Europe is in a dilemma over how to defend itself against cut-price competition from China.
That comes to a head on Wednesday when the European Commission will have to reveal its new strategy for dealing with a tide of under-priced goods from Beijing.
Next month, China will claim that it has joined the club of so-called market economy countries — putting it in the same league as nations that don’t wholesale interfere in setting prices and production costs. This new designation makes it more difficult for the EU to prove it is entitled to slap duties on bargain-priced metal tubes, bicycles and solar panels flooding in from China.
European industry is worried this could cost tens of thousands of jobs. About 15,000 steel workers are expected to brave the rain in Brussels on Wednesday to protest just as the Commission finalizes its China trade defense proposals.
China is not happy either. It’s already threatening legal action over aspects of the new plan that will allow some old, higher duties to remain in place. At the same time, Washington is concerned that the EU is making premature concessions to Beijing that could weaken the U.S. in forthcoming legal battles over how to calculate retaliatory duties on dumped goods sold below the cost of production.
European Commissioner for Trade Cecilia Malmström has tried to reassure European industry that the new methodology will “lead to approximately the same level of anti-dumping duties as today.”
But businesses facing competition from ultra-cheap imports are not convinced.
Carlo Masciaghi, deputy head of Italian bicycle producer Fratelli Masciaghi, had a bleak prognosis.
“We already made the decision to close if tariffs go down,” he said. “We have 50 people here and it’s a lifetime’s work, but at the same time we can’t fight against Chinese prices. If our bike is around $70 and the Chinese one $50, there is just no chance.”
At present, it is relatively easy to prove that a Chinese product is “dumped.” Because China is still considered a “non-market economy,” it is possible to prove dumping by comparing prices in third countries to see whether they reflect market levels. After December 11, the EU will need to resort to a far more complex toolbox, which will need approval by both member countries and the European Parliament.
“The efficiency of European trade defense is already low, but this [proposal] risks making us much more vulnerable,” said Milan Nitzschke, spokesperson of the industry alliance AEGIS, citing a study by the Economic Policy Institute that up to 3.5 million European jobs could be in danger.
On the warpath
The Chinese have struck a hostile tone even though they will probably face weaker duties from the EU.
They are angry that the proposal could allow duties and investigations agreed under the old method to run past December 11. In a clear threat of legal action, Beijing argued that the old methodology is unfair and an example of “reckless trade protectionism.”
At a October 27 meeting of the World Trade Organization in Geneva, the Chinese delegation demanded that all old anti-dumping cases must be immediately dropped after December 11. Behind the scenes, the threat of legal action against the EU has already been raised, lawyers say.
U.S. diplomats say they are frustrated by the EU’s approach: Ducking the question of whether China really has become a market economy, the EU has simply moved the goalposts by removing distinctions between “market” and “non-market” economies in dumping cases.
Washington insists that China is not a market economy and is waiting to fight the matter out at the WTO. U.S. officials say that the EU has weakened the case by providing a legal framework in which Beijing is treated as an industrialized economy in dumping disputes.
Brussels’ more immediate concern is that Beijing could not only challenge old cases from before December 11, but also the entire new anti-dumping legislation, possibly leading to a collapse of Europe’s broader trade defense system.
David Kleimann, a trade lawyer at the European University Institute, said the Commission proposal is “no new magic formula” but rather “an already known anti-dumping methodology rebranded in a new package.”
This methodology had already been found to violate international trade rules before, he said. “Chances are high” the new legislation will therefore also be ruled illegal, Kleimann warned, adding that even the EU’s own general court in Luxembourg has ruled against the approach.
Nitzschke called the Commission’s approach “very risky” and added that it would increase China’s chances of suing the EU successfully at the WTO. “It creates uncertainty for investment and jobs.”
Christofer Fjellner, a lawmaker from the European People’s Party in the European Parliament, demanded that the Commission show that the new anti-dumping legislation will be in line with WTO law and can withstand Chinese lawsuits. “The room for maneuver is very, very limited,” he said, warning that any unconvincing proposal would probably be shot down by the Parliament, which needs to approve it.
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“Adopting something that will be overthrown by the Chinese soon is a complete waste of time,” he added. “I don’t think the Parliament would endorse that.”