The question of whether or not to grant China market economy status (MES) has recently prompted much debate in EU spheres. Last month, thousands of steel workers marched along the streets of Brussels, calling on the European Commission to deny Beijing MES.
The controversy stems from the fact that granting China MES would prevent Europe from imposing effective anti-dumping duties on Chinese goods, potentially putting EU jobs and industry at risk.
However, when China joined the World Trade Organisation (WTO) back in 2001, it was tacitly agreed the country would be accede to MES by 11 December 2016. By not complying with the terms of the deal, Europe risk WTO sanctions.
The European Commission has promised to carry out an impact assessment on the topic, and MEPs are engaged in heated discussions to try and find solutions. One thing policymakers all agree on, however, is that China is by no means a market economy.
Tokia Saïfi, a Vice-Chair of Parliament’s international trade committee, says, “The situation is clear: China is not a market economy. China does not fulfil the criteria established by the European Union and for that reason I firmly oppose the automatic granting of MES to China.”
The French MEP warns that; “Such a decision would have dramatic consequences on businesses and jobs. As we attempt to revive our economy and growth, we must take a stand against any attempted unfair competition.”
She therefore urgently calls on policymakers to modernise EU trade defence instruments, “without weakening them – they must become more efficient and more accessible to SMEs.”
Saïfi adds that Europe must work with the US and Japan on the issue, and “not give in to blackmail. Rather, it should stand strong and anticipate the potential retaliatory measures the EU could face.”
Emma McClarkin, who sits on Parliament’s international trade committee, notes that, “It must be clarified that we are not debating the EU’s five criteria as to whether China is a market economy. This assessment was last completed in 2008, and indicated that China had only met one of the criteria. The reality is that China is indeed not a market economy.”
“What is key however, is that the EU must be conscious of its commitments under WTO law in terms of any obligations to change its antidumping regulation. The EU’s legal teams are poring over this issue and the advice should be carefully considered if we want China to play by the same global rules that we in the west have always held dear.”
Fellow committee member Marietje Schaake highlights that, “Doing nothing is the wrong approach. It would be costly and deprive Parliament and Council of their legislative power. It could also incite Chinese countermeasures, leading to a case before the WTO. This would mean the EU would be outsourcing its decision-making to the WTO – a very weak approach.”
Helmut Scholz, who also sits on the international trade committee, underlines that, “a good contractual framework is needed to provide for the necessary trust. We need to mutually agree on the rules of fair competition, including definitions for a fair price calculation method, and of what constitutes economic dumping, but also social and environmental dumping.”
“There are two practicable ways to achieve this quickly: add competition rules to the ongoing negotiations for an agreement on investment and market access, or negotiate a stand-alone bilateral competition/anti-dumping agreement. Both approaches would allow establishing a level of fairness and protection beyond the existing WTO provisions on anti-dumping, on subsidies, and on safeguards.”
The German MEP also points out that China and the EU have so far had very good economic relations, with, “numerous examples of excellent industrial partnerships in production and distribution.”
“China has become the most important growth perspective for European car producers; Chinese investments in the EU now exceed those of European companies in China. The upcoming people’s congress will decide an environmental programme that will mean a boost to green tech companies in Europe.”
But Jo Leinen, who chairs Parliament’s delegation for relations with China, cautions that, “This is not only about the situation within Europe. There are serious concerns about China’s economy.”
“Overcapacities, declining demand and wide ranging market distortions have put China in a difficult position. Beijing is asking Europe to stick to its commitments, but we should not forget that it also committed to taking steps towards a market economy when it joined the WTO.”
“The final decision has to be a win-win: it should not jeopardise industrial development and employment within the EU, nor should it have negative effects on our trade relations with China. Both partners need each other” he stresses.
Reinhard Bütikofer, a Vice-Chair of the delegation, adds that, “Overproduction in China is on the rise and will find its way into export markets. The EU should not cave in to Chinese requests without condition. It should table an offer; market economy status is possible as long as effective trade defences are upheld. If not, there will be no parliamentary approval.”
While fellow Vice-Chair Frank Engel acknowledges that, “the factual case for China being recognised as a market economy is weak”, he warns that given the Chinese economy’s mounting struggles, the EU should tread carefully.
“China is reducing production capacities and adjusting to its new economic reality. That process will be painful enough. No one stands to gain from unsettling China in its move towards less growth while demands in Chinese society increase on all levels.”
Therefore, he believes that, “We should engage in meaningful negotiations with China about our respective global responsibilities. Nominally recognising China as a market economy may be part of that engagement.”