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EU Should Not Recognize China as a Market Economy in a Hurry

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EU Should Not Recognize China as a Market Economy in a Hurry

Originally appeared at DWN, translated by Karin exclusively for SouthFront

The EU Parliament is showing resistance about the recognition of China as a market economy. Delegates expect a growing threat from dumping imports. A study shows that the recognition of China as a market economy would be extremely dangerous for the EU, if the conditions are not negotiated out of a stronger position.

In the European Parliament, representatives of all relevant groups have warned of a classification of China as a market economy. They are convicted that this would complicate the fight against Chinese dumping imports even further. In the European steel industry alone hundreds of thousands of employees fearing to lose their jobs, said the CDU representative Daniel Caspary.

“China is not a market economy,” stressed also the Chairman of the Socialist Group, Gianni Pittella. Unfair competition by Chinese imports threatens the entire European industry and thus millions of jobs. Several MEPs accused the Council of the 28 EU countries, to have blocked for more than two years a planned reform to modernize trade defense mechanisms. “We need a sharp sword against the abuse,” urged the SPD politician Bernd Lange. The Council must finally give up its resistance.

Countries like Britain are blocking against effective antidumping measurements because they “fear China”, criticized the French Greens Yannick Jadot. Even the Commissioner for Food Safety, Povilas Andriukaitis, criticized the EU countries. The Council had so far not been able to agree on new rules for trade protection. Given the overcapacity, like in the Chinese steel industry, the EU needs “effective weapons”.

In the name of reigning Dutch presidency, Defence Minister Jeanine Hennis-Plasschaert said, the subject of trade protection is on the agenda of the meeting of the EU foreign ministers on Friday. “The Council has to come now to an agreement.”

So far, China is according to official EU estimates not a market economy. This allows higher protective tariffs on imports of steel and other products out of the country. These are based on transition rules the World Trade Organization (WTO) had agreed upon 15 years ago when joining the People’s Republic. These transition rules run out in December. Until then, the EU has to decide whether it should grant China market economy status, as demanded by the government in Beijing.

Europe steel industry is one of the largest victims of the increased activity in China. Local companies find it difficult to compete with the large amounts of cheap steel that their Chinese competitors throw on the market. The European Commission had bowed to the pressure a few weeks ago and raised import duties on various Chines products. Critics however, assume that this will not be nearly enough to support the industry in the long term. The Indian company Tata Steel had recently withdrawn, with reference to the flooding of the markets with subsidized Chinese steel, from the UK.

The authors Mikko Huotari, Jan Gasper and Olaf Böhnke analyzed for the Mercator Institute for China Studies (MERICS) the potential consequences of such a step for the European Union and conclude: It will be much more difficult in the future to charge punitive tariffs on cheap Chinese imports. Already struggling European industries could be threatened with a new price war.

In MERICS China Policy Brief “Asserting European Interest: How Brussels Should Deal with the question of China’s Market Economy Status” the authors therefore formulate a clear recommendation: The EU States must designate common objectives to negotiate from a position of strength with China. At the same time the EU should prepare for potential trade conflicts with China.

To grant China market economy status, must not be an automatism for the EU, the MERICS authors warn. What is needed is a compromise between integration and confrontation. Strategically, the EU must demand the following conditions:

Market economy status in stages: The status would gradually be granted to the Chinese industries that are already functioning with the market principles. For this purpose criteria should be laid down.

Market economy status with compensatory measures: China provides consideration for the granting of market economy status. This could include self-imposed export restrictions or greater equality for companies operating in China are foreign companies.

Market economy status only if in compliance with the WTO agreements: The EU should at least insist that China complies with its obligations undertaken upon accession to the World Trade Organization. The market economy status should be linked to concrete progress in the proposed WTO agreement on government procurement.

The decision on whether China gets market economy status must be made by the end of December of 2016. In the European Parliament the debate has just begun, next Monday, MEPs in Strasbourg will consult the second time about it. So far, the EU Member States are still at odds over the course on that issue. Therefore MERICS authors call for a postponement of the December deadline, to give more time to the EU Member States for a coordinated approach.

For China, the rise in the market economy status is an important goal: reportedly Prime Minister Li Keqiang has urged last week Chancellor Angela Merkel during a telephone call, to stand up at EU level for implementation of the promises made in China.

From the viewpoint of the authors, to grant market economy status to China without consideration carries substantial political and economic risks: Chinese cheap products could easily reach European markets, which will likely put there some industrial sectors under pressure. In particular, the heavy industries in Germany, Italy, Spain, France and Poland will face competition – especially since China’s economy, in the face of the economic slowdown, uses exports to reduce overcapacity in its own country.

The MERICS authors are warning, there is a threat that parts of the economy and the citizens will lose confidence, if the EU does not take a clear stance in negotiations with China. Also of frictions with the US are possible. There is a considerable resistance to the plan to grant China market economy status by the end of the year.

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