The WTO ruled on Friday that America's simultaneous institution of antidumping and counterveiling duties on the same Chinese products violates basic WTO rules. This is the most important ruling in China's favor during the first decade of its membership in the world trade body.
A WTO panel originally ruled in October against China and for the United States. Two issues were central to the case: whether the US could simultaneously institute AD and CVD penalties against Chinese products, and whether to characterize Chinese state-owned enterprises and state-owned financial institutions (banks) as "public bodies," that is, as government-like organizations whose activities inherently benefitted from subidization. In December the WTO panel found for the US on both issues, a decision that was absolutely disastrous for China. Not only did the WTO condone extremely high US trade penalties, it characterization of all SOEs and banks as public bodies meant that China would be vulnerable to high trade penalties in perpetuity simply because the state-owned sector is such an important component of the economy. Even private companies would have been seen as constant recipients of subsidies as long as they did business with SOEs or borrowed a dollar from a Chinese bank.
When China joined the WTO, it agreed that in its first 15 years of membership it could be treated as a non-market economy in the context of trade remedies cases. This has made it easier for China's trade partners to slap high tariffs against Chinese goods without needing to collect the requisite data from Chinese companies about product prices and costs. But China was looking forward to this situation expiring on December 11, 2016, and moreover, it had already persuaded over 80 countries to formally recognize it as a market economy.
The latest decision pulls China back from the precipice. Not only did it find that the way the US instituted dual penalities resulted in double counting; even more importantly, it rescued China from being permanently treated as a non-market economy, essentially a trade penalty pinata for anyone to take a whack at whenver they desired. Chinese banks are still vulnerable to such charges (and this could be critically important in future disputes), but the finding that SOEs are not inherently public bodies is incredibly important.
If the original ruling had stood, China and other countries with a substantial state-owned component to their economies would permanently have been treated as second-class citizens in the WTO. While beneficial to certain interests in the US and elsewhere, it would have reduced the WTO's legitimacy in the eyes of China. And keeping China committed to the system is extremely important to everyone who wants to limit the expansion of protectionism and generate global economic growth.
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