Sunday

26th May 2019

Opinion

EU should not rush into granting China market economy status

  • Beijing argues that the expiry of a key provision of Article 15 at the end of 2016 obliges other WTO members to automatically accept China as a market economy. (Photo: Jens Schott Knudsen)

When China became a member of the World Trade Organization in late 2001, the expectation was that by 2016 its economy would be based on market principles. This turned out to be an illusion; hardly anyone doubts that China is still operating as a fundamentally state-driven economy.

But the wording of China’s WTO accession protocol is now putting the debate over China’s market economy status (MES) at the top of the EU’s agenda.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

  • The new status would make it more difficult for China’s trading partner to impose anti-dumping duties on cheap Chinese imports. (Photo: Andre Skibinski)

Beijing argues that the expiry of a key provision of Article 15 at the end of 2016 obliges other WTO members to automatically accept China as a market economy. This status would make it more difficult for China’s trading partners to impose anti-dumping duties on cheap Chinese imports.

European decision-makers are under increasing pressure to develop a stance on the issue, which addresses both Chinese demands and unfair competition between China and the EU. The European Commission had a first ‘orientation debate’ on China’s MES in mid-January.

The European Parliament also started to discuss the issue in various hearings, debates and a Q&A session with European trade commissioner Cecilia Malmstroem. Meanwhile, differences between EU member states became apparent during a foreign affairs council meeting in Amsterdam last week.

Brussels should therefore not rush into proactively granting MES to China but rather seek a better deal for the Union and its member states at the negotiating table.

Economic and political risks

Seen by many as the European Commission’s preferred course of action, granting MES to China would pose significant economic and political risks. These risks are difficult – if not impossible – to quantify and are also unlikely to be fully clarified by the forthcoming European Commission impact assessment.

Preliminary findings suggest that Chinese imports in sectors with existing anti-dumping measures will increase between 17 and 27 percent. Job cuts across Europe will be significant, if not as bad as claimed by some industry lobbyists.

Currently, the European Commission expects the loss of 79 percent of the 234,300 jobs in manufacturing industries covered by anti-dumping measures in Italy, Germany, Spain, France, Portugal and Poland.

Proactively granting MES to China would also come at the expense of Brussels’ political credibility both at home and abroad. Affected European industries have politicised the issue among their constituencies, raising the expectation that the EU will undertake serious efforts to protect national industries.

Domestically, the EU would almost certainly lose political capital with Europe’s business community and citizens if it failed to strike a settlement with Beijing that yields more favourable economic results for European industries.

Engagement with China on the issue of MES also constitutes an important litmus test for the EU as an international actor. Failure to define collective EU interests as a basis for MES negotiations with China and the proactive granting of MES on legalistic grounds would reaffirm the Union’s image as punching below its weight in international affairs.

At this stage, by proactively granting MES the EU would lose its leverage over China when it comes to promoting open markets and fair competition.

US, Canada and Australia

Current developments put additional pressure on the EU to seek pragmatic solutions with China. Due to the stagnation of economic reforms, Beijing’s negotiating position is weakening. At the same time, the economic slowdown in China is heightening the prospects of a trade war with the EU.

Increasing exports of excess production combined with a further devaluation of the Chinese currency will add to tensions.

When they develop their negotiating position vis-à-vis Beijing, EU policy-makers could draw inspiration from some of the EU’s most important strategic partners with similar economic systems, namely the US, Canada, and Australia.

The US administration’s current rhetoric suggests that it is intent on pursuing a confrontational approach by simply not granting MES to China. While likely to soften over time, the US views MES as one of the few remaining issues through which China might be pushed towards accepting and implementing Western standards on key economic issues.

Canada continues to use the WTO accession protocol as a legal basis for effective anti-dumping measures. In contrast to the US approach, Canadian authorities have backed up their non-granting of MES by removing the automatic expiry dates for so-called ‘prescribed countries’, including China, from Canada’s ‘Special Import Measures Act’.

Unlike the US or Canada, Australia has already granted MES to China. However, Canberra attempts to legitimise and to continue using effective anti-dumping measures by taking recourse to existing WTO law beyond the accession protocol.

