Mainland Chinese Market Economy Status Decision Deferred to Early 2016, While EU Steelmakers Call for More Protection Against Imports
15 January 2016
It was reported by end-2015 that the EU’s Commissioner for Trade, Cecilia Malmström, has postponed a key decision on the treatment of mainland China as a market economy for trade defence proceedings, to early 2016.
While it is expected that market economy status will be granted, the intention would also be to present complementary tools, allowing the EU to impose higher trade defence (e.g. anti-dumping) duties on Chinese-origin goods, to protect the Union industry.
Hong Kong traders will not be surprised to hear that the granting of market economy status to mainland China remains a controversial topic in the EU. Because of the fact that mainland Chinese producers are not considered to be operating under market conditions, duties imposed on Chinese imports are generally higher than duties imposed on dumped imports from other countries.
It is feared that treating the Chinese mainland as a market economy will result in lower duties and may reduce the number of investigations initiated against mainland Chinese imports.
The legal services of the EU institutions and the more trade-liberal EU countries consider that the WTO rules are clear, and mainland China should be treated as any other WTO member as from December 2016. European trade associations, however, have voiced strong concerns over the matter, warning that market economy treatment of mainland Chinese exporting producers will significantly harm EU businesses, causing bankruptcies and job losses in the EU.
The full impact of treating mainland China as a free economy for the purpose of trade defence investigations is currently still being assessed by EU authorities. However, it is generally believed that market economy status will be granted to the Chinese mainland in 2016. At the same time, however, the Commission may introduce different ways to protect the European industry from low priced imports.
Tools to provide additional protection to EU industries may come in the form of modernised trade defence rules. Traders will recall that a project for the modernisation of the trade defence instruments was introduced in 2013, but was later put on hold due to internal differences amongst EU lawmakers.
Controversial topics of the trade defence modernisation, however, may gain new ground and support, in the context of the market economy treatment of mainland China. In previous discussions, no agreement could be found on the proposal to remove the lesser duty rule in certain trade defence investigations. The lesser duty rule, currently in place, obliges the Commission to apply the lowest duty calculated. Removing it may counter some of the negatively perceived effects of the introduction of market economy status for mainland Chinese companies.
Trade officials confirmed that both the modernisation of the trade defence instruments and the market economy status of mainland China are being assessed and discussed together. A proposal was scheduled to be debated and possibly even adopted by the Commission by mid-January 2016.
In addition, it is reported that the Commission is looking into other ways to strengthen its position in trade defence investigations against mainland Chinese imports. Reports mention that the Commission wants to make it easier to investigate subsidisation in mainland China. Additionally, the Commission may look into introducing exceptions of market economy treatment for certain sectors in which the EU industry is particularly vulnerable, such as the steel industry. Further, several instruments included in the current anti-dumping regulation already allow the Commission to make certain adjustments, for instance to take into account distortions on the market for raw materials.
A Commission proposal on the topic is expected to be discussed internally in the course of January and February 2016, following which it will be made public.
Traders with business interests in the steel industry especially will want to closely follow developments in the EU. While the European steel industry association (EUROFER) is one of the most active associations opposing the treatment of mainland China as a market economy, it has also called for more protection against imports. EUROFER has alerted the European Parliament and Council to the challenges of the steel industry in the EU and the need to use the full range of EU trade policy instruments to ensure a global level playing field.
According to EUROFER, “trade policy tools are Europe’s main and best defence against unfairly dumped steel” which, according to EUROFER, “has flooded the European market in recent months and is one of the most immediate causes of recent closures and redundancies across the continent”.
EUROFER’s call has been answered by several EU countries, including France and Italy, which are reported to have been pressuring the European Commission to initiate new trade defence investigations against steel imports. Reportedly, the European steel industry is already working on filing anti-dumping complaints on a number of steel products, including hot-rolled coil and quarto plates. Increased imports of low priced steel are being blamed for closures of steel plants in the UK, causing around 3000 job losses.
Traders will recall that a complaint against imports of hot-rolled steel products has been in the pipeline for some time already. Whereas EUROFER announced earlier that the complaint would be lodged in 2015, the European Commission pushed the matter to early 2016, requesting stronger data to support the initiation of an investigation.
Hot-rolled steel is used in many different industries, including for the manufacture of cars and home appliances. About 30 million tonnes of coil were consumed in the EU last year, worth more than 12 billion euros. An investigation against hot-rolled steel may become one of the largest anti-dumping investigations ever initiated by the EU.
As companies active in the steel industry are well aware, steel products and, in particular, mainland Chinese steel, have been a constant target in European trade defence investigations. In 2014, 9 out of 16 investigations were directed at iron and steel (including iron and steel products). Similarly, in 2011 and 2012, iron and steel were targeted in 6 and 11 investigations out of 21 and 19 new cases respectively. The majority of these cases targeted mainland China.
With EUROFER actively calling for more support and more investigations, this trend is likely to continue in the future.
- Mainland China