INDIA HAS REFUSED ‘MARKET ECONOMY’ STATUS TO CHINA

WHAT IT MEANS FOR CHINA?

Market economy is an economy in which goods and services are freely exchanged without obstruction or regulation and where decisions about production and consumption are made by many separate individuals each seeking satisfaction of specific needs and desires.

What is a ‘market economy’ status?

When a country accords market economy status to another country, it recognises that free market forces of demand and supply are operating there. It accepts that economic variables such as prices and exchange rates are not determined by the state. When a

country recognises another as a market economy, it will have to accept information on prices supplied by that country while contesting anti-dumping cases.

Why is India refusing to give the status?

India believes that China’s corporate governance and accounting systems are not transparent and the country is not following global best practices in its financial & banking systems and stock markets. It had recently sent a questionnaire to China seeking information on key issues such as land laws, accounting practices, minimum wages and electricity rates, which was the first step towards granting the status. China, however, dismissed the move labelling the entire issue as a political one.

Is the issue economic or political?

The issue is both economic and political. China has the maximum cases of dumping -- exporting goods at prices lower than those prevailing in its domestic market -- against it. India does not want to give the market economy status to China as it would then

have to accept all information on local prices supplied by China while framing its dumping cases. At present, India fights anti-dumping cases against China on the basis of prices prevailing in third countries exporting the same product to India. Refusing to recognise China as a market economy also suits India politically at the moment because of the renewed tension on the border. A

few years back when political relations with China were better, the ministry of external affairs was trying to convince the commerce department to grant the status to the country.

Is India breaking multilateral trade rules?

Not at all. As per China’s accession contract with the World Trade Organisation (WTO), members are not obligated to recognise China as a market economy till 2016. Only about 60 countries have given China the status. These countries include members of the

10-member Asean, which has a free trade agreement with China.