15. April 2016 | Position
Granting the „market economy status“ (MES) to the Republic of China or not is one of the top issues regarding trade policy in Brussels. The core of this debate is not so much the question whether China is a market economy or not. Rather, it is a decision on whether the European Union is obliged to grant the MES to China due to its WTO Protocol of Accession. The German Chemical Industry Association VCI votes for a positive decision.
Background and Key Message
After the USA, China is the biggest trade partner of the European Union and of the German chemical industry. The sector’s exports to China have grown since 2004 by 14.4 percent per year on an average. Today, the Republic of China ranks second as a production location for German companies abroad.
VCI’s member companies need neutral and modern trade defence instruments. They must both ensure protection against unfair trade but also take into account the sector’s interests regarding imports and exports.
The German chemical industry promotes free and fair trade and uses the available EU trade defence instruments in justified cases. The chemical industry resorts to the EU trade defence instruments as an applicant for anti-dumping measures while being, as an exporter, impacted by anti-dumping measures in third countries. Furthermore, the chemical industry is not only an important manufacturer of chemical inputs – the chemical industry is its own best customer and, consequently, also a processor of such inputs. Many chemical inputs are manufactured inside the EU but considerable shares are imported from third countries like the People’s Republic of China (PRC). Given its strong export orientation and in view of the import situation, the chemical industry needs a neutral set of trade defence instruments that ensure equally fair competitive conditions for both EU-manufacturers and EU-processors of chemical products. The German chemical industry association (VCI) rejects protectionist measures; they are obviously unsuitable from the perspective of a globalised industry like chemistry.
VCI's Position on Granting MES to China in Detail
Currently, the EU institutions and economic operators are discussing in detail the question regarding the recognition of domestic costs and prices in China for calculating dumping margins and thus for applying the anti-dumping instrument (“market economy status - MES”). This aspect is included in the WTO Protocol of Accession of the People’s Republic of China (PRC), but it is legally controversial.
For this reason, the EU Commission should answer this legal question as soon as possible. If MES will be granted the EU anti-dumping legislation needs to be amended; in that case domestic prices and costs in PRC must be applied for calculating dumping margins. However, if there is no obligation to grant MES in anti-dumping procedures, it should be possible for the EU Commission to examine on a case-by-case basis whether domestic prices of the products concerned in PRC reflect normal market forces. At the same time, the EU should encourage PRC to continue the consultation process where the interests of the EU industry should be taken into account adequately and effectively.
The VCI welcomes the impact assessment launched by the EU Commission, together with the consultation according to the Better Regulation Agenda. Giving due consideration to the progress achieved by the PRC since its WTO accession in 2001, the VCI supports Option 3(1) proposed by the EU Commission, i.e. granting MES to the People’s Republic of China and removing the PRC from the list of non-market economy countries in the EU anti-dumping legislation.
In that event, all the mechanisms permitted in the anti-dumping legislation should be applied fully and consistently to take action against unfair trade practices and to ensure an appropriate level of protection. The methods permitted under the WTO Code for calculating dumping should be applied, so that the special situation in China can continue to be given due consideration. But, as a matter of principle, these methods should not lead to a tightening of this well-balanced legal instrument. Where domestic prices in certain sectors of the exporting country do not allow any suitable comparison because of significant market distortions, the methodology should resort to the possibilities for correction as provided in the WTO Anti-dumping Agreement. In that exercise, the EU Commission should consider all options available within anti-dumping and anti-subsidy procedures, firstly, to prevent an escalation between the parties involved and, secondly, to improve the transparency, efficiency and predictability of the EU trade defence instruments. Furthermore, the VCI calls for a rapid adoption of the trade defence modernisation package.
The mitigating measures proposed for a potential MES granting – inter alia, suspending the application of the “lesser duty rule” and safeguarding the definitive anti-dumping measures already in place against PRC (“grandfathering”) – can be applied in principle. However, precise criteria need to be defined to ensure a continued moderate use of the anti-dumping instrument. The application of the “lesser duty rule” has always been at the discretion of the EU institutions. The MES discussions could be used to develop clear-cut provisions for exercising this discretion.
Also the Commission’s proposal to safeguard the anti-dumping measures already in place against PRC (“grandfathering”) could help the impacted industrial sectors to adapt to the changed legal situation. The focus should remain on a proportionate application of the anti-dumping instrument, ensuring the possibility of a regular review that corresponds to the required level of protection
(1) Cp. EU Commission, Inception Impact Assessment, Possible change in the methodology to establish dumping in trade defence investigations concerning the People’s Republic of China, January 2016.
Please find this position paper in a printer-friendly PDF-version in the download section at the top of this page (so-called "Langfassung").
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