The EU Is on Fence About Granting China Market Economy Status

Feng Difan / Yicai

2017-03-28

(Yicai Global) March 28 -- The European Union is still indecisive about granting China the market economy status, Yicai Global learned. The signs are such that, on the one hand, the trade protectionist policies of the Trump Administration caused the Germany-led EU to strengthen cooperation with China, while the EU, on the other hand, still cannot make a quick decision on the issue, mainly due to conflicting interests of various lobby groups that represent backward production capacity within the EU.

After the EU opposed China’s request for the World Trade Organization (WTO) to establish an expert group to rule over the anti-dumping surrogate country approach by the EU and the US against China, China’s ministry of commerce has recently said that it will request the WTO’s Dispute Settlement Body (DSB) to meet to consider China’s demand again, when the expert group will have to be set up automatically.

In accordance with Article 15 (a) of the Protocol on the Accession of the People's Republic of China, the WTO members shall stop using anti-dumping surrogate country approach against China, and shall determine the margin of dumping based on the prices and costs reported by Chinese enterprises from Dec. 11, 2016, which spelled the end of the 15-year period after which China’s accession protocol said it would be granted the market economy status.

In July last year, the European countries and the United States refused to automatically grant China the market economy status in December. Then China said the expiration of the ‘Article 15 (a)(ii)’ of the protocol does not require WTO members to automatically grant China the market economy status, but it requires WTO members to eliminate the legal basis for discriminatory practices used against China in anti-dumping investigations.

On Dec. 12, 2016, China requested WTO’s Dispute Settlement Body to have a consultation over the anti-dumping surrogate country approach used by the EU against China.

In January 2017, China and the EU held a consultation in Geneva. Commerce ministry spokesman Sun Jiwen said in a regular press briefing on March 23 that it was regrettable that the consultation did not solve Chinese government’s concern.

The EU is still indecisive on the whole process. It is preparing for the possibility of a trade war with the United States and considering to boost the trade with China in order to circumvent the Trump Administration’s protectionist position.

However, the EU must also take into account the demands of interest groups within its borders, including manufacturing enterprises. If China is granted market economy status, the EU’s anti-dumping duties against China is likely to be reduced between 17 percent and 28 percent, which would directly affect relevant production and employment in the EU, shows the data from the Institute for Economic Research (IFO) at Munich University, Germany.

But several reports clearly indicate that the so-called anti-dumping disputes between China and the EU only involve several particular fields and nations, rather than the whole EU. The anti-dumping cases mainly involve chemicals and metal products, and countries that have such anti-dumping disputes with China are primarily France, Germany, Italy and Spain.

Aegis Europe, a lobby organization and industry alliance comprising steelmakers, among others, opposes granting the market economy status to China and has bitterly rebuked the EU for being weak. It complained that the EU just “sought change in anti-dumping legislation as soon as possible” rather than countering with legal means in face of China’s questioning. It also accused Germany of pressing the European Commission to accelerate the legislation procedure.

Aegis Europe said it hopes the European Commission realizes that market economy status should not be granted to China before it becomes a market economy.

However, it is a known fact that such lobby organizations frequently overlook benefits of the free trade and relevant international law in an effort to protect their own interests. The EU is unable to stand tall before such lobby interests as its laws are weak.

Several EU lawyers and scholars interviewed by Yicai Global pointed out that part of the Article 15 of the accession protocol that says, “by the date of accession, the importing WTO member must have relevant standard of market economy in its national law” is of great importance, but stressed that the EU did not define the standard of market economy in its community law. But in the US, “non-market economy country” phrase first appeared in the anti-dumping stipulations in the US Tariff Act of 1930, which also formulated six criteria for judging whether a country is a “country with market economy.”

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