The stakes could hardly be higher because MES has potentially devastating repercussions for core European manufacturing industries such as steel, ceramics and textiles, which will find it harder to retaliate against dumped goods from China.
Free traders such as Britain and Sweden are supportive of Beijing, seeing the designation as an important diplomatic gesture to build strong investment ties between Europe and China. Countries such as Italy argue that Europe will be “unilaterally disarming” against a tide of unfairly cheap Chinese imports, costing the continent hundreds of thousands of jobs.
The European Commission, led by Director-General for Trade Jean-Luc Demarty, had originally planned to rush through a proposal on MES but was hit with a strong backlash as businesses and politicians sought a full impact assessment, reports Financial Tribune.
That assessment will be discussed at an orientation debate among EU commissioners late Wednesday. They will then have the summer to digest the issue before making a formal proposal in September.
The Problems
Five big questions seem inescapable:
Is the commission obliged to propose MES for China?
According to the commission’s legal service, yes. Trade officials in Brussels had wanted this to be seen as an innocuous legal question.
The argument focuses on China’s agreement of accession to the World Trade Organization in 2001. Beijing interprets this accord to mean that it will automatically become a market economy at the end of 2016.
Many lawyers disagree and say that the language of the accession accord is confusing. One of the most common alternative interpretations is that it will be up to the WTO members to decide whether China is a market economy from this December.
Will the market economy decision sour EU relations with the US?
That is a risk. Washington has been unequivocal: China cannot be considered as a market economy. The US plan is to wait and see whether Beijing launches a dispute at the WTO if its market economy status designation is not recognized by the end of the year. American trade officials argue that Brussels’ attempts to curry favor with Beijing are undermining hopes of winning any ultimate case against China in the WTO.
What can be done to save jobs MES is predicted to cost?
This all boils down to how you use trade defense measures—anti-dumping tariffs—against Chinese goods that are sold unfairly cheaply in Europe.
MES will mean that Brussels will have to change the way it calculates retaliatory tariffs. It can prove Chinese prices are too low now by referencing prices in third “analogue” countries.
The Commission estimates that awarding MES and ditching this methodology could cost some 250,000 jobs, while Aegis, a lobby group of 30 European manufacturing associations, estimates three million.
Won’t the European Parliament block this anyway?
MEPs are very likely to scotch China’s MES hopes unless there are wide-ranging protections for European industry.
In a sign of their opposition to Beijing, lawmakers have already mobilized against automatically granting the status to China. In May, an overwhelming majority passed a resolution calling on the commission to rethink its position. Some 546 voted in favor, with only 28 against and 77 abstentions.
One of parliament’s main sensitivities is that it will not accept any EU proposal to shift “burden of proof”—essentially finding evidence for dumping—onto European companies.
What happens if China is thwarted?
Beijing has become a master of retaliation—sometimes in unexpected territory. In 2013, China responded to an EU investigation into alleged dumping of solar technology by threatening to limit French imports.
China has immediate leverage over the commission because it is expected to play a role in Commission President Jean-Claude Juncker’s €300 billion ($330 billion) plan to revive the European economy through infrastructure spending.