EU shakes up trade arsenal to unpick China puzzle

European Commissioner for Trade Cecilia Malmström proposed an unexpectedly drastic compromise Wednesday.

Brussels has signaled that it will radically overhaul its anti-dumping practices worldwide to lessen the impact of China styling itself as a market economy later this year.

Securing market economy status is one of China’s most coveted international goals, but the EU has been bitterly divided on the subject. Europe’s most vulnerable manufacturing industries — such as steel, textiles and ceramics — have feared that MES would cost hundreds of thousands of jobs because it would weaken Europe’s ability to impose anti-dumping duties.

China argues that it automatically wins market economy status on December 11 when its accession accord to the World Trade Organization expires.

EU Trade Commissioner Cecilia Malmström acknowledged that the EU would “respect its obligations under the WTO” but would seek to hit back by rolling out an entirely new anti-dumping methodology to hold trade defenses at their current level.

“The college [of commissioners] has agreed to propose changes to the EU anti-dumping and anti-subsidy legislation with the introduction of a new anti-dumping methodology, to capture market distortions linked to state intervention,” Malmström said. “So this is a new method, it will be country-neutral and will be applied equally to all WTO countries. We are eliminating the existing list of non-market economy countries.”

A formal proposal is expected after the summer break and would need approval from the member countries and the European Parliament.

“This new methodology would lead to approximately the same level of anti-dumping duties as we have today,” the commissioner continued. “[This] is a way to both safeguard our economic interest and protect European jobs.”

European industry reacted cautiously to the commission’s idea and sought further details on how the new anti-dumping rules would be applied and whether they would be survive a challenge from China in the WTO. “The Commission was not clear on how this methodology will be applied, nor how effective it will be,” said Gerd Götz, director general of European Aluminium.

The dispute over China has splintered Europe. Free traders such as Britain and Sweden are supportive of Beijing, seeing the designation as an important diplomatic gesture to build strong investment ties between Europe and China. Countries such as Italy argue that Europe will be lowering its guard against a tide of unfairly cheap Chinese imports, costing the Continent hundreds of thousands of jobs.

The commission insists that its proposal does not mean that it is acknowledging that China has become a genuine market economy. In practice, however, its move to change its anti-dumping rules indicates that it will no longer be able to treat Beijing as a non-market economy in trade disputes.

People briefed on the talks said that one of the favored ways to overhaul the EU’s anti-dumping rules would be to switch to a “factors of production” model. Chinese prices would be judged not by direct comparison with another country but by studying the international cost for all of the inputs feeding into a Chinese product’s price.

This would be a significant change from the EU’s current way of determining whether a product is unfairly cheap. At the moment, Brussels can prove Chinese prices are too low by referencing the price of a comparable good in third “analogue” countries. That won’t be allowed when Beijing becomes a market economy.

Malmström also said that she would push to bolster other parts of Europe’s trade defenses. The Commission proposed reforming the EU’s trade defense instruments in 2013, but the Council has not moved forward since then. Britain, Sweden and the Netherlands have made no secret of their opposition to the reform.

 

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