World Economy

EU Against Granting China Market Economy Status

EU Against Granting China Market Economy Status EU Against Granting China Market Economy Status

Members of the European Parliament from all political sides argued on Tuesday that China should not be granted market economy status, because it would make it more difficult for the EU to protect itself from Chinese dumping of goods.

Lawmakers said China did not qualify for the status because it is subsidizing businesses, is not transparent about state aid and offers low export prices that are not determined by the rules of supply and demand, EUObserver reported.

“The group of socialists and democrats is opposed to recognizing market economy status for China. As things stand today, despite progress, China is not a market economy,” said Gianni Pittella, the group's leader.

Marietje Schaake of the Alliance of Liberals and Democrats for Europe group told fellow lawmakers: “We share the concerns about state interference, the creation of overcapacity and lack of transparency, and reliable indicators.”

However, the EU will have to decide soon whether to grant the status to China, which has been accused of flooding the world economy with cheap steel, putting hundreds of thousands of jobs at risk in Europe.

China argues that according to the World Trade Organization accession protocol, which expires at the end of the year, it should automatically be granted the status after December 11.

The US and some EU countries, especially in the South, contest this argument. They say the loose language of the agreement allows countries to decide after December 2016 whether or not China is a market economy.

Any challenge by China at the WTO would take years, buying time for US and EU industries.

Ongoing Distortion

EU decision-makers are under increasing pressure to come up with a position that ensures that the bloc complies with WTO rules while leaving room to protect the European market, especially the steel industry, from cheap Chinese imports.

Health and food safety commissioner Vytenis Andriukaitis told MEPs it was "undeniable" that China was not a market economy.

He said the commission was working on a “new approach” that would include a strong trade defense system and at the same time ensure compliance with the WTO rules.

The new approach could be modeled on the US, which calculates dumping margins on a case-by-case basis.

Andriukaitis said this could mean that dumping margins would reflect the “ongoing distortion” in the Chinese economy more accurately. Any commission proposal would need to be approved by the parliament.

The EU executive had its first orientation debate on the issue in January. Since then it has held a public consultation, which received over 5,000 responses, and has been working on an impact assessment report. Andriukaitis said the commission would come back to the issue before the summer break.

Speaking for the Dutch presidency of the EU Council, Defense Minister Jeannine Hennis-Plasschaert said the issue would be discussed at the May 13 meeting of foreign ministers.

However, the EP is expected to pass a resolution on the issue on Thursday calling on the commission not to grant market economy status.

So far China has failed to meet four out of the five criteria set out by the commission in 2008 to grant it the market status. MEPs insist all those criteria have to be met before taking a decision.

Dumping Record

China is currently under scrutiny in 28 out of 38 anti-dumping investigations by the European Commission.

WTO rules allow for tariffs, but Article 15 of the accession protocol means that if Chinese producers can prove that market conditions are in place, then the importing country should use Chinese prices as comparison.

China does not enjoy market status in the EU, America or Japan, the world’s three biggest economies, nor in other giants such as Canada, India and Mexico.

MEPs also voiced concern over the woes of Europe’s steel industry.

Recently, China’s overcapacity in steel production has upset the world economy. In 2015 China produced 803 million tons of steel, over half of the total global production. It exported 112 million tons. The world’s second-biggest producer was the EU, with 166 million tons.

China has pledged to close down some steel factories, but it would still have an overcapacity of 200 million tons.