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6th Dec 2019

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EU defends new trade rules after Chinese criticism

  • The EU says China is using cheap capital, state-owned companies, chepa land to distort the market (Photo: A bloke called Jerm)

The EU on Thursday (21 December) defended a report on China's market distortion practices saying new European rules against cheap imports did not target any one country.

The EU had, on Wednesday, introduced trade defence rules designed to combat dumping. It also published its first report on state induced market distortions in China, partly to help EU producers who want to lodge complaints.

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China's foreign ministry said on Thursday the EU's conclusions on China's economic development were "thoughtless remarks". It also accused the EU of being hypocritical and said it had "fabricated excuses".

"We urge the EU to strictly respect WTO rules," said foreign ministry spokeswoman Hua Chunying said, referring to the World Trade Organisation.

"Every country enjoys the right to choose its own development path, which should be respected by the international community," said Chinese ministry of commerce spokesperson Gao Feng.

The EU insists the new measures, including the report, are not aimed at China.

"It is a proposal, which is not against any country, it is neutral, the idea is for trade defence instruments be fit for purpose, and fit to meet the challenges that exist globally," a spokesman for the commission told reporters on Thursday.

He added the next commission trade report will focus on Russia.

The commission had earlier argued that China came under scrutiny first because "investigations and measures against China account for the largest proportion of the EU's anti-dumping investigations and trade defence measures".

Alternative ways

In its 466-page report, the commission said that there were "significant distortions" in the Chinese economy.

It said that China influenced heavily the allocation of resources, such as land, capital, and influenced prices "in a very significant manner".

The report is important because the EU has changed the way it handles anti-dumping cases. In cases of "significant market distortions", it can impose anti-dumping tariffs.

The new rules - which have been in the making for over a year - were approved last month.

They were needed to solve the EU problem of China's so-called market economy status.

China said it should have been recognised as a market economy by the end of 2016 in accordance with the pact it entered into when joining the WTO in 2001.

That new status would have changed the criteria for determining what was a "fair price" for exports and would have made it harder for the EU to impose anti-dumping duties on Chinese goods sold at low prices.

But the new EU rules allow to impose anti-dumping duties no matter of the "market economy" label.

Anti-dumping tariffs can be imposed if significant distortions exist, among other thins: state policies, cheap financing, the widespread presence of state-owned businesses, and discrimination against foreign companies.

The commission has to establish the existence of distortion due to state interference through investigations and possible reports - such as the one on China - to apply anti-dumping tariffs.

The standard way of calculating dumping would be to compare export prices with domestic prices or costs in the exporting country.

Dumping would mean selling for export at below domestic prices for all WTO members

If, due to state intervention, domestic prices or costs are distorted, the commission will disregard these when calculating domestic value.

Instead, as an alternative methodology, it will use international benchmarks reflecting an undistorted, fair price for a product.

The report published on Wednesday said the Chinese Communist Party sets and controls all aspects of the economy.

China and the EU have been at odds on trade. With the backdrop of US president Donald Trump's "America first" policy, both trading giants have said they were committed to a multilateral world order, free trade and vowed to fight against protectionism.

However, the EU has said unfair practices towards European companies in China, and steel overcapacity have hurt European interests.

After the US, China is the EU's second biggest trading partner, and the EU is China's largest.

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