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12th Jul 2020

EU seeks protection from Chinese ‘market economy’

  • Chinese steel overcapacity and exports are hurting European buinesses. (Photo: Renate Meijer)

EU trade commissioner Cecilia Malmstrom signalled openness to recognising China as a market economy, but said the EU was looking into the implications and which rules could be used to protect European businesses from excessive dumping of cheap goods by China.

“It is not about determining if China is a market economy or not. It is about the situation where we have to decide how to calculate anti-dumping duties,” Malmstrom said.

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“We must look at the legal implications, and other possible ways, not to say only yes and no,” the commissioner said at an event on Thursday (28 January) in Brussels, admitting that there was irritation with China’s practice, with 32 cases launched against China on steel already.

The EU Commission held its first orientation debate earlier this month on whether the EU should recognise China as a market economy by December, and will come back to the issue during the summer.

Beijing argues that its designation as market economy should be granted automatically in accordance with the pact it entered into when joining the World Trade Organization in 2001.

China says that under the 2001 deal, WTO members pledged to recognise the country as a market economy in dumping cases beginning in December 2016.

It would make it harder for Europe to impose anti-dumping duties on Chinese goods sold at low prices, as it would change the criteria for determining a “fair price”.

Malmstrom highlighted the Chinese overcapacity in steel production as an example, which is being exported at a low cost to Europe, as demand at home is low.

“Adjusting supply would be the real reform for China,” she said.

“Urgent reforms are needed for deepening the relationship, and the EU will support China in this,” the Swedish commissioner pledged.

China makes half of the world’s 1,6 billion tonnes of steel and has an overcapacity of 400 million tonnes, twice the EU’s output. Exports to the EU have doubled over the last 18 months.

No profit?

The debate over China’s market economy status is a highly political one, as it affects jobs, while Europe continues to recover from years of slow growth and high unemployment.

Jo Leinen, a German MEP who chairs the European Parliament's delegation for relations with China, warned that the EP would today refuse to agree if there was no equivalent trade protection measure.

The EU Parliament and member states need to approve any changes to the bloc’s treatment of China in dumping cases.

He pointed to the German steel sector, which already has predicted no profit for 2016, as China dumps cheap steel in Europe, and anti-dumping measures can take over a year to kick in.

“China is an elephant in the room, and what China does is effecting all of us,” Leinen said.

“We are concerned to give automatically this year China market economy status,” Leinen said, adding however that he was in favour of letting China participate in international organisations.

Leinen suggested looking into the EU's response when Russia joined the WTO, or the measures Australia used with China, namely finding sectors where the country did not run a market economy.

Malmstrom faces questioning from MEPs on the matter on Monday.

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