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26/09/2016

EU straining to grant China MES

Trade & Society

EU straining to grant China MES

Workers in a Chinese steel foundry. [Reuters]

Trade ministers met on Tuesday (2 February) to weigh options presented by the European Commission on the thorny issue of granting China market economy status.

In a 6-page information note seen by EurActiv, the Commission has outlined three possible options which can help member states to determine their positions ahead of a December 2016 deadline, when the EU has to issue a verdict on whether Beijing has transitioned to a market economy in the 15 years since it joined the trade body.

“A lot of misperceptions have circulated in the public debate until now,” said a spokesperson for the Dutch government, which holds the rotating presidency of the EU. “The Commission’s paper provides a very good factual basis for our discussions,” he added.

With three possible alternatives on hand, the executive is hinting that the only way forward is to change its legislation to comply with WTO rules.

Under WTO rules, the EU can impose anti-dumping duties, and additional tariffs on products from third countries, if an investigation demonstrates that they entered the 28-country bloc at dumped prices, damaging EU businesses.

A second option would be to change the anti-dumping regulation by ordinary legislative procedure if the EU would decide to remove China from the list of non-market economy countries.

According to initial data, published in the document, such move could push between 63,600 and 211,000 people out of their jobs in sectors currently covered by the antidumping measures in place against Chinese imports.

The data is too conservative, insisted industry alliance AEGIS Europe. “The European Commission has looked essentially only at those specific products where there are already anti-dumping measures in force today,” said AEGIS spokesperson Milan Nitzschke.

If new anti-dumping procedures already underway, and reviews of existing measures, (also underway), were included, the real figures would show an additional 100,000 jobs at risk, bringing the total to at least 311,000, Nitzschke added, stressing that China’s latest five year plan demonstrates its intention to take over global markets in new industries and export millions of job losses to Europe. 

The EU business community has divergent views on a third option which would combine a change to EU anti-dumping rules, while strengthening other related provisions of the legislation. These could include safeguarding the definitive antidumping measures in place (‘grandfathering’),  as well as strengthening other provisions of the trade defence.

Whatever the option, there is a clear case for moving in a concerted action with other WTO members, but also wait for the European Commission’s impact assessment.

>>Read: EU trade ministers to hold first talks on granting China MES

European Commission Cecilia Malmström said that “We are indeed in contact with other partners on this.  Yet we must be reminded that all WTO members have to abide by their legal commitments.”

Last month, the European Commission indicated that no final decision should be expected before the summer, after a proper impact assessment is carried on. A cross-party number of MEPs in January have also spelled out their red lines, saying that an ‘automatic’ switch is premature.

>>Read: MEPs braced for fight over granting China ‘Market Economy’ status

The Chinese warrior

Chinese Ambassador to the EU, Yang Yanyi, has called on member states to moderate their tone and take a constructive attitude. In an op-ed published in EurActiv, Ambassador Yanyi said China is pushing through comprehensive reform and further opening up with the determination of a “warrior who cut off his wounded wrist to save his life”.

“For example, to effectively deal with the overcapacity problems of the steel industry, China has made unremitting efforts to control new capacity and eliminate outmoded capacity,” she wrote.

>>Read: China critics fail to translate the good in its economic development

“Painful as it is, and at a price of costing half a million jobs, China has cut its steel industry capacity by more than 90 million tons over the past few years and will continue to cut the steel industry’s capacity by another 100-150 million tons,” she insisted.

By end of 2015, 53 out of the 87 anti-dumping cases and 5 of the 22 anti-subsidy measures in place concerned China. The largest number of EU trade defense cases concern iron and steel. European chemicals and increasingly energy industries (solar panels, biofuels) are the other sectors using the instruments.

The 53 antidumping measures in force against Chinese imports, the Commission writes,  cover 1.38% of bilateral trade.  Solar panel antidumping duties alone account for 0.7% of bilateral EU China trade.

Background

When China joined the WTO in 2001, it was considered a centrally planned economy, and the terms of its accession required the country to be treated as a "non-market economy" for 15 years.

In a nutshell, prices and costs were regarded as artificially low and unreflective of normal market forces due to state subsidies that its domestic industries enjoyed. As a result, it was easier for other countries to launch anti-dumping probes and impose high duties on Chinese exports.

Beijing has long interpreted the accord to mean that it would automatically be given MES at the end of 2016. Already, more than 90 countries, including the ASEAN states, recognise the MES of China. Australia and New Zealand have agreed to an FTA with China. However, the US, the EU and Japan haven’t given their say yet on the MES. They would need to pronounce themselves by the end of the year.

Timeline

  • December 2016: China to be granted or not the Market Economy Status.

Further Reading