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09/12/2016

Manufacturers warn against dropping guard on China

Trade & Society

Manufacturers warn against dropping guard on China

Solar panel assembly line, China. [Shutterstock]

The European Union could lose up to 3.5 million jobs if it removes its trade defences against China, according to a study for a group of 25 European manufacturing federations published on Friday (18 September).

The report, presented to senior EU officials and lawmakers this week, forecasts that EU imports of manufactured goods would rise by between 25 and 50% over the next three years.

“That’s another 5 to 10% a year on top of trend growth and I would argue the study is conservative. China is capable of exporting much more given its excess capacity,” co-author Robert Scott, director of the Economic Policy Institute, told Reuters ahead of the report’s publication.

The European Union, along with other World Trade Organization (WTO) members, needs to determine whether to accord China “market economy status” (MES) at the end of 2016.

The WTO recognised when Communist China joined the trade body in 2001 that local prices were not set by market forces but expected that 15 years later Beijing would play less of a role in directing the economy.

>>Read: EU businesses warn China over ‘slow’ reforms

MES status is important because, if granted, it reduces the EU’s ability to impose anti-dumping tariffs on Chinese imports. This could only happen if Chinese export prices were beneath already low domestic prices.

Opponents, such as Aegis Europe, a grouping of 25 European industry federations from steel to ceramics, say that Chinese prices are not the result of normal market forces but are artificially depressed.

Scott says lower import tariffs and the reduced threat of anti-dumping procedures would lead Chinese companies to reduce the price of their exports goods by almost 30%.

A consequent loss of EU production would strip 1 to 2 percentage points from the bloc’s gross domestic product, resulting in the loss of between 1.7 and 3.5 million jobs.

The report says that the sectors hardest hit would be automotive parts, paper and paper products, steel, ceramics, glass, aluminium and bicycles, which collectively employ 2.7 million people in the EU.

>>Read: Chinese envoy: A bilateral investment deal with the EU is in sight

“You’re not going to lose every job overnight. Some sectors are certainly more vulnerable, such as steel and bicycles,” Scott said, adding that for each direct job loss, two further jobs would be lost.

“Three or even four, five million jobs could be at risk due to a potential climbdown on MES. Even if Europe decides to grant market economy status to China, it doesn’t change the fact that China is not a market economy.”

Background

The 2012 EU-China summit opened discussions at a technical level to “start as soon as possible” negotiations for a bilateral investment agreement.

But the summit was overshadowed by a long list of disagreements, including a trade dispute over Chinese subsidies to industry and Europe's refusal to grant China market economy status.

Tired of seeing European companies blocked from Chinese public tenders, Brussels has launched a ‘reciprocity’ action which could allow individual EU countries to bar bids from countries that refuse to open up their public procurement markets, including China. Beijing is well aware that the public procurement issue stands in the way of the country getting its market economy status.

On the EU side, European Council President Herman Van Rompuy tried to downplay the current perception that Europe is bankrupt and inefficient and the eurozone is not able to solve is sovereign debt crisis.

>> Read: EU, China leaders agree to disagree

Further Reading