EU row over China trade
The Chinese flag flies in front of the Pudong skyline | Mark Ralston/AFP via Getty Images
Winning market economy status and easier access to world markets is one of China’s biggest political goals.
But the decision on whether to award that status by the end of the year is one of the toughest facing the EU — and has sharply divided the member countries.
The stakes could hardly be higher because MES has potentially devastating repercussions for core European manufacturing industries such as steel, ceramics and textiles, which will find it harder to retaliate against dumped goods from China.
Free traders such as Britain and Sweden are supportive of Beijing, seeing the designation as an important diplomatic gesture to build strong investment ties between Europe and China. Countries such as Italy argue that Europe will be “unilaterally disarming” against a tide of unfairly cheap Chinese imports, costing the continent hundreds of thousands of jobs.
The European Commission, led by Director-General for Trade Jean-Luc Demarty, had originally planned to rush through a proposal on MES but was hit with a strong backlash as businesses and politicians sought a full impact assessment.
That assessment will be discussed at an orientation debate among EU commissioners Wednesday. They will then have the summer to digest the issue before making a formal proposal in September. Five big questions seem inescapable:
Is the commission obliged to propose MES for China?
According to the Commission’s legal service, yes. Trade officials in Brussels had wanted this to be seen as an innocuous legal question.
The argument focuses on China’s agreement of accession to the World Trade Organization in 2001. Beijing interprets this accord to mean that it will automatically become a market economy at the end of 2016.
Many lawyers disagree and say that the language of the accession accord is confusing. One of the most common alternative interpretations is that it will be up to individual WTO members to decide whether China is a market economy from this December.
Will the market economy decision sour EU relations with the U.S.?
That is a risk. Washington has been unequivocal: China cannot be considered as a market economy. The U.S. plan is to wait and see whether Beijing launches a dispute at the WTO if its market economy status designation is not recognized by the end of the year. American trade officials argue that Brussels’ attempts to curry favor with Beijing are undermining hopes of winning any ultimate case against China in the WTO.
What can be done to save jobs MES is predicted to cost?
This all boils down to how you use trade defense measures — anti-dumping tariffs — against Chinese goods that are sold unfairly cheaply in Europe.
MES will mean that Brussels will have to change the way it calculates retaliatory tariffs. It can prove Chinese prices are too low now by referencing prices in third “analogue” countries.
The Commission estimates that awarding MES and ditching this methodology could cost some 250,000 jobs, while Aegis, a lobby group of 30 European manufacturing associations, estimates 3 million.
Some businesses argue that one eventual compromise will involve awarding MES but with special protections for vulnerable sectors.
Still, on Wednesday, the Commission will also have an opportunity to debate whether it would be possible to propose an alternative that falls some way short of MES. People close to the talks say one possibility is that China could gain a looser definition as a market with “distortions.” This legal gray area would allow tougher anti-dumping measures.
There could also be an opportunity to introduce new anti-dumping methodologies against Beijing. One suggestion focuses on “factors of production.” Under that model, prices would be determined not by comparison with another country but by studying all of the inputs feeding into a Chinese product’s price.
Won’t the European Parliament block this anyway?
MEPs are very likely to scotch China’s MES hopes unless there are wide-ranging protections for European industry.
In a sign of their opposition to Beijing, lawmakers have already mobilized against automatically granting the status to China. In May, an overwhelming majority passed a resolution calling on the Commission to rethink its position. Some 546 voted in favor, with only 28 against and 77 abstentions.
One of parliament’s main sensitivities is that it will not accept any EU proposal to shift “burden of proof” — essentially finding evidence for dumping — onto European companies.
Alessia Mosca, the China rapporteur for the Social Democrats, told POLITICO that “the European Parliament has already been clear that China is not a market economy. The European Commission — taking into account the EU’s WTO obligations — should come up with a proposal that will maintain the global level playing field.”
What happens if China is thwarted?
Beijing has become a master of retaliation — sometimes in unexpected territory. In 2013, China responded to an EU investigation into alleged dumping of solar technology by threatening to limit French wine imports.
China has immediate leverage over the Commission because it is expected to play a role in Commission President Jean-Claude Juncker’s €300 billion plan to revive the European economy through infrastructure spending.