Why Does The EU Try To Limit China With The "Market Distortion" Standard?

The EU has a clear standard of market economy, and China has not met those standards.

It will be disastrous for European manufacturing and employment to admit that China's market economy status will lead to China's endless dumping into Europe.

According to the fifteenth provision of China's accession to the WTO protocol, the use of "substitute country" data by WTO members in the anti-dumping investigation of Chinese exports should be terminated in December 11, 2016.

15 years ago, China was listed as a "non market economy country" when China joined the WTO.

Seeing that the time limit for the fifteenth provisions will be full, China's anti dumping efforts, which have been out of market economy for many years, are expected to end.

Unexpectedly, in November 9th, the European Commission recommended that a new method, "market distortion standard", be used to assess whether Chinese manufacturers dumped products such as iron and steel at an unfair low price in response to China's demand for market economy status at the end of this year.

In response, foreign ministry spokesman Lu Kang said on 10 th that China believes that the EU's proposal to cancel the list of "non market economy countries" reflects the wishes of the EU to fulfill fifteenth obligations, and China affirms this point.

However, the Chinese side regrets that the new method proposed by the European Commission has replaced the concept and standard of "non market economy" with the so-called "market distortion" concept and standard, and has not fundamentally abolished the practice of "substitute country".

This method is neither completely and completely fulfilling the fifteenth obligations, nor is it consistent with the rules of the WTO.

Even within the European Union, there are different voices.

The Ministry of Finance issued the joint statement on the fourth Sino French high-level economic and financial dialogue 15 days ago, the statement said that France supported the EU's obligation to comply with the fifteenth article of China's accession to the WTO protocol.

Why should the EU try to continue to restrict China with the "market distortion" standard? What will be the impact of China EU trade and even the world's free trade? How can China cope with the situation and how the situation will change?

(Xin Ling)

A pair of shoes, which have been worn for 15 years, can be released from time to time. But now some people have suggested that they can't get rid of shoes. You run too fast, and I can't catch up. These old shoes must be stripped off, but you have to prepare a pair of new "small shoes".

This is the current situation that Chinese exports may face in the European Union.

In November 9th, the European Commission formally submitted a proposal to amend the trade defense legislation to the European Parliament and the Council of the European Union.

Zhou Xiaoming, deputy representative of the Permanent Delegation of China to Geneva, pointed out that part of the sunset clause based on China's accession to the WTO is about to expire in December 11th and can no longer be used.

"As a tool to impose trade sanctions against China, the proposed amendment is aimed at coping with this situation, so although the bill can be applied to any third country, its directivity is obvious.

Wearing shoes for 15 years.

After joining the WTO for 15 years, China has been recognized as the biggest beneficiary of this round of trade liberalization and globalization. The rapid development and change of China has also had a profound impact on the global economy. However, on the global trade stage, Chinese enterprises have been wearing "non market economy countries" and sometimes even very heavy "small shoes" in sweating competitions, and are often "fined" or even whistled "suspended".

According to the Ministry of Commerce, China has always been the largest target of trade remedy investigations.

Since the establishment of the World Trade Organization in 1995, a total of 48 members have initiated 1149 kinds of trade remedy investigation cases in China, accounting for 32% of the total number of cases.

To say clearly about the origin and development of these "little shoes", we must carefully review a "sunset" clause signed in 2001 when China joined the WTO, the fifteenth article of China's accession to the WTO, including the method of determining "price comparability" in accordance with the GATT sixth and the anti dumping agreement.

At that time, China was listed as a "non market economy country", which meant allowing its trading partners to impose anti-dumping duties on China's export of too cheap products under the framework of WTO.

In a normal market environment, it is necessary to compare the prices of imported goods with the prices and costs of goods in the original exporters in the normal market environment. For non market economy countries, domestic prices can not be used as benchmark prices for comparison with export prices, and the law allows for the calculation of anti-dumping duty with data from another market economy country, that is, "substitute country".

According to item (a) (I) of article fifteenth, if Chinese producers can prove that their industry has market economy conditions, the importing countries need to use the price or cost of China; according to Article 15 (a) (II), if the manufacturer fails to clearly demonstrate the market economy condition in the manufacture, production and sale of the product, the importing country can use the method that does not strictly compare with the domestic price or cost in China.

In article fifteenth (d), it clearly states: "once China confirms that it is a market economy according to the domestic law of the importing Member of the WTO, the provisions of (a) shall be terminated, but as of the date of accession, the domestic law of the WTO importing Member shall contain the relevant standards of the market economy.

"In any event, the provisions of subparagraph (a) (II) shall be terminated 15 years after the date of accession.

In addition, if China is based on the domestic law of the importing Member of the WTO to confirm that a particular industry or sector has market economy conditions, the terms of the non market economy (a) shall no longer apply to the industry or sector. "

The above provisions mean that after December 11, 2016, those WTO members who listed China as a non market economy country will no longer be able to implement the anti-dumping investigation on the basis of the "alternative country", otherwise they will violate the WTO rules.

According to Dr. Cheng Shuai Hua, executive director of the Geneva based Centre for international trade and sustainable development (ICTSD), after the 15 year pition period, the practice of using the "substitute country" for Chinese products will no matter whether China is a market economy or not.

In fact, before April 27, 1998, when China joined the WTO, the European Union passed the regulation No. 905/98, "the amendment of the EU's anti-dumping position on China's market," which removed China from the list of non market economy status countries, but this did not mean that the EU recognized China's market economy status on its own initiative.

