EU Continues to Ponder Market Economy Status for Mainland China; Future of an Investment Agreement Also Within View
13 November 2015
Hong Kong traders with business interests in the EU may like to be kept abreast of the EU’s continuing considerations over whether to award mainland China market economy status by the end of next year. On 30 October 2015, it was reported that EU trade officials were still mulling over whether WTO members would be legally required to treat mainland China as a market economy in anti-dumping investigations. A decision should be expected by December this year or by January 2016.
Members of the European Commission and the European Parliament’s legal service have been recently examining certain provisions of mainland China’s WTO Accession Protocol in order to decide whether and under what conditions WTO members would be required to consider the country as a market economy.
Importantly, they have also been weighing the option of treating mainland China as a market economy on a “case-by-case” basis. This is in the context of the expiry of Article 15(a)(ii) of the country’s Accession Protocol, which has so far allowed WTO members to treat it as a non-market economy, and which is due to expire on 11 December 2016.
According to some experts, WTO members would be obliged to treat the country as a market economy after December 2016. However, others argue that this would only add to job losses, in the context of a current 11% EU unemployment rate, as reported by Eurostat. In fact, a report by the US-based think tank, Economic Policy Institute, has revealed that, should WTO members waive their right to calculate anti-dumping measures against Chinese companies according to analogue country market-based prices, EU industries could lose up to 3.5 million jobs.
As such, as one official attending an EU parliamentary trade committee meeting on 29 October 2015 declared, “everyone is perfectly aware of the fact that this isn’t a legal but a political issue”.
Members of the European Parliament have encouraged the Commission to advance its EU-China investment dialogue, in an attempt to create broader EU-China trade relations. European trade groups share the same view, with the Swedish Board of Trade having recently published a study in support of granting mainland China market economy status. In a similar vein, two EU Member States, the UK and Germany, have also recently attempted to increase their trade relations with mainland China, as illustrated by the recent visits of President Xi Jinping to the UK, and by German Chancellor Angela Merkel’s visit to Beijing. Similarly, French President François Hollande has just returned from a recent two-day state visit to mainland China.
While in Beijing, Ms. Merkel declared that, in principle, Germany would be in favour of granting mainland China market economy status. She nonetheless qualified this by adding that mainland China still had “to do some homework” in the meantime, for instance in the area of public procurement, and that its status would be subject to checks by the European Commission.
Mainland China also wishes to strengthen its trade links with the EU, as it demonstrated by joining the EU’s Investment Plan, also known as ‘The Juncker Plan’ (named after the European Commission’s President). Moreover, during an anti-dumping committee meeting on 28 October 2015, a Chinese delegate urged WTO members to change their laws after 11 December 2016, so as to “faithfully implement WTO rules and to avoid unnecessary disputes”, in light of the expiry of the provision, “unfair by nature”, which has so far allowed WTO members to treat mainland China as a non-market economy.
However, in practice, in order for the EU to grant market economy status, it would need a formal act that will have to go through the EU’s Parliament and Council. This might prove to be a difficult process. In order to mitigate these issues, the Commission is considering amending EU trade law, but only to the extent of granting mainland China market economy status on a case-by-case basis, as touched on above. In other words, the Commission would decide, in each anti-dumping case that comes up before it, whether Chinese companies are really operating in a market economy. It is still unclear exactly how this would work in practice, as the assumption for the time being is that, since mainland China as a whole has not been considered a market economy until now, it will most likely also fail, in each separate case, to meet EU requirements.
EU Trade Commissioner Cecilia Malmström confirmed that she still does not think mainland China will manage to meet the relevant criteria.
An additional problem is that both the EU and the U.S., which is also conducting a legal review of mainland China’s WTO accession agreement, have pointed out problematic issues in certain key industries, caused by the Chinese Government’s perceived interference. An illustration of this is the slow death of the British steel industry caused, it is alleged, mainly by Chinese steelmakers, felt to be fully subsidised by the Chinese Government, who can afford to sell below cost price in a way that makes it impossible for the UK industry to compete.
Chancellor Merkel called for better protection of the steel and solar industries during her visit, and stated that the steel sector in particular needed market protection, due to the differences between environmental regulations in different countries, which have a negative impact on cost advantages.
Finally, as traders with business interests in the EU may recall, EU and mainland China also launched negotiations on a comprehensive EU-China Investment Agreement in January 2014. The agreement is meant to provide for the progressive liberalisation for investments and the elimination of restrictions for investors in each other’s markets, with the aim of ensuring that foreign investors receive the same rights and benefits as domestic investors.
The EU-China investment agreement would replace the bilateral investment agreements that are currently in place between mainland China and individual EU countries. Mainland China and the EU have been actively engaged in discussions and have so far conducted six rounds of negotiations. The Chinese Ambassador to the EU, Yang Yanyi, declared in an interview on 26 June 2015, that both sides agreed to accelerate the negotiations, so as to achieve substantial progress by the end of 2015. She mentioned that “the two sides have enhanced mutual understanding and narrowed down differences”.
During her recent visit to Beijing, Chancellor Merkel also expressed the hope that mainland China and the EU would soon sign a bilateral investment agreement, stating that Germany would support a “very rapid” conclusion of an EU-China investment treaty, which would pave the way for free trade talks and a later China-EU free trade agreement (FTA). Brussels and Beijing will have, it is understood, another round of negotiations shortly, as a future EU-China investment agreement gains momentum.