After thunder comes rain. On Tuesday, after more than a year of discussion, the European Union and its member states agreed on a draft law to strengthen the bloc’s trade-defense rules.
Brussels aims to protect European industries and jobs against dumped and subsidized imports from non-EU countries, particularly from China, apparently aligning its commercial policies with those of the United States under President Donald Trump.
The final legislation must be approved by the plenary session of the European Parliament and adopted by the European Council before it can enter force – probably before the end of the year.
Under the new legal framework, the EU will impose anti-dumping and anti-subsidy measures on all countries exporting below domestic prices, regardless of whether they are members of the World Trade Organization (WTO). However, in the event of “significant market distortions”, that is, when prices in a third country are not market-based, the European Commission (EC) will calculate dumping margins by using international prices and costs as benchmarks.
European Commissioner for Trade Cecilia Malmström has pointed out that Brussels will consider criteria such as “state policies and influence, the widespread presence of state-owned enterprises, discrimination in favor of domestic companies and the lack of independence of the financial sector” in determining whether there are market distortions in third countries.
As well, the EU’s new anti-dumping scheme will be applied to states that do not respect international labor or environmental standards in the production of goods. Sponsored by the European Parliament, this is an innovation that could put the Union’s trade-defense legislation at odds with WTO rules.
The EC will draft reports on certain non-EU exporting countries if it identifies any distortions in their markets. This should help European companies produce evidence in support of their claims in anti-dumping and anti-subsidy cases. Thus, in the bloc’s view, there will be no additional burden of proof on EU enterprises.
The EU says the new legal framework is not aimed at any specific country. In reality, its target is China, which is accused by European manufacturers of unfair trade practices. The European grouping has in place more than 40 anti-dumping and anti-subsidy measures, and 20 of them are against Chinese products. Furthermore, of 32 trade-defense investigations that the EC is currently conducting, 22 are into imports from China.
The EU’s anti-dumping policy has elicited a response from Beijing. The Chinese Ministry of Commerce urged the EU to comply with WTO rules in conducting anti-dumping probes, the state-run Xinhua News agency reported on Wednesday.
Beijing has repeatedly called on the EC to recognize it as a market economy and stop using price comparison with other countries to work out whether Chinese companies are exporting products at unfairly low prices. China became a member of the WTO in 2001. Under the related accession protocol, Brussels should have granted the Chinese dragon the status of market economy as of December 2016.
EU institutions believe this is a false problem, given that they are going to scrap the distinction between market and non-market economies in calculating dumping margins. Bernd Lange, chairman of the EU Parliament’s Committee for International Trade, says the new legislation will allow the European bloc to strike a balance between guarding European industries against unfair commercial practices and ensuring compatibility with WTO obligations.
According to Chinese media, however, the EU’s new anti-dumping law violates WTO rules against trade protectionism. They contend that the concept of “significant market distortions” is not contemplated by the WTO, while it is actually a cover for the EC to continue using the “surrogate country” methodology against China.
Convergence with the US
The US Commerce Department is expected to make a decision on China’s status as a market economy, as well as on the imposition of preliminary duties on aluminum-foil imports from the Asian giant, by the end of November – that is, after Trump’s visit to China.
Until recently, it was thought that Trump’s “America First” doctrine would have pushed Brussels closer to Beijing, fostering a Sino-European cooperation to defend free trade and open markets globally. Curiously, it seems the US and the EU are finding common ground on trade protectionism against China after months of discord between European leaders and the Trump administration. And the same goes for the EC’s proposal to set up an EU-wide screening mechanism for foreign takeovers of security-sensitive industries in the Old Continent.
But the EU’s current protectionist drive is not a by-product of the US trade policies with China. It is the result of a reflection initiated well before Trump’s election, which centered on the idea that free markets must be made a little bit fairer.