EU Trade Commissioner Mar Storm (Cecilia Malmstr? M) announced in her blog that the EU's economy is the most open in the world, and that enterprises are the most active in the international market; however, "some countries are far from open to us, and sometimes they act according to different rules. This unfair trade has created pressure on our producers and workers."

Mar Storm highlighted the problem of excess capacity in the steel industry.

The European steel industry is complaining about cheap steel from China. The German hardware union claims that the dumping of steel from China has caused the European Union to lose 330 thousand jobs and lead to a 28% drop in EU steel prices.

After the European Commission promulgated the proposal to amend trade remedy legislation, the European community also had different reactions.

In Europe, the European Commission has deleted the five standard of the non market economy adopted by the European Parliament and replaced it with an inaccurate new concept of "market distortion". The whole legal basis for anti-dumping measures against Chinese imports will be weakened.

Alessia MosCA, a spokesman for the European Parliament's Social Democratic Party group, pointed out that the proposal did not touch the most important point. It was considered that the introduction of the new concept of "market distortion" in the WTO rules, the establishment of the discretion of the European Commission and the burden of proof were the most serious problems in the proposal.

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The PPP welcomed the proposal, emphasizing that the new legislation must comply with the WTO rules 100% and take full account of the recent cases.

Christofer Fjellner, a Swedish congressman, further pointed out that based on the recent WTO decision on the biodiesel trade dispute between Argentina and the European Union, the European Commission has limited space to use third country prices.

Because the European Commission's proposal is hasty, it is reported that the European Parliament is not expected to start discussing the proposal in detail in December.

The European Commission hoped to push the proposal through at the end of this year.

In addition, EU Member States also expect to adopt a proposal to modernize the European Union's trade defense measures (TDI) by December 21st this year.

The proposal was submitted in April 2013, because member states' disagreement was delayed.

The contents of the proposal include: two weeks before anti-dumping and countervailing measures are notified to the relevant enterprises; even if there is no industry to make demands, the European Commission can initiate investigations, such as in cases where there may be trade retaliation, and do not use the "low tax principle" in specific circumstances, because the "low tax principle" usually requires that the anti-dumping duty rate only need to offset the substantial damage to the producers.

The United Kingdom has been opposed to the revision of the "low tax principle". Sweden, Denmark, Finland, Ireland, Cyprus, Malta, Latvia and Czech also hold their objections. They worry that the high anti-dumping duties added to many imported products will increase the burden of the upstream producers and consumers.

After the proposal of the European Commission, China's official statement said that the European Commission's proposal cancelled the list of "non market economy countries", which reflected the EU's willingness to fulfill its fifteenth obligations. China affirmed it. But the Chinese side regretted that the new method proposed by the European Commission replaced the concept and standard of the "non market economy" with the concept and standard of "market distortion". It did not fundamentally cancel the practice of "substitute country", but only in disguise with the original practice, but also inconsistent with the WTO rules.

Van BAel and Bellis, a Belgian law firm specializing in anti-dumping, also pointed out that the new method of trade remedy investigation put forward by the European Commission no longer lists China alone, so it conforms to WTO rules in form. However, the main rules of the new method are identical with the previous trade remedy investigation for China, and are likely to be considered to be contrary to WTO rules.

On the other hand, under the new law, China can not immediately initiate proceedings against the WTO, but must wait for the EU to use new methods to investigate Chinese products.

The VVGB law firm based in Brussels believes that the new method of trade remedy investigation by the European Commission obviously ignores the recent decision of the WTO appellate body on the Argentina biodiesel case. The Appellate Body acknowledges that the investigation institution can use the information of the export department, but must adjust accordingly to the domestic production cost of the exporting country, which means that "production cost" must reflect the domestic prevailing cost of the exporting country, that is to say, the investigation institution must return to the country of export to determine the cost.

But these good news may not be able to hide the huge challenge of another global trend to trade liberalization.

Hubert Ren e SchillinGEr, director of the Friedrich Albert Foundation's Geneva office, the oldest political foundation in Germany, has a clear judgement on this.

In his view, since the 2008 financial crisis, the western world is experiencing a huge anti globalization action. Whether it is against the tide of new trade agreements or the presidential election of the United States, it is an example of this phenomenon.

In addition to the wave of anti globalization in public opinion, the world economy has entered the stage of anti globalization.

Since the financial crisis, Global trade growth has basically decreased by half, from over 6% per year to around 3%, lagging behind global GDP growth.

He pointed out that the world today may have entered a stage of market driven globalization.

"Generally speaking, the world may not need more trade liberalization."

Schilling, who interviewed in the twenty-first Century economic report on 18, said that "the most benefits that trade liberalization can bring has been achieved, and the side effects brought by trade liberalization have always been there. If we want to further gain efficiency gains through further trade liberalization, more redistribution is necessary."

In his view, under such a turbulent situation, the potential trade conflicts between China and some major economic partners, such as Europe, the United States and other countries, should be resolved by pragmatism and diplomacy.

Schilling believes that China can do two things: first, we should continue to rebalance the economy from purely export oriented to more committed to domestic demand; second, at the international level, China can become a stronger and more direct role to advocate multilateralism and a rule based international system.

At the same time, pragmatism and understanding of some partners' domestic economic and political constraints will also help to prevent a tit for tat trade war that may eventually lead to no benefit.