EU strategy

Given the EU’s legalistic nature and the diverging interests of its member states when it comes to China, none of these approaches constitutes a perfect match for the EU. But a possible EU strategy could include a mix of the following elements:

• Brussels could seek to strike transitional and sectoral bargains with China. The EU could grant MES in steps, taking into account determinations of whether or not specific industries in China operate according to market principles.

• The EU could aim for package deals, encouraging Beijing to make concessions in exchange for MES. Such concessions could include output and export self-restrictions or establishing more of a level playing field for European and other foreign companies in China.

• At the very least, the EU should push China toward better compliance with its WTO commitments and to push China towards joining the WTO agreements on government procurement and OECD rules for export credits.

No matter what the EU’s eventual strategy will look like, its success will depend on close coordination among the EU institutions, European leaders and key allies. Perhaps even more importantly, the EU should seek pragmatic solutions by working with reformers in China.

At the same time, the EU needs to brace itself for retaliation and WTO litigation from China.

Now is the time for the EU to defend the core economic interests of its member states and to set its long-term relations with China on the right track. If it fails to do that, it risks losing its credibility as an international actor, active rule-maker and standard setter in the global economy.

Jan Gaspers is Head of Research of the European China Policy Unit at the Mercator Institute for China Studies in Berlin. Mikko Huotari is Head of the Foreign Relations Programme at the Mercator Institute for China Studies.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

Focus

Divided EU debates China market economy status

The EU Commission will, on Wednesday, debate the sensitive issue of China “market economy status,” with nerves jangling in European industry over cheap Chinese goods.

News in Brief

  1. Kurz on top in Austria, despite Strache scandal
  2. Greens come in second in Germany, exit polls say
  3. Voter turnout rises in Europe at EU elections
  4. Former EU climate chief cheered by 40,000 activists in Denmark
  5. UK's May announces June 7 resignation date
  6. Ireland votes for EU election and divorce referendum
  7. Report: May to announce resignation plan on Friday
  8. Leading politicians: time for EU to have female leaders

Press freedom and the EU elections

We are campaigning for the next European Commission to appoint a commissioner with a clear mandate to take on the challenge of the protection of freedom, independence and diversity of journalism.

Stakeholders' Highlights

  1. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  2. Nordic Council of MinistersEducation gets refugees into work
  3. Counter BalanceSign the petition to help reform the EU’s Bank
  4. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  5. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  6. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  7. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  8. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  9. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  10. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  11. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  12. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year

Latest News

  1. Thunberg: We can still fix climate, but must start today
  2. Turnout up in Slovakia, with pro-EU liberals scoring high
  3. Belgium votes in hybrid EU-national election
  4. Irish greens take Dublin in second EU exit poll
  5. EU election results to trigger top jobs scramble This WEEK
  6. Don't tell the Dutch - but Timmermans 'won'
  7. EU says goodbye to May with 'respect'
  8. Strache scandal: how big a hit will Austrian far-right take?

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic commitment to driving global gender equality
  2. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  3. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  4. Nordic Council of MinistersNordic talks on parental leave at the UN
  5. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  6. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  7. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  8. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership
  9. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  10. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law
  11. UNESDASoft Drinks Europe welcomes Tim Brett as its new president
  12. Nordic Council of MinistersNordic ministers take the lead in combatting climate change

Stakeholders' Highlights

  1. Counter BalanceEuropean Parliament takes incoherent steps on climate in future EU investments
  2. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov
  3. Nordic Council of MinistersSeminar on disability and user involvement
  4. Nordic Council of MinistersInternational appetite for Nordic food policies
  5. Nordic Council of MinistersNew Nordic Innovation House in Hong Kong
  6. Nordic Council of MinistersNordic Region has chance to become world leader when it comes to start-ups
  7. Nordic Council of MinistersTheresa May: “We will not be turning our backs on the Nordic region”
  8. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit
  9. International Partnership for Human RightsRaising key human rights concerns during visit of Turkmenistan's foreign minister
  10. Nordic Council of MinistersState of the Nordic Region presented in Brussels
  11. Nordic Council of MinistersThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  12. Nordic Council of MinistersThe Nordic gender effect goes international

Join EUobserver

Support quality EU news

Join us