Yi Xiaozhun, former Deputy Director General of the World Trade Organization

Wang Lei, Partner of Beijing Gaopeng Law Firm

Hong Xiaodong, expert from the China World Trade Organization Research Association

Suo Bicheng, Director of the World Trade Organization Department of the Ministry of Commerce

In the first issue of International Economic Review in 2025, a paper titled "Analyzing the Issue of 'Non Market Economy' in WTO from a Negotiation Perspective" was published. The four authors, including Lawyer Wang Lei, the director of Gaopeng Law Firm, were all eyewitnesses to China's accession negotiations at that time.

The full text exceeds 10000 words and can be downloaded from CNKI

http://kns.cnki.net/kcms/detail/11.3799.F.20240925.2231.002.html.

The following is an abbreviated version of the article.

In recent years, the United States has been stirring up the so-called "non market economy" issue against China in the World Trade Organization (WTO). The fundamental reason is the revival of the Cold War mentality in the United States, which attempts to multilateralism its domestic trade discrimination policy against China in the WTO, marginalize China in the WTO, and contain China's rise. However, there are no rules in the multilateral trading system that define the economic systems of its members. In history, the multilateral trading system has accepted several socialist countries in Eastern Europe in a flexible and pragmatic manner, but set special discriminatory membership conditions for them, preventing them from obtaining unconditional most favored nation treatment. These countries have become "second-class citizens" in the multilateral trading system. However, the situation in China is completely different. China has joined the WTO and fully applies WTO rules with other members, obtaining unconditional most favored nation treatment and equal status with all members. During the negotiation process of China's accession to the WTO, all WTO members conducted multiple lengthy reviews on whether China's economic system conforms to the multilateral trading system and whether China can fulfill its commitments to join the WTO, and reached positive and affirmative conclusions. The negotiation process of China's accession to the WTO is the process of China's reform and opening up, establishing a socialist market economy, and reaching consensus among WTO members on China's participation in the world trade system based on open and market-oriented policies, as well as commitments made in the Uruguay Round agreements and resolutions. In recent years, the issue of China's "non market economy" that has been hyped up in the WTO is a false proposition with ulterior motives.

Keywords: WTO multilateral trading system, "non market economy", Article 15 of the Protocol on China's Accession

1、 Problem posing

China's accession to the World Trade Organization (WTO) is a groundbreaking event in China's reform and opening-up process. Joining the WTO has achieved the strategic goal of foreign trade since the reform and opening up, which is to obtain unconditional permanent most favored nation treatment as stipulated by the multilateral trading system. This has provided a solid multilateral legal foundation and favorable external environment for the sustained and stable development of the Chinese economy.

However, in the decade following China's accession to the WTO, there were profound changes in US trade policy. After 15 years of China's accession to the WTO, the United States and the European Union refused to fulfill their commitments and did not cancel the use of surrogate country methods to determine whether Chinese products constituted dumping. Instead, they began to exaggerate the so-called "China's non market economy" issue in the WTO. The reason behind this is the revival of the Cold War mentality in the United States, which sees China as a strategic competitor and intensifies its suppression of China in the WTO. One of its suppression tactics is to promote so-called "market-oriented standards".

2、 The WTO does not define and negotiate the functions of member economic systems

（1） The purpose, functions and basic principles of WTO

The WTO regulates trade relations among its members, with the basic requirements of assuming market opening obligations, expanding trade, and improving people's living standards, without defining or intervening in the economic systems of its members.

As a constitutional legal document, the World Trade Organization Agreement specifies its function to handle the trade relations of its members. Whether the economic system and trade policies of the joining party are consistent with the purpose and rules of the WTO is determined by the negotiation results. The WTO itself has no rules to judge the economic system of any country.

（2） How did the multilateral trading system in history accommodate members from different economic systems

The Marrakesh Declaration of the World Trade Organization clarifies the foundation of the multilateral trading system, which includes economic participation, openness, market-oriented policies, and commitments in the Uruguay Round agreements and resolutions.

