Protectionism in disguise?
by Claudia Vernotti (China Daily)
Claudia Vernotti, Director of ChinaEU speaks at a panel debate organised by The Centre and The UK Law Societies on the China’s Market Economy Status: an imminent trade battle?
European Commission should encourage member states to carry out necessary reforms, even if they are unpopular.
December 11 will be a historic date in the relationship between China and the EU, and between China and the other members of the World Trade Organization.
On that date, the 15-year transitional period provided for in China’s accession protocol, agreed in 2001, will expire.
Under this protocol, the other WTO members were allowed to apply trade defense mechanisms such as anti-dumping rights, against Chinese imports according to a system designed for state-controlled economies, i.e. based on costs of comparable but market economies.
After this transition period, anti-dumping duties must be calculated as they are for ‘market economies’, i.e. based on the real underlying production costs in the country concerned. As long as the companies of countries with market economy status (MES) do not, according to their accounts, sell below cost in other WTO countries, the latter are not entitled to impose duties, even if costs are substantially lower than in the other WTO countries.
More than 80 countries have already granted market economy status to China.
Less than two months before the expiry of the transitional period, the European Commission is still mulling over what to do.
It is likely to miss the deadline.
A legal vacuum could occur between Dec 11 and the date of the the EU’s decision, leaving all stakeholders in a state of uncertainty.
Moreover, there is a question mark over China’s reaction to such an outcome.
One reason for the delay is that the issue has several aspects interlinked in a way that makes it very easy to confuse causes and effects.
The most recurrent issues are the crisis of the European steel industry, the chronically slow growth of the world economy, increasing unemployment levels and global oversupply.
Since the Chinese Communist Party opened the country to market mechanisms, a key phrase in policy has been ‘competitive advantage’. The concept is simple: with the opening of trade, a country benefits from producing and exporting what it is competitive at, while importing from the rest of the world what the rest of the world is able of producing more efficiently.
Exports to China have supported more than 4 million jobs across the EU. But one should also not neglect the benefits of imports for an economy. Importing products at competitive costs gives consumers more choice and increases the welfare of low income groups in the population, who can enjoy cheaper options.
As The Economist explains in its special report of October 1, while import competition from China has led to a decline in jobs and made life harder for low-tech firms in importing countries, it has also forced surviving firms to become more innovative.
At a public event hosted recently by public affairs consultancy Edelman, the MES issue was unanimously defined as a political power-game, rather than a legal or economic matter.
Anti-dumping is a way of making imports more expensive and thus encouraging local production. But does it make sense to keep alive sectors with are deemed to die?
When looking at a problem, one should strive to cure the underlying cause, which in this case is linked to the EU’s lack of competitiveness and its structural problems.
How can we keep the EU globally competitive in the medium term despite its strict regulations? Many are the symptoms of sick European industries, beyond the steel sector.
Think of the music-streaming provider Spotify, one of the most successful European tech companies, which recently warned the Swedish government that it will move thousands of jobs from Sweden if problems with housing, education and stock options are not overcome.
Europe should have the courage to face reality. Protectionism, disguised in the form of trade defence instruments, is not the long-term solution to the ills of its heavy manufacturing industry and to the mismatches between supply and demand in the European job market.
The European Commission should encourage member states to take the necessary structural measures to increase competitiveness and carry out necessary reforms, even if they are unpopular with the electorate.
The production costs of China’s manufacturing industries should be used as a benchmark for the EU to examine its excessive costs.
China is an indispensable partner in the EU’s drive for competitiveness, growth and technological innovation. Instead of risking confrontation, the EU and China can learn from each other how to produce – in the most efficient and green manner – the goods consumers expect at a price they are willing to pay.
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