged China as a "transitional economy," and agreed to decide on Chinese companies' costs on an individual basis rather than impose a blanket duty in anti-dumping cases.

The EU followed suit a year later in handling dumping cases involving Chinese products.

Theoretically, there should be strict criteria to define whether or not a country is a market economy. But the case is quite subtle concerning China's market status.

China's WTO Accession Protocol allows other countries to treat it as a non-market economy for 15 years after its entry, an unfavorable condition China swallowed for the WTO membership.

As WTO members stipulate their own market economy criteria respectively, whether to grant Chinese companies market economy status and which country is selected as the surrogate can be very random.

Some countries may also have political concerns by denying China's market economy status. A typical example is that state companies can hardly be accepted as having a market status.

Years ago in a dumping case involving a Sino-foreign joint venture company, the EU refused to grant the company market economy status--without any investigation--on the grounds that the directors representing the state partner outnumbered those representing the foreign partner.

Considering the unfavorable treatment China experienced in the past, New Zealand's recognition of the nation's market economy status will have special implications.

Although trade between the two countries is not large and friction between them is rare, New Zealand's move can be a start of something. In the wake of New Zealand's announcement, EU and Australian officials have reportedly expressed a willingness to formally grant China market economy status.

The recent move by New Zealand marks a new breakthrough in China's struggle for better trade status.

But to win a full market economy status worldwide, the country will have to make greater efforts in the coming years.

(China Daily April 29, 2004)