On October 26, 2017, the Department of Commerce approved an approximately 200 page Memorandum entitled, “China’s Status as a Non-Market Economy.” Although it was apparently prepared in connection with a specific antidumping investigation, it appears to set Commerce policy. The Executive summary states in part:

The Department of Commerce (“Department”) concludes that China is a non-market economy (NME) country because it does not operate sufficiently on market principles to permit the use of Chinese prices and costs for purposes of the Department’s antidumping analysis. The basis for the Department’s conclusion is that the state’s role in the economy and its relationship with markets and the private sector results in fundamental distortions in China’s economy.

The Memorandum goes through the various factors Commerce considered which were:

1. The extent to which the currency of the foreign country is convertible into the currency of other countries;

2. The extent to which wage rates in the foreign country are determined by free bargaining between labor and management;

3. The extent to which joint ventures or other investments by firms of other foreign countries are permitted in the foreign country;

4. The extent of government ownership or control of the means of production;

5. The extent of government control over the allocation of resources and over the price and output decisions of enterprises; and

6. Such other factors as the administering authority considers appropriate, which included the legal system and Communist Party, administrative and regulatory transparency, and corruption.

After detailed analysis the Memorandum concludes with:

Nonetheless, after assessing the six factors, the Department finds that the Chinese government continues to maintain and exercise broad discretion to allocate resources with the goal of achieving specific economic outcomes. China’s institutional structure, and the control the Chinese government and the CCP exercise through that structure, result in fundamental economic distortions, such that non-market conditions prevail in the operation of China’s economy. These non-market conditions are built upon deeply entrenched institutional and governance features of China’s Party-state, and on a legal mandate to “maintain a leading role for the state sector.” Accordingly, China is a NME country. It does not operate sufficiently on market principles to permit the use of Chinese prices and costs for purposes of the Department’s antidumping analysis.

The Department also finds that China’s legal system continues to function as an instrument by which the Chinese government and the CCP can secure discrete economic outcomes, channel broader economic policy, and pursue industrial policy goals. Key legal institutions, such as the courts, respond as necessary to their direction in broad policy or case-specific ways. Individuals 197 and firms are constrained in their ability to have meaningful independent input into administrative rulemaking or to challenge administrative decisions.

China’s economy continues to be significantly tied to the institutional structures established by the Chinese government and the CCP for the purpose of achieving a “socialist market economy.” In this system, the Chinese government must “maintain a leading role for the state sector” and market forces are to be contained within that framework. Policy signals from the Chinese government on the direction and pace of relevant proposals to modify the relationship between the state, the CCP, and the economy have been unclear, uncertain, and inconsistent. Accordingly, the Department has determined that China remains an NME country under the U.S. antidumping and countervailing duty laws.

The Memorandum was prepared by Leah Wils-Owens in the Office of Policy, Enforcement & Compliance and after various intermediate reviews was approved by Gary Taverman, Deputy Assistant Secretary for Antidumping and Countervailing Duty Operations, performing the non-exclusive functions and duties of the Assistant Secretary for Enforcement and Compliance.