In a recent note, Gary Hufbauer envisages a possible bargain between the United States and China where in exchange of concessions by China about "currency practices and other issues, the United States could declare China a market economy." My impression is that this scenario could very well turn out to be realistic. Why? Because it seems to have the potential to be a "win-win" bargain for both the United States and China.
On one hand, since the renunciation by the US Department of Commerce of the 24-year-old Georgetown Steel doctrine relating to the non application of CVDs against imports from a Non Market Economy (NME), China seems now really concerned by the recent concurrent anti-dumping and anti-subsidy investigations launched by the United States against Chinese goods. The principal concern of China is that in the context of domestic subsidies, this could lead to a "double remedy." Since China is considered an NME in antidumping investigations and now a market economy in CVD investigations, there is a possibility of "double counting." This is due to the fact that, in principle, the "surrogate" "subsidy-free" country method used in antidumping investigations for an NME, has the potential to already offset the effects of subsidization. A countervailing duty applied in this context could lead to "double taxation."
On the other hand, the United States is now in the uncomfortable legal situation where China is a market economy in CVD investigations but an NME in antidumping investigations! Although the United States has for concurrent antidumping and CVD investigations an offset clause for export subsidies, this solves the "double remedy" issue only in the context of export subsidies. In contrast, in the context of domestic subsidies, it is possible that Commerce and the Courts would consider that such an offset is not possible whithout express authorization by Congress. In such a case, it is possible that this situation would lead to a WTO challenge on different possible grounds.
In such a context are we going to see in the future a "win-win" larger bargain where flexibility of th Yuan is counterbalanced by the removal of NME status in antidumping investigations?