In the 1960s and 1970s, Yugoslavia, Poland, Romania, and Hungary successively applied to join GATT. Only Yugoslavia announced its abandonment of the planned economy system, engaged in negotiations with GATT members with tariff concessions as the core, and obtained unconditional multilateral most favored nation treatment, ultimately becoming a formal member of GATT. When Poland applied to join GATT, GATT members did not recognize Poland's tariff system and for the first time set special accession conditions for planned economy accession parties, namely Poland's commitment to import quantity to open up the market and allowing members to set restrictions specifically for Poland's export products when necessary. Due to the United States' insistence on the non applicability of General Agreement on Tariffs and Trade (GATT) provisions to Poland, Poland ultimately failed to enjoy the unconditional multilateral most favored nation treatment under GATT. Romania's accession to GATT also replicated the special conditions of Poland's accession. Although Hungary has opened its market by negotiating tariff reductions, it faces the same restrictions on exports as the Baltic countries, and is also unable to obtain unconditional multilateral most favored nation treatment due to the non applicability of the United States to them.

The Baltic and Hungarian countries were forced to make some special commitments upon joining GATT because they were not recognized by GATT as implementing "open market-oriented policies". Nevertheless, GATT still adopted a flexible, pragmatic, and compatible approach, adopting the aforementioned non-standard accession model to admit these three countries as members of GATT. However, the individual cases of these three countries have not sparked discussions on market or non market economies in the multilateral trading system, nor have they promoted rule making in the economic system.

3、 The United States and the European Union are attempting to target multilateral infiltration of relevant sectors

Since the Cold War, the United States has been implementing discriminatory trade policies against the socialist bloc led by the Soviet Union, and the European Union (formerly known as the European Community) has also followed suit.

（1） The US trade policy and definition standards towards non market economy countries originated from the Cold War

Various terms such as "state-owned trading country," "planned economy country," "state controlled economy country," and "non market economy country" are commonly used in US domestic law to refer to socialist countries at that time. The implementation of discriminatory trade policies against these countries is an inevitable result of the political ideology and foreign policy of the United States, rooted in the factional confrontation during the Cold War.

Section 1316 of the 1988 Comprehensive Trade and Competition Act in the United States first established six specific criteria for non market economy countries, namely the relevant factors to be considered when determining whether a country belongs to a market economy country: (1) the degree of convertibility of the currency with other countries' currencies; (2) The degree to which enterprises and workers determine wage levels through free negotiations; (3) The degree to which foreign companies are allowed to establish joint ventures or make other investments; (4) The degree to which the government owns or controls the means of production; (5) The degree of government control over resource allocation and the determination of prices and output by enterprises; (6) Other considerations deemed appropriate by the US Department of Commerce.

（2） The standards of market economy in EU anti-dumping investigations

On April 27, 1998, the European Council amended anti-dumping regulation 384/96 by enacting regulation 905/98, which clearly stipulated that anti-dumping investigations involving Russia and China should determine the normal value of goods based on the standards of market economy countries. However, the investigated Russian and Chinese enterprises must prove that their operating conditions have met the following market economy standards: (1) the price, cost, and input of products are determined based on market supply and demand, including the cost of raw materials, technology, and labor, production, sales, and investment, which are not subject to state intervention, and the cost of their main inputs fully reflects market value; (2) Implement a financial and accounting system that complies with international accounting standards and has been independently audited, with clear accounts; (3) Production costs and financial conditions are not affected by the old non market economic system, and there are no phenomena such as asset depreciation, bad debts, barter transactions, and debt offsetting; (4) By formulating and applying bankruptcy and property laws to ensure the certainty and stability of business operations; (5) The foreign exchange market implements market exchange rates.

（3） The United States and Europe are attempting to infiltrate their domestic laws regarding market economy into multilateral contexts

In December 2016, on the 15th anniversary of China's accession to the WTO, the United States and the European Union not only failed to fulfill their obligations under Article 15 of the Protocol on China's Accession and did not cancel the use of surrogate countries in determining whether Chinese products constituted dumping, but also attempted to infiltrate unilateral provisions on market economy standards in their domestic laws into multilateral ones. On May 31, 2018, the trade ministers of the United States, the European Union, and Japan issued a tripartite joint statement proposing "market-oriented standards", which include the following elements: companies can freely decide prices, costs, inputs, procurement, and sales based on market signals; Enterprises are free to make investment decisions based on market signals; The prices of capital, labor, technology, and other factors are determined by the market; Enterprises are free to make decisions on capital allocation or influence capital allocation based on market signals; Enterprises comply with internationally recognized accounting standards, including independent accounting; Enterprises comply with company laws, bankruptcy laws, and private property laws; Enterprises are not subject to significant government intervention when making the above decisions. The above standards basically adopt the market economy standards recognized by the European Union.

