EU's trade protection and China's market economy

By Zhang Jingwei
0 Comment(s)Print E-mail, May 20, 2016
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Recently, the Obama administration filed a lawsuit at the World Trade Organization (WTO) over China's broiler chicken products. Moreover, members of the European Parliament opposed recognition of China's market economy status last Thursday.

China's trade disputes with the U.S. and the EU have been ongoing since the country joined the WTO in 2001. However, people should not read too much into these disputes within the WTO framework. Trade disputes, being fundamentally different from geopolitics, are economic and market actions.

It must be noted that the EU's refusal of China's market economy status was a non-legislative resolution. Therefore, there might be some wiggle room for members of the European Parliament to pass a resolution to upgrade China's status.

According to Article 15 stipulated in WTO's Protocol on the Accession of China, the importing WTO member in anti-dumping and anti-subsidy investigations may use a "methodology" that is not based on a strict comparison with domestic prices or costs in China but choose a third country with market economy status as a comparison. The provision will expire on Dec. 11, 2016, 15 years after the date of China's accession.

China has suffered due to this provision. During anti-dumping investigations, the EU either chose emerging economies or small manufacturing countries, none of which can compete with China as a manufacturing giant. Quality of products from those "alternative" countries was poorer than China's and cost much more. Therefore, China will certainly be suspected of dumping.

Although unreasonable, the clause has been effective for 15 years under the framework of the WTO, so that China has had to face a large number of lawsuits and trade fights from the U.S. and the EU, as well as with emerging India and Mexico.

According to statistics, Chinese products have been involved in 56 cases of EU's total 73 anti-dumping investigations, including steel, iron, machines, chemical engineering and ceramics.

However, the EU has been divided on the anti-dumping and anti-subsidy investigations against China. For instance, Germany's former Vice Chancellor Philipp Rösler warned in 2013 that imposing anti-dumping duties on Chinese solar panels would be a grave mistake.

The EU was rocked by a sovereign debt crisis due to unbalanced economic development, the lack of financial restriction policies and member states' requests for the same market and welfare conditions. It is more difficult for EU members to reach a consensus on trade barriers.

The EU's trade barriers and trade protectionism are not necessarily a consensus of all the member states. For example, many trade fights against China were not launched by China's major trade partners but by some small EU countries merely for their own interests.

Despite EU's divergence on the issue of whether to recognize China's economy market status, the group must face the fact that its members have basic common interests with China.

First, the EU is reluctant to recognize China's market economy status and expects to maintain its privilege, as it has benefited from using "alternative countries" to conduct trade with China, EU's second largest trading partner.

Second, the EU is not yet out of its debt crisis, and the effect of its negative interest rate policy remains uncertain. Consequently, the idea of trade protectionism is spreading through the EU, pushing the group to protect the interests of its member states through trade barriers. This egoistic tendency also results in EU's disinclination to recognize China's market economy status.

Third, China's daily trade volume exceeds 1 billion euros, and products exported to China are EU business tycoons' biggest source of profits. Comparing with the trade wars against China, it is more advantageous for EU to recognize China's market economy status.

It must be noted that China-EU trade disputes can be solved through negotiations. For instance, EU could either fulfill its commitment to China under the WTO's rules or reach a mutually beneficial agreement before Dec. 11, 2016. China should focus on issues that the EU really cares about, such as the relation between governments and enterprises, reform of the state-owned companies, accounting standards for business enterprises, regulation on bankruptcy, property preservation and market exchange rate.

The EU and China should jointly find a win-win solution to deal with their trade frictions rather than implementing trade protection measures.

Zhang Jingwei is a researcher with the Charhar Institute.

The article was first published in Chinese and translated by Gong Yingchun.

Opinion articles reflect the views of their authors only, not necessarily those of

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