A Worrying Proposal

On November 8, the European Commission submitted a proposal on new anti-dumping and countervailing methodologies to the European Parliament and the European Council.

In the proposal, the EU seeks to replace the “non-market economy status” concept with that of “market distortion.” This measure seeks to maintain the EU’s use of a “surrogate country” method to determine a normal reference value when undertaking anti-dumping investigations. In combination with countervailing measures, the EU aims at scaling up trade protection for its industries and manufacturers.

This scheme is an apparent reaction to the upcoming expiration of Article 15 of China’s Accession Protocol to the World Trade Organization (WTO) on December 11. The article permits using a “surrogate country” in anti-dumping investigations against China.

China became the world’s largest exporter in 2009 and the top trader in goods in 2013. The nation expected to contribute more to world trade by the time Article 15 expires.

The European Commission, for the sake of both its international image and partnership with China, has maintained its composure regarding the article’s expiration. On the one hand, it has clearly stated that complying with the WTO rules is the EU’s duty, which means the EU has to stop using “surrogate country” method on “non-market economy” grounds after December 11. On the other hand, it’s actively amending its trade defense laws with the hope of strengthening protection.

According to the amendment, the EU will use the concept of “market distortion,” instead of “non-market economy,” in anti-dumping and countervailing investigations against any WTO members in the future. This measure takes four criteria into consideration—state policies and influence, the extent to which government-owned enterprises operate in the sector, discrimination in favor of domestic companies and the degree to which the financial sector is independent. As a matter of fact, those criteria are not too different from the ones used to decide whether China is a market economy or not.

The plan was also set up to deal with overcapacity, especially excessive production in the iron and steel sector. European members blame China for the global glut in steel and iron production, putting the European Commission under lots of pressure to take counter measures against China.

In recent years, populism and protectionism have been on the rise in the developed world. Political uncertainties are growing in Europe. Core members of the EU are expected to hold referendums as well as presidential and parliamentary elections between this year-end and next year. Traditional parties, without exception, are being challenged by populists, which has a corollary effect of growing protectionism in the economic sector.

Therefore, the European Commission introduced new anti-dumping and countervailing methodologies in November, which sparks concerns that the EU is ensconcing itself with trade protectionism.

The European Commission is simply playing with legislative tools by giving a new cover to an old concept. It’s unfair and incorrect to continue discriminatory practices against Chinese enterprises.

On the one hand, it’s every EU member’s duty to implement Article 15. China is unlikely to surrender to any additional conditions.

On the other hand, overcapacity is a globally prevalent issue stemming from stimulus policies in the wake of the 2008 financial crisis. It should be solved by multilateral negotiations.

In fact, a global system designed to manage excessive iron and steel production was under consideration at the G20 Hangzhou Summit in September. And two months earlier, leaders from China and the EU held talks on the bilateral iron and steel trade at the 18th China-EU Summit in Beijing. The two sides agreed to strengthen communication and exchange under an appropriate mechanism.

Domestically, China has rolled out a plan to cut 100 to 150 million tons of iron and steel production capacity throughout the next five years.

With regard to iron and steel capacity reduction, China has laid bare its resolve and is taking concrete measures to fulfill its obligations. Now it’s time for the EU to deliver on its promises.

The author is a researcher with the Chinese Academy of International Trade and Economic Cooperation

Copyedited by Bryan Michael Galvan

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