16 Aug 2021 11:30

Russia might lose market economy status in U.S. 20 years after securing it

MOSCOW. Aug 16 (Interfax) - The United States has begun a probe into whether Russia should continue to be treated as a market economy country for purposes of the antidumping duty law, the Department of Commerce said in a statement in the Federal Register.

The department said it is therefore seeking public comment and information from interested parties, the deadline for which is August 30, 2021.

The probe regarding market economy treatment was begun as part of an antidumping investigation into urea ammonium nitrate from Russia, the department said.

"As part of the less-than-fair-value investigation of urea ammonium nitrate solutions (UAN) from the Russian Federation (Russia), we found that the petitioner has provided sufficient evidence for the Department of Commerce (Commerce) to examine whether to continue to treat Russia as a market economy (ME) country for purposes of the antidumping duty law," the department said.

Commerce cited the Tariff Act of 1930, which sets out the criteria for treating a given country as an ME country. The Act lays out six criteria for determining whether a country can be deemed to have a market economy. If a country's economy does not comply with any of these criteria, the Department of Commerce can treat it has a non-market economy country.

The criteria are as follows: 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 allocation of resources and over price and output decisions of enterprises; and 6. Such other factors as the administering authority considers appropriate.

The U.S. granted Russia ME country status as of April 1, 2002. The Commerce Department said at the time that the decision reflected the huge changes that had taken place in the Russian economy in the past decade. This was such a significant event that then President George Bush informed President Vladimir Putin about it in a telephone call.

Russia's then Economic Development Minister German Gref, commenting on the decision, said that as of 2002 about $1.5 billion worth of Russian goods were subject to U.S. restrictions as goods originating from a country with a non-market economy, including "metals, fertilizer, titanium and a whole range of other Russian goods."

ME country status is very important for exporters, because it makes it significantly more difficult to impose antidumping duties against them.

If an economy is deemed non-market, in antidumping investigations in the U.S. against imports from this country the production cost of a given product can be calculated based on its cost in "third countries" in which it might be significantly higher (if, for example, one factors in energy prices in Russia, which are a natural competitive advantage), making it possible to easily prove dumping and impose antidumping duties. This has most frequently hit Russian metal and fertilizer producers.

It is on the matter of antidumping procedures that Russia won a fundamental dispute with the European Union in the WTO in July 2020 on so-called energy adjustments that dated back to the Soviet era and the then non-market Soviet economy. The EU also recognized Russia as a market economy in 2002, through a little later than the U.S., in November that year.

Under the practice of energy adjustments, when conducting antidumping probes the EU did not factor in prices at which Russian companies bought natural gas to produce exported products. Instead, it used gas prices in third countries, which almost always led to an overestimation of Russian companies' real costs and, consequently, high antidumping duties against Russian goods. The EU began to use this approach back in the 1980s against Soviet ammonium nitrate producers.

After the WTO arbitration ruling in favour of Russia, the EU filed an appeal in August 2020 with the WTO appellate body, which has not functioned since December 2019, essentially putting this ruling in limbo.

In October 2020, the European Commission posted a report on its website about so-called non-market practices of Russia for the purposes of conducting antidumping investigations in the EU.

At the time, Russia's Economic Development Ministry linked this report to the country's victory in the WTO on the issue of energy adjustments, remarking that "with this report the EU wants to create a foundation for continuing its unfair antidumping practices, just under a different 'sauce.'"|