AISI's Kevin Dempsey: What China Market Economy Status Would Mean

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By Taras Berezowsky

MetalMiner Managing Editor Taras Berezowsky recently sat down with Kevin Dempsey, Senior VP for public policy at the American Iron & Steel Institute. Dempsey leads the AISI public policy team representing the interests of North American steel producers and also serves as General Counsel to the Institute. Before that, he was a practicing attorney who specialized in trade matters.

During his years on Capitol Hill and in the private sector, Dempsey has worked extensively on international trade negotiations, including the Doha Development Agenda and the original negotiations on the accession of China to the World Trade Organization. He also has considerable experience with U.S. and international law related to subsidies, trade remedies, market access, intellectual property rights, and product standards, as well as U.S. legislative procedures for authorizing and implementing trade agreements.

As such, he possesses a veritable wealth of knowledge about the issue of market economy status for China and how that would impact the U.S. steel industry.

Taras Berezowsky: Just initially, I saw in your bio that you had worked on China's original agreement of accession to the WTO. In what capacity did you work with them?

Kevin Dempsey: I was a lawyer, a trade lawyer, in private practice representing a number of U.S. industries that were interested in the question of China's role in the WTO, and making sure that the rules going forward were going to be fair ones that ensure fair competition with China.

A big issue at the time was the extensive state involvement in the Chinese economy and the need to make sure that we had effective laws, including the ability to continue to treat China as a non-market economy under the anti-dumping law.

TB: Gotcha, so from where you stand now, 15 years down the road, how would you characterize the difference between then and now and what you've seen happen?

KD: Well, there have been a number of changes in the Chinese system over the years. Certainly in the late '90s and early 2000s, the hope was that China was moving towards greater liberalization as an economy moving towards a market system. No one thought at the time that they were a market economy. Unfortunately, in the early 2000s, we started to see sort of a move backwards by China towards …

China moved in a way that sort of backtracked on their efforts at liberalization. In fact, it started to consolidate the role of the state in their economy, especially in key industries, what they call pillar industries. These include steel, where the role of state ownership has continued so that some of their aspects of how the Chinese control their economy has changed, but the roles of the government and the communist party have remained paramount in China. That unfortunately meant that the economic reforms that we hoped were coming in the early 2000s have not come to bear fruit.

TB: On the question of state-owned enterprises and the role of the state, as far as the steel industry is concerned, are you or anyone at AISI privy to data or research that shows just how far-reaching this quote unquote problem is of state control vis-a-vis your industry?

KD: Well, we believe a significant portion of the Chinese steel industry is state owned. There're so many companies involved it's hard to get a full number of the top ten steel producers in China, which represents a huge amount of production. Nine of those are state owned, so nine of the top 10 (is a significant number).

Just to put it in context, the top two Chinese producers by themselves account for more steel production than the entire U.S. industry, so it's a huge amount.

TB: So, obviously steel is one of these pillar industries. Has this pervaded into a huge number of other industries as far as you guys can tell or is steel the most affected? I guess what I'm asking is what the picture looks like from AISI's standpoint?

KD: Steel is the industry we know best, but there are a number of industries where there is significant state ownership and probably just as critical, from a steel perspective, is state control in certain key areas like the financial system in China. The banking system controls most of the credit. It is overwhelmingly dominated by state-owned institutions, and that's the mechanism by which a lot of these subsidies and other government support are provided through the state-owned and controlled financial system.

That pervades every aspect of the Chinese economy and allows the Chinese government to continue to exercise tremendous control over the allocation of resources in China and leads to non-market economy issues that are critical for steel, but for a lot of other sectors as well.

This is part one of Berezowsky and Dempsey's in-depth discussion of China and market economy status.