14 Oct 2016
Intense Trade Talks and Fierce Lobbying Take Place in Run up to China MES December Deadline
On 23 September 2016, EU trade ministers met for what EU Trade Commissioner Cecilia Malmström described as “quite intense” talks on how to address alleged Chinese dumping when (or if) mainland China is granted market economy status (MES). The talks were held at an informal trade meeting in Bratislava, as part of Slovakia’s EU presidency. The pressure is now on the EU to grant mainland China MES by December 2016, or face the risk of finding itself in a trade dispute for failing to comply with WTO rules.
However, such a vote could come with an even greater price, according to some EU industry officials. Under existing EU trade defence rules, granting mainland China MES would mean that the trading bloc will no longer be permitted to apply the tougher trade defence measures currently applied against the Chinese mainland by reason of its classification as a “non-market economy”. The loss of those protections, would pose substantial risks to many of the EU’s key industries, such as steel, aluminium, bicycles, textiles, glass and ceramics, a chorus of European industry representatives have warned.
Despite calls to act forcibly on alleged Chinese dumping, the EU has so far struggled to address the matter. In July 2016, it proposed to change how it determines the rate of dumping duties for all non-EU countries, irrespective of whether a market or non-market economy is involved. Cecilia Malmström recently confirmed that the Commission is developing a new methodology which would “capture market distortions in foreign countries” and shift the focus away from the criterion of MES. The measure would therefore cover all WTO members, entire countries or sectors.
Trade Commissioner Malmström confirmed that the new rules would set criteria for what is defined as a market distortion and that existing anti-dumping measures would be grandfathered, i.e. they would be exempted from the new law, until they expire.
However, the Commission has remained tight-lipped on the finer details of the proposal. One key matter still to be confirmed is whether it will include exceptions to the lesser duty rule (LDR) (the rule currently routinely applied by the EU in anti-dumping proceedings against third countries). Under the “lesser duty” rule, the EU is limited to imposing tariffs calculated to offset any actual harm to European business. Exceptions could mean that the EU would instead use the amount by which dumped imports undercut production prices to calculate tariffs.
While introducing the waiver would undoubtedly go a long way in alleviating industry concerns, EU trade ministers, to date, have been unable to overcome a deadlock in the Council of Member State ministers over its introduction. This has been an ongoing obstacle since the suggestion was first tabled by the Commission in 2013.
However, with December drawing ever closer and no concrete proposal yet placed on the table, some trade officials are running out of patience. Dutch trade minister Lilianne Ploumen said she was “disappointed the Commission had not presented its proposal yet.” Meanwhile, many industry representatives remain anxious that the new trade defence rules will not meet their expectations.
AEGIS Europe, an alliance of European industries, has taken particular issue with the fact that mainland China allegedly still continues to operate along non-market economy lines and, therefore, any new methodology contained in the proposal would need to include a clear link with the EU’s five market economy criteria. Milan Nitzchke, spokesperson for AEGIS Europe said that these criteria are “an essential tool to defend off predatory Chinese manufacturing practices that are borne of massive overcapacity and state-subsidised dumping in the market”. He added that it is for mainland China, and not complainants, to prove that it fulfils market economy criteria and eliminates market distortions. AEGIS is adamant that such a strict approach would be necessary to protect European investments and manufacturing jobs.
Nitzchke expressed specific concern that the Commission’s stated intention to shift the focus from MES to evaluating market distortions during an investigation could result in an increased burden for complainants. In his view, this would put European industries, and particularly SMEs, at a real risk of not being able to bring forward complaints against dumped imports from mainland China.
Axel Eggert, Director-General of EUROFER, the European Steel Association, echoed similar comments before the meeting of trade ministers in Bratislava. He also pressed the point that mainland China must fulfil the five EU criteria for market economy status, noting that it only fulfils one of them at present. Going further, he stressed that mainland China did not even “have an economy in which the market determines prices – one of the most basic elements in determining eligibility for MES status”. Eggert did, however, attempt to identify a silver lining; he pointed to the fact that EU trade policy’s current challenges had created a real opportunity to make progress on lifting the LDR.
Forceful comments from EU industry representatives on mainland China’s MES are nothing new for the EU. In July 2016, another industry heavyweight, Eurometaux, an association of non-ferrous metal producers and recyclers, sent a letter to the Commission urging it not to “prematurely grant MES to China”. Keen to point out that a mainland China with MES does not just pose a threat to the EU’s steel industry – a matter which has often taken the spotlight in preceding discussions – Guy Thiran, the association’s Director-General, said that state-supported Chinese overcapacities were just as dangerous in other metal sectors.