The European Union dumps China

In one fell swoop, a legislative committee of the European Union Parliament has snubbed China’s recent easing of restrictions on inbound foreign investment, rejected Beijing’s demand to be recognized as a market economy and established stringent requirements for the EU’s possible contribution to Chinese President Xi Jinping’s Belt and Road infrastructure initiative.

On Tuesday, the EU Parliament’s trade committee overwhelmingly adopted a resolution amending the European Commission’s proposed legislation on protection against dumped and subsidized imports from non-EU countries. In other words, EU lawmakers have decided to toughen the bloc’s rules against China’s unfair trade and investment practices.

Last September, the EU Commission set out a proposal to calculate anti-dumping measures against countries with significant market distortions – i.e. where prices are government-determined and not market-based. New anti-dumping rules should be applied to all exporting nations “regardless of whether they have market economy status.” So, the old blacklist of non-market economies will be scrapped by the European grouping, and the EU Commission will investigate on a case-by-case basis, using international prices and costs as a benchmark, whether a nation (China) dumps its products or not.

The EU Commission’s anti-dumping mechanism is actually a subterfuge to continue to deny market economy status to Beijing. The Asian giant became a member of the World Trade Organization in 2001. Under the related accession protocol, the EU should have recognized China as a market economy as of December 2016.

International standards and reciprocity

In addition to the EU Commission’s provisions, the European Parliament’s trade committee proposes that anti-dumping measures be imposed if an exporting country does not comply with international labor, fiscal and environmental standards, and discriminates against foreign investors.

The EU has 40 anti-dumping and anti-subsidy measures targeting unfair exports of various steel products, with 18 of them concerning imports from China, according to the EU Commission.

The EU Parliament’s trade committee approved its resolution just four days after China’s State Council had cut the number of restrictions, or special management measures, on foreign investors from 122 to 95 in the mainland’s 11 free-trade zones. Sectors involved in the operation include aviation manufacturing, waterway transportation, banking services and education.

The move is viewed as an attempt to attract more foreign investment in China after last year’s contraction – an inflow of US$133 billion, compared with $135 billion in 2015, according to the 2017 World Investment Report.

The European bloc has been repeatedly pressing Beijing to foster a friendlier investment environment on the mainland

The European bloc has been repeatedly pressing Beijing to foster a friendlier investment environment on the mainland. Earlier this month, at the 19th EU-China summit, EU Commission President Jean-Claude Juncker underlined that “while Chinese investment in the European Union increased by 77% in 2016, the flow in the other direction declined by almost a quarter.”

To make a comparison, he added that EU investment in China last year was about 3% of what EU countries invested in the United States. Simply put, there is a lack of reciprocity in terms of market access between European companies that want to invest in China and Chinese firms that want to invest in Europe.

What’s more, the EU’s new anti-dumping legislation has indirect implications for Belt and Road, China’s grandiose plan to improve connectivity across Eurasia and beyond. In demanding that international labor, fiscal and environmental standards are taken into account in anti-dumping procedures, EU lawmakers ultimately question the transparency and fairness of China’s trade and investment policies. It is worth remembering that during the Belt and Road Forum in Beijing in May, EU member states rejected a final summit statement on trade because it did not clearly address such issues as environmental and social standards, among others things.

Pressuring China

The anti-dumping resolution voted by the EU Parliament’s trade committee has to be passed at the assembly’s plenary session in July and then adopted by the European Council – the EU’s intergovernmental body – to complete its process of approval. But the general orientation is that the new anti-dumping scheme will get the green light, as it is supported by European heavyweights such as Germany, France and Italy.

With the introduction of this new legislation, China’s pitch to create a united front with the EU in favor of the free market and globalization, and against the protectionist wave coming from Trumpian America, amounts to wishful thinking now more than ever.

For once, the European bloc has shown unity on a delicate global issue and Beijing will have to change its trade and investment paradigm if it wants to tie the EU to its strategies. Just to begin with, ensuring a level playing field on the mainland for EU investors and more transparency for the Belt and Road initiative would be concrete steps in that direction.

Even China’s “all-weather friend” Pakistan has recently dared to introduce anti-dumping measures against Chinese steel products. Perhaps, in its battle against Beijing’s market distortions, the EU has chances to win.