Brussels prepares market economy compromise for China

Brussels is drawing up a plan to treat China as a market economy in trade disputes, but only in tandem with US-style anti-dumping duties and big cuts to steel overproduction by Beijing.

The European Commission is seeking a middle way between China’s clamour to be treated the same as advanced economies and complaints from European member states and industrial groups that surging imports from China are to blame for the collapse in steel prices.

China says it is automatically entitled to obtain market economy status globally — one of its most coveted political goals — at the end of this year under World Trade Organisation rules. Supporters of the move, including the UK, say that awarding the status would boost investment between Europe and China.

But other EU governments and Washington fear such a move would open the floodgates for ultra-cheap Chinese imports. The commission needs to strike a compromise as Europe’s anti-dumping laws are tied to a WTO protocol on China which expires in December.

A plan to be discussed on Wednesday by the commission stresses the link between China’s status with parallel moves to fortify Europe’s trade defences and demands on China to reduce overcapacity.

The trade defence measures include powers for Brussels to impose very high import duties in cases of exceptional overproduction, and new grandfathering rights to pursue anti-dumping cases already in train under the old rules.

While European manufacturers are campaigning against granting China a “licence to dump”, the commission’s plan is cast to toughen penalties and avoid any weakening of current anti-dumping procedures.

Guidelines under which EU duties are calculated — known as the “lesser duty rule” — would be suspended in extreme cases. This would in effect remove a cap on levies.

“If the lesser duty rule was removed, in very simple terms it would enable the EU authorities to impose, in some cases, higher levels of duties,” said Peter Archbold, a senior director at Fitch credit rating agency.

“In Europe we’ve been seeing duty levels below 50 per cent, whereas in the US they’ve been well in excess of 200 per cent. And — certainly in part — that has contributed to the rise in the price of steel in the US.”

The plan would also accelerate EU anti-dumping procedures and there would be a strengthening of little-used anti-subsidy penalties.

But the initiative faces big hurdles, both in Europe and in China. Any change to the European regime would have to be endorsed both by member states and by the European Parliament, which has passed a non-binding resolution against market economy status for China.

Countries resisting change include Italy and Spain, and Germany is sceptical. Such resistance comes as western leaders feel the wrath of anti-globalisation sentiment and industrial groups say Chinese overproduction has put them under severe strain.

In recent months Beijing has intensified its campaign for automatic entitlement to market status in December, the 15th anniversary of its WTO accession.

Last week EU and Chinese leaders resolved to set up a working group to monitor pricing and public subsidies to steel mills in China. While the commission’s plan ties market economy status to progress on that front, China’s willingness to cut overcapacity remains in question.




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