Afterwards, on February 20, 2020, the United States separately submitted a so-called "WTO General Council Decision Draft" entitled "The Importance of Market Oriented Conditions for the World Trade System" to the WTO General Council, and proposed eight standards for "market orientation": enterprises should freely decide their trade activities based on market signals; Enterprises have the freedom to make investment decisions; The market determines the prices of production factors; Enterprises are free to allocate capital; Enterprises adopt internationally recognized accounting standards; Enterprises are subject to market orientation and relevant legal jurisdiction, and exercise their rights through effective judicial systems; Enterprises have free access to information for decision-making purposes; Exclude significant government intervention.

It is evident that the United States and the European Union are attempting to infiltrate the standards for recognizing a market economy in their domestic laws formed during the Cold War into the WTO, and are attempting to achieve the multilateralism of relevant rules. This infiltration precisely indicates that in the multilateral trading system centered around the WTO, there are no standards defining market economy or market orientation.

4、 The negotiation process of China's accession to the WTO

The negotiations for China's accession to the WTO are not only a demonstration of China's reform and opening up to the multilateral trading system and the international community, but also a process for WTO members to understand, recognize, and accept China's socialist market economy system. China's successful accession to the WTO, especially obtaining unconditional multilateral most favored nation treatment, proves that WTO members collectively agree with China's "participation in the world trade system based on open and market-oriented policies, as well as commitments made in the Uruguay Round agreements and resolutions".

（1） Negotiation process

The Chinese government officially submitted an application to restore China's status as a contracting party to GATT in July 1986. GATT members began to review China's trade system and subsequently entered into multilateral and bilateral negotiations with China. China has conducted bilateral market access negotiations with 37 members, covering various fields such as tariffs, non-tariff measures, trade in services, and intellectual property rights. The negotiations ultimately resulted in a accession protocol containing numerous rights and obligations provisions, a working group report, a tariff reduction table covering over 6000 tariff items, a goods trade reduction table with hundreds of non-tariff measures cancelled, and a service trade reduction table covering 100 sectors and sub sectors.

（2） The negotiation process demonstrates recognition of the competitive mechanism in the Chinese market

China's successful accession to the WTO through negotiations and mutual application of WTO agreements with all members, including the United States and the European Union, is not only the result of China's long-term game with the United States, but also the recognition of China's market competition mechanism by the United States and other Western countries.

In the negotiations for joining the WTO, China and WTO members reached a flexible and pragmatic transitional arrangement. WTO members allow China to gradually meet relevant requirements after joining the WTO, in response to tariff reductions and service trade sectors that are difficult for China to achieve immediately upon joining the WTO. Similarly, China has shown sufficient strategic patience towards the trade restrictions that the United States and the European Union find difficult to immediately lift upon China's accession to the WTO, and has agreed to gradually lift the relevant restrictions after a certain transition period. These transitional arrangements do not in any way affect WTO members' recognition of China's accession to the WTO with an open market-oriented policy.

5、 Conclusion and Suggestions

Under the socialist market economy system, China negotiated with WTO members and committed to reducing tariffs, eliminating non-tariff measures, opening up the service trade market, obtaining unconditional most favored nation treatment, and ultimately joining the WTO. This process itself indicates that the WTO recognizes China's "participation in the world trade system based on open and market-oriented policies, as well as commitments made in the Uruguay Round agreements and resolutions. Discussing China's so-called market economy system or market-oriented standards in the WTO is completely a false proposition.

In the face of the above situation, we should soberly recognize the following points.

Firstly, the WTO is a concentrated embodiment of the multilateral will of all its members, and no party can multilateralism its unilateral will. As long as China responds appropriately, the United States' attempts will not succeed.

Secondly, China is a staunch supporter and defender of the WTO multilateral trading system. While playing a bilateral game with the United States, China should adhere to the principle of multilateralism first in the WTO, fully unite with its members, and oppose all unilateral actions that do not comply with WTO rules.

Thirdly, China should systematically and truthfully explain the history of the multilateral trading system and China's accession negotiations, as well as the relevant multilateral legal basis, so as not to fall into the trap of the market economy system dispute predetermined by the United States. China firmly adheres to the basic purpose of the multilateral trading system and insists that as a trade organization, the WTO does not have the function of dealing with member economic system issues, let alone labeling members with so-called "market economy status".

Fourthly, on the one hand, China adheres to the supremacy of multilateralism and opposes trade unilateralism; On the other hand, we should continue to deepen market-oriented reforms, expand opening up to the outside world, continue to introduce measures that are in line with the spirit of reform and opening up and WTO rules, conscientiously abide by multilateral trade rules, and make the market economy system dispute provoked by the United States come to an end.