Brussels division on China's market status may backfire

European Union could rue delaying decision over WTO commitment, analysts say

The European Commission has yet to finalize its stance on granting China market economy status, in line the commitment made when the nation joined the World Trade Organization 15 years ago. It has promised only to table a proposal this year.

Analysts say Brussels' hesitation suggests the commission may refuse to recognize China as a market economy, which could see Beijing lodge a dispute with the WTO, a scenario neither side wants to see.

Workers tear down the blast furnace at a steel factory in Langfang, Hebei province, on July 9. Issues such as steel overcapacity are obstacles to EU-China relations and need to be addressed. Jin Zhichao / Xinhua

Brussels is required to stop using the Surrogate Country method for Chinese products on Dec 11, 2016, as per article 15 of the protocol on China's accession. The method is used to gauge whether products from a nonmarket economy are being dumped by comparing prices with those of a similar third country, or surrogate.

Beijing has repeatedly said the EU should automatically recognize China as a market economy status after 15 years of WTO membership, as agreed. The issue is nonnegotiable, it says.

However, the EU has used complicated institutional tools and mechanisms to delay the issue, which has been coupled with pressure from lobbying groups.

Within the European Union, Britain, the Netherlands and some Nordic countries have come out in support of China gaining market economy status. Germany is supportive but wants safeguards for sensitive industries, while Italy is opposed.

On July 20, EU commissioners gathered for a second orientation debate on the political, economic and legal implications of changing its anti-dumping and anti-subsidies policies against China after Dec 11, and the potential consequences.

They discussed several options, including leaving the legislation unchanged, removing China from its list of nonmarket economies and applying the standard methodology for dumping calculations, or adopting a new anti-dumping methodology that would maintain a strong trade defense system while meeting international obligations.

Jyrki Katainen, vice-president of the commission, says the talks were not about whether China is a market economy, but "about how to adapt our trade defense instruments to deal with the realities of overcapacity and a changing international legal framework".

Christian Ewert, director-general of Free Trade Association, based in Brussels, says it was heartening to hear the commission talk about ending its discriminatory practices when conducting anti-dumping probes against China, but adds: "Although the new proposal is not discriminatory in letter, it will be discriminatory if in practice it only applies to China."

The association understands the view of EU producers, who believe China is not a market economy and as such should not obtain such status by default, and that applying the usual method of calculating dumping margins will likely result in lower anti-dumping duties, or even none at all, he says. "However, we also believe there are ways in which the impact can be mitigated."

The debate over China's market economy status came after EU foreign ministers endorsed Brussels' updated policy strategy toward Beijing on July 18. The nine-page document suggests both sides complete negotiations on investment before entering talks on a free trade agreement.

Yet the Chinese government has said it is ready for FTA talks now, while some analysts suggest combining the talks on investment and free trade.

"Right now, it's for China to request (such talks), but if the EU doesn't respond urgently, China may ignore the bloc when it realizes the importance in the years to come," says Chi Fulin, president of the China Institute of Reform and Development, a nongovernmental Chinese think tank.

He says Brussels and Beijing should aim to finish talks on an FTA by 2020. China and Britain should also prepare for such combined talks, he adds, as London prepares to negotiate its exit from the EU.

At the end of the two-day G20 meeting for finance ministers in the western Chinese city of Chengdu on July 24, Philip Hammond, the British chancellor, said he had "no doubt" his country would be able to agree a post-Brexit free trade deal with China.

Being in the EU means Britain is "bound by rules", but after it leaves the bloc - as decided by the June 23 referendum - it will mean "more opportunities for countries like China that are outside the EU to do business with Britain", the British media quoted him as saying.

The EU's updated strategy toward China also covers investment, project synergy, global cooperation and the shared role in international affairs. It states that the stance remains unchanged on the arms embargo on China.

After reading the document, Tony Payne, director of the University of Sheffield's Political Economy Research Institute, described it as timely but not visionary.

"It's coming 10 years after the last such strategy, and a lot has changed in the global political economy since then," he says.

The positives, he explains, are that the document covers economic and security problems, and is honest in conceding that issues such as steel overcapacity are obstacles to EU-China relations and need to be addressed.

"But it's not visionary," he adds. "It seeks to cover the obvious issues, running from trade to investment, to migration and security."

He says the European Commission hasn't set any overarching rationale for the EU and China coming together. "Why is this important? Why is it important now? What values underpin the engagement?" he says. "Substantial parts of the document could have been framed eloquently and with effort."

Payne says he wants to see the EU, China and the United States take shared responsibility for managing the global order and finding ways to seek collective responses to key issues regarding economic growth and political freedom.

It should first and foremost be focused on delivering results, he says, adding that China and the EU should collaborate on trade, science, energy and military affairs, setting out areas of practical cooperation and then building on them.

Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, agrees the document is not visionary.

The purpose of the EU strategy document, he says, is to build internal cohesion without committing to specific policies.

"Even by that standard, it's a bland strategy. It's more concerned with immediate issues like steel overcapacity rather than ideas about what the EU wants to do with China," he says. "It's a sign that the relations between China and the EU are drifting, and that neither side seems to have a good idea what role they should play."

The strategy should "set out a clear idea for what the EU wants to do with China over the next five years", Erixon adds. "The fact that it doesn't indicates how deep the rift inside the EU is about China policy."

fujing@chinadaily.com.cn