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09/12/2016

Germany and France team up to tackle Chinese dumping

Trade & Society

Germany and France team up to tackle Chinese dumping

European forges are suffering from competition with subsidised Chinese companies.

[Stefan Schmitz/Flickr]

EXCLUSIVE / German and French trade ministers have presented joint proposals for improving Europe’s Trade Defence Instruments (TDIs). Blocked since 2014, TDI reform is now urgently needed in response to Chinese dumping in the steel sector, according to Paris and Berlin. EurActiv France reports.

After the European Parliament voted on 10 May against granting China market economy status (MES), Europe’s trade ministers began examining the delicate question of reforming the EU’s trade defence mechanisms at a meeting in Brussels on 13 May.

European Parliament unites against Chinese MES

In a move that could change the lines of the debate, the European Parliament’s left and right have united to oppose the Council and Commission over Chinese market economy status. EurActiv France reports.

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The issue, which has been on the Council’s backburner since November 2014, has been made a priority by the recent difficulties of the steel industry. The modernisation of the EU’s trade defence instruments has long divided the member states, which have widely varying attitudes to economic protectionism.

EU division dilutes efforts against steel dumping

Over 5000 steel employers and workers will take the streets in Brussels today (15 February) calling for more protection from Chinese imports, as the Commission and Dutch presidency were passing the buck on increasing tariffs.

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In their common position, seen by EurActiv, Paris and Berlin advocated a “balanced modernisation of the Lesser Duty Rule (LDR)”. Under this principle, anti-dumping duties would be calculated based on their economic impact. In so doing, they aim to re-establish a fair climate of competition for European businesses, without being punitive to imports.

The French-German text proposed that the LDR be more restrained and “not apply in anti-dumping and anti-subsidy procedures in cases where structural distortions to competition in the field of raw materials including energy would be caused. Moreover, in the case of massive over-capacities the EU is requested to identify those sectors where adequate responses are needed.”

Broad scope

“France and Germany think the scope of the Lesser Duty Rule proposed by the Commission is too broad and that they should have the option to lift it in some situations,” a source close to the French trade ministry said.

In the Commission’s crosshairs are the commercial practices of the Chinese steelmakers, which sell at a loss in a global market already undermined by over-capacity, and survive on government subsidies. The unfair competition caused by these low-cost exports has further destabilised Europe’s already shaky steel sector.

But Beijing insists the problem of over-production is affecting all steel producers, including the Chinese. “The EU’s criticism [of China] is misplaced. Everyone has a problem with overproduction,” the Chinese Ambassador to Germany, Shi Mingde, told EurActiv.

The stakes for China are also high, as the country’s steel industry employs “several millions of people”, according to the ambassador. “This is one aspect that is not taken into account in Europe, yet more than a million people [in this sector] stand to lose their jobs,” he said.

European disagreement

Despite the joint proposal from the French-German partnership, there is still much disagreement within Europe over the possible solutions to the situation. “There is historic disagreement between Europeans on the question of lesser duty,” explained a source close to the French minister for trade.

Brussels urges member states to regulate Chinese steel imports

The European Commission announced plans on Wednesday (16 March) to speed up trade defence cases against cheap imports from China and urged EU member states to stop blocking measures that could set higher duties against dumped and subsidised products.

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On the one hand, the “liberal” countries, led by the United Kingdom, are ideologically opposed to any change to the scope of the Lesser Duty Rule, arguing that any kind of protectionism is harmful to the economy. On the other side of the table, countries like France, Italy and now Germany are calling for the rules safeguarding their industries to be strengthened.

But the alliance between the two EU heavyweights could push the issue forward. “There has been a real change in the state of mind, which should allow us finally to make progress on a subject that has been blocked since November 2014,” said a source.

Two months ago, Emmanuel Macron, the French minister for the economy, went to Strasbourg to try to mobilise support from the Commission and his European counterparts on the issue. A qualified majority in the Council of Ministers was at the time far from secured, with another ten votes needed for the reforms to be adopted.

“Today, the balance is shifting towards a qualified majority,” said the source in the French ministry, who added that even the UK’s opposition was no longer as virulent as it had been.

On most of the proposals made by the French and German ministers, like the establishment of faster-acting measures to counter proven cases of dumping and the possibility for the Commission to act without waiting for a request from the industry, the consensus already appears to have been won. But the Lesser Duty Rule is one stumbling block that remains firmly in place.

Market economy

The ministerial discussions will go on, but France hopes that the reform of the TDIs will be adopted at the latest under the Slovakian Council presidency, which begins in July this year.

But the question of China’s commercial practices is far from settled at the European level. The market economy status (MES) that Beijing hopes to be accorded by the end of 2016 is also proving a divisive issue for European countries.

MEPs braced for fight over granting China 'Market Economy' status

MEPs have started to draw their red lines on whether the EU should recognise China as a ‘market economy’,  ahead of a first orientation debate in the College of Commissioners on Wednesday (13 January). 

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Certain observers, including the European industry federation AEGIS, fear that even a reformed set of trade defence instruments and customs barriers could be contested by Beijing at the WTO if China gains MES.

“None of these measures will remedy the inefficiency of the anti-dumping systems if the EU grants market economy status to China,” said Milan Nitzschke, a spokesperson for AEGIS.

“There is no obligation for the members of the WTO to grant China market economy status by 2016. Other big trading partners like Canada and the United States are taking the same approach,” he added.

Background

EU relations with China were established in 1975 and are governed by the 1985 EU-China Trade and Cooperation Agreement and seven other legally binding agreements.

Beside annual meeting of the countries' leaders, the main three pillars are the High Level Economic and Trade Dialogue (launched in 2007), the Strategic Dialogue (2010) and the High Level People-to-People Dialogue (2012).

The EU is China's biggest trading partner, while China is the EU's largest source of imports and second largest two-way trading partner. Rising trade and financial flows between the EU and China in the last decade have considerably heightened their economic interdependence. The EU remains China's biggest trading partner while China is the EU's second largest trading partner.

In 2012, the European and Chinese leaders agreed to intensify technical discussions to begin negotiations on an investment agreement "as soon as possible".

Timeline

December 2016: WTO to re-examine China's terms of membership and decide whether or not to grant market economy status.

Further Reading