Joel Trachtman
FLETCHER SCHOOL OF LAW AND DIPLOMACY, TUFTS UNIVERSITY. Professor of International Law. Research focuses on international trade law, international economic integration, international investment law, and international financial law.
Is China a Non-Market Economy, and Why Does It Matter?
China

Is China a Non-Market Economy, and Why Does It Matter?

The Issue:

The designation of China as a “non-market economy” under the World Trade Organization (WTO) allows its trading partners to subject it to more stringent anti-dumping duties if they determine China’s exports are being sold at unfairly low prices. China’s status as a non-market economy was part of its accession to the WTO in 2001 but this aspect expired in 2016 and is now subject of dispute.

The Facts:

  • International trade law allows countries to use special anti-dumping duties to protect their domestic industries from the impact of artificially cheap imports.
  • It is difficult to determine that a price is “artificially low” without a market benchmark, and the control exercised by the Chinese government over the Chinese economy suggests that domestic prices are not pervasively set by market forces.
  • For this reason, WTO law allows using third-country prices as a comparison to determine whether a non-market economy (NME) is dumping its goods in an importing country. This gives importing countries greater flexibility to use arbitrarily-selected high third country prices as a reference for determining dumping by exporters from NMEs than it does for exporters from market economies.
House GOP Tax Plan Aims to Boost Competitiveness, Might Also Violate Trade Law

House GOP Tax Plan Aims to Boost Competitiveness, Might Also Violate Trade Law

The Issue:

The tax blueprint released by House Republicans in June is expected to be the starting point for the Trump administration’s tax reforms. One of its goals is to make “Made in America” products more competitive abroad. If adopted, it would impose new taxes on imports and exempt U.S. exports from federal corporate taxes.

The Facts:

  • The blueprint includes a 20% “business cash flow tax” that replaces the current 35% corporate income tax. The simplified tax would be applied to a business’ gross receipts and subtract gross expenditures other than interest expenditures.
  • The cash flow tax would affect imports and exports differently. All companies whose products are consumed in the U.S. –regardless of where they are made—would face levies. Only U.S. businesses would be allowed to deduct expenses. Thus, imports would be taxed the full 20% tax rate, while exports would be excluded from U.S. taxation.
  • The ability to tax imports and exempt exports — known as border tax adjustments — is permitted under World Trade Organization rules, but only for taxes on a product, such as a sales tax (as opposed to income taxes).
  • Whether the border tax adjustments in the blueprint are deemed legal from a World Trade Organization perspective will depend on a key interpretation: Is the tax in question an income tax or a tax on a product? It does not seem possible to characterize the new tax as a tax on a product. It is calculated by reference to firm-based attributes under a new and simplified definition of net income, but a definition of net income nonetheless.
  • The fact that imports would face 20% tax on their price with no deductions while domestic producers would be able to deduct most expenses — including payroll — from the tax base could also make the import border adjustment illegal under the international rules.