By Alonso Soto
BRASILIA (Reuters) - Brazil will not follow the United States in openly questioning China's market economy status at the World Trade Organization but will maintain an aggressive stance to protect local producers from cheaper Chinese goods, two sources familiar with the decision told Reuters.
China is pushing partners to grant it market economy status after its WTO admission protocol expires in December.
That would force them to take at face value China's state-controlled prices to judge whether or not it is "dumping" exports unfairly in their markets. That makes it much harder to impose higher duties and challenge the Asian nation's cheap exports at the WTO.
The United States warned China in July it had not done enough to qualify for market economy status, mainly in the steel and aluminum sectors.
The European Union is weighing its stance on China's status but rejected loosening its trade defense.
Brazil, a major WTO player and the world's fifth-most populous country, will remain on the sidelines, said the two high-ranking officials, who asked for anonymity because they are not allowed to speak publicly on the matter.
"We are not going to point fingers," said one official directly involved in issue. "But anti-dumping challenges will continue. We will continue to act to protect our industry."
The government is studying an alternative method to calculate prices of Chinese products, which currently make up about one-third of all anti-dumping challenges in the South American nation, the official said.
Like its WTO peers, Brazil has used surrogate prices from third parties to reflect China's state subsidies.
Brazil's Foreign Ministry did not immediately respond to request for comment on the matter.
Considered the most closed major economy in the Americas, Brazil is one of the world's champions in implementing anti-dumping measures to safeguard its local industry, which has seen its participation in the economy more than halve since the 1980s.
Another official said staying silent on China's market economy status would help Brazil avoid potential challenges from its main trade partner. China is expected to launch trade disputes against countries that reject its new status in December.
Brazilian steelmakers, struggling with a two-year recession at home, are pressuring the government to take a stand against China, which they accuse of flooding global markets with cheap steel.
"These phenomena of heavily subsidized, state-run companies are causing a lot of damage to us," said Marco Polo de Mello Lopes, the head of the Brazil Steel Institute, which represents steelmakers in Brazil.
Recognizing its new status would lead to the bankruptcy of 4,811 companies in Brazil and cost Brazil's already weakened industry 397,476 jobs, according to a study by consultancy Barral M Jorge that was commissioned by the institute.
China's admission protocol allowed WTO countries not to consider China a market economy for its trade defenses. Now that the protocol is due to expire, China argues WTO members should automatically grant it the status.
(Reporting by Alonso Soto; Editing by Brad Brooks and Cynthia Osterman)