11 Nov 2022 12:15

U.S. stops treating Russia as market economy 20 years after granting this status

MOSCOW. Nov 11 (Interfax) - The U.S. Department of Commerce has announced that Russia can no longer be treated as a market economy and its status will be changed to the non-market one.

"Today, the U.S. Department of Commerce announced that it will no longer treat Russia as a market economy in its antidumping (AD) proceedings," the Department said.

The U.S. granted the market economy status to Russia in April 2002.

The United States reviewed Russia as a market economy in May 2022 although a similar analysis was made in 2021 and the U.S. Department of Commerce confirmed the market status of the Russian economy in late October 2021.

The Department said exactly one year ago that, having analyzed the balance of all known changes made since the latest determination in 2002, it did not see any new clear evidence to justify an alternation of the current market status of the Russian economy.

Now, the Department said in a statement on the non-market status of the Russian economy that, as of the moment of review in 2021, which covered economic developments between 2002 and 2021, the increased involvement of the Russian government in the national economy put the country on the brink of a non-market economy status by the criteria envisaged by law.

The Department believes that the market-oriented reforms in Russia have been reversed even more since the date the 2021 review was published.

The designation of Russia as a non-market economy by the U.S. Department of Commerce is based on evidence of the rise in activity of the Russian government, which has broadened and deepened its influence on the domestic market, the statement said.

Prices and costs in Russia are no longer determined by the free factors of demand and supply and any information on costs or sales which the U.S. Department of Commerce could use for anti-dumping proceedings does not reflect market results due to the economic distortions, it said.

As reported earlier, the U.S. Department of Commerce evaluates the market economy status by the Tariff Act of 1930, which establishes six market economy criteria.

The regulator may designate a country as non-market if its economy fails to meet certain criteria.

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 market economy status is significant for exporters, as it reduces the possibility of anti-dumping duties against them.

In the course of anti-dumping proceedings, the United States calculates the cost of production of particular goods in a non-market country on the basis of the cost of production of similar goods in third countries, in which it can be much higher (take, for example, energy prices in the Russian Federation, which are a natural competitive advantage), which makes it easy to prove dumping and introduce anti-dumping duties (Russian metallurgists and fertilizer producers will be affected by this approach most).

Maxim Medvedkov, former director of the Russian Economic Development Ministry's trade negotiations department, head of the Institute of Trade Policy at the Higher School of Economics, said that a possible U.S. decision to declare Russia's economy as non-market would be at odds with the WTO Anti-Dumping Agreement (Article 6) and could be disputed by the Russian side.

He also said that the possible designation of the non-market economy status to Russia by the United States "would create little or nil systemic risks to the Russian economy."