U.S. Rejects China's Bid for 'Market Economy' Status

The Trump administration has formally rejected China's demand that it be treated as a "market economy" under global trading rules, a move likely to heighten tensions between the world's two largest economies.

The U.S. submitted its decision to the World Trade Organization in Geneva in mid-November and made it public on Thursday. Trump aides have long signaled their stance on the issue, but the filing marks the first time the U.S. government has publicly declared its position and explained its reasoning.

The fight's stakes are high. The trading partners of a country branded a "nonmarket economy" have wider discretion to impose higher duties on its exports on the theory that distortions from state intervention give its producers unfair advantages. Economists have estimated that the decisions by the U.S. and European Union to treat China as a nonmarket economy have cost Chinese producers billions of dollars in exports, with some of their goods facing tariffs well above 100%.

In a recent speech, Wang Hejun from China's Ministry of Commerce said the continuing refusal by the U.S. to grant China market-economy status "undermines the seriousness and authority of multilateral rules." He said Beijing "will take will take necessary measures to protect legitimate benefits of Chinese enterprises."

The disputes pitting China against both the U.S. and the EU date to December. Beijing argued at the WTO that the 2001 agreement granting its WTO membership required other members automatically treat China as a market economy by the 15th anniversary of its joining the organization. The U.S., Europe, and others say their promise to grant China that status was contingent on Beijing implementing market liberalization measures that have yet to be carried out.

China filed complaints late last year against both the U.S. and the EU with the WTO trade court demanding that the U.S. and EU grant it market status. The U.S. case has since stalled, but the complaint against Europe is moving forward toward hearings. What the U.S. revealed on Thursday was a brief supporting Europe in its case. That, officials say, shows that Washington will take a similar stance when its own case proceeds.

"The evidence is overwhelming that WTO members have not surrendered their longstanding rights...to reject prices or costs that are not determined under market economy conditions," the U.S. brief concludes.

Under President Donald Trump's "America First" economic policy, tensions have risen between the U.S. and various American trading partners over Mr. Trump's vows to cancel existing trade accords and take more aggressive action to curb imports from all over the world, including from allies like Europe.

But in the battle over China at the WTO, the U.S., Europe, and others appear to be coordinating closely to present a united front against Beijing.

"We've been talking to the Europeans...there is a common understanding that we've reached," said a senior U.S. official involved in preparing the filing. Such cooperation, he added "is really quite unusual, to have us all on the same side of this issue."

Mr. Trump and his aides have over the past year been openly skeptical about the WTO and their views about its ability to govern the global trading system, particularly China. And they have said they see the market-economy cases as a litmus test for how they judge the body.

"This is without question the most serious litigation matter we have at the WTO right now," Robert Lighthizer, Mr. Trump's U.S. trade representative, told Congress in June. A China victory, he added, "would be cataclysmic for the WTO."

--Yifan Xie in Shanghai contributed to this article.

Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com

(END) Dow Jones Newswires

November 30, 2017 00:14 ET (05:14 GMT)