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26th Sep 2018

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Leaders shy away from China market status debate

  • Steel workers protested earlier this year in Brussels against the market economy status (Photo: Tata Steel Europe)

As the two-day EU-China summit gets under way in Beijing on Tuesday (12 July), the elephant in the room will undoubtedly be the issue of granting market economy status (MES) to China.

The controversial issue is not on the leaders' agenda, but is bound to come up during the negotiations.

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The EU is debating whether to grant China MES from December, which Beijing says should be automatic 15 years after joining the World Trade Organisation (WTO), according to the then agreed accession protocol.

European industry and some member states fear it will leave the EU defenceless against Chinese dumping of goods that have already cost jobs in Europe.

WTO rules normally allow punitive tariffs on other countries only if export prices are below those in the exporter's home market.

However, in the case of China, the EU has been able to ignore low domestic prices and set tariffs to make Chinese exports more expensive. That could come to an end in December.

The European Commission will discuss the whether to grant the status to China on 20 July, but a proposal on what to do next is not expected before the summer.

One compromise could be to grant market economy status to China, with conditions.

These could include, according to an EU official, getting member states to agree on reinforced trade defence instruments, strenghtened and more transparent anti-dumping, anti-subsidy safeguards proposed by the commission in 2013, international monitoring of overcapacity in China, and transitional measures to protect the most vulnerable sectors of the EU industry. The official did not go into detail on what those transitional measures. could be.

But European businesses warned that the "yes, but" option is not possible.

"There is no MES light, it is not possible by definition," Milan Nitzschke, spokesperson for AEGIS Europe, a group of 30 industrial associations, told journalists on Monday.

In a letter to commission president Jean-Claude Juncker the group argued that EU must continue to use non-market economy methods, meaning not considering the distorted Chinese prices and costs when calculating dumping.

The industries argue that China's state-planned economy uses overcapacity to overwhelm international markets and distort competition.

AEGIS chair Ines Van Lierde added that the EU cannot afford to use lower Chinese prices as a benchmark for duties.

"If we base our dumping calculation on Chinese prices, which would mean China has become a market economy, we kill the dumping margin, we kill the duty, and we kill modernisation package [of trade defence measures]," she argued, adding the group supports reinforcing the measures.

Whatever the commission proposes, the EU Council and the European Parliament will also have to go along.

That could prove to be difficult, given that in May MEPs voted for a non-binding resolution not to grant MES to China, and member states are divided on the issue.

Industry representatives warned that granting MES could cost jobs in Europe, as dumping from China already put businesses out of work, buying up their high-tech technology at low prices.

Guy Thiran, director general of Eurometaux, the European non-ferrous metals association, said the aluminium sector was an example of this process. China's share in global production has risen from 10 percent to over 50 percent in the last 10 years, while one-third of European aluminium smelters closed their doors.

"China's overcapacity alone is five times bigger than total EU primary aluminium production, and this overcapacity is highly subsidised," he said, adding that premature granting of market economy status to China would risk 80,000 jobs in Europe at risk in the sector, one third of the aluminium employment.

China has repeatedly said it is cutting back overcapacity, at the cost of Chinese jobs, but the EU has argued Beijing is not doing enough.

In a sign that the EU commission could toughen up on the issue amid the rise of euroscepticism, trade commissioner Cecilia Malmstroem raised questions about the fairness in EU-China relations on the eve of the summit.

In a speech on Monday she asked why European steelmakers “have to lay off workers when they are competing with Chinese firms who benefit from huge subsidies?”

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