Market Economy Status for China: Where Are We heading?

shutterstock_249781048When China became a member of the World Trade Organisation (WTO) in 2001, the WTO Accession Protocol established a transitional period up to December 2016 with regard to granting ‘Market Economy Status’ (MES) to China. The absence of the MES gives China’s trading partners more flexibility in imposing anti-dumping duties on imports from China. Consequently, Beijing is accelerating its push for MES in the EU, the US and other WTO members.

The question whether to grant China MES at the WTO is coming to a head at the moment and might fundamentally change the EU’s trade relationship with its second-biggest trading partner. Since European businesses fear that granting China ‘MES’ could cost the EU economy billions in lost revenue and threaten EU jobs, it will be ‘the’ key trade policy issue in 2016. To shed some light on it, the trade team at FTI Consulting in Brussels organized a well-attended lunch debate on the prospects of Market Economy Status for China.

FTI Consulting invited six expert speakers to debate the issue from the European Commission, the European Parliament, industry, academia and international law firms. The speakers were: Leopoldo Rubinacci, Director Trade Defence at DG Trade; Christofer Fjellner, Member of the European Parliament, Jing Men, Head of EU-China Research Centre at the College of Europe, Edwin Vermulst, Partner at VVGB, and Laurent Ruessmann, Partner at Fieldfisher) as well as Inès Van Lierde, Chair of AEGIS Europe, the European industry coalition set up over concerns of granting MES to China.

The debate clearly demonstrated that there is no consensus about the “automaticity” for the MES recognition by the European Union. In a lively discussion, there was only one point all participants could agree upon – namely that China is not a Market Economy. However, most panellists felt that this title masked the real discussion at hand – which is how anti-dumping duties on Chinese imports to the EU should be calculated when there are clear grounds to impose them.

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Currently there seem to be three options on the table. Either the European Commission does not do anything (which is rather unlikely), or it treats China as any other country with MES status and changes the method by which anti-dumping measures are calculated,including the ‘analogue country’ provisions (also unlikely because of the potential impact on EU industry). The third option is that the Commission may approve a package of additional ‘mitigating measures’ in parallel in order to tackle specific market distortions in China (including the revision of the ‘lesser duty’ rule). It is obvious that an extensive analysis will need to be conducted for each scenario. However, the panellists often took differing views as to the possible measures to be taken and their resulting expected impacts.

As part of the impact assessment procedure, the European Commission has recently launched a public consultation to collect stakeholders’ input regarding the options on how to address MES for China. Once the Commission makes a decision, it will propose an amendment to the Anti-Dumping Regulation which will require the approval by the European Parliament and the Council of the EU. It will therefore be critical to achieve a common position among the currently divided EU Member States. The panellists agreed that it would also be interesting to see how the USA, Canada, Brazil and other key trade partners of China will approach the final decision on MES.

The event, which was moderated by Poppy Bullock from MLex, provided an excellent opportunity to all 40 participants to gain insights on how the MES issue is addressed in current trade policy and how the EU might proceed in the future. Yet, given the uncertainty regarding the MES, it was apparent that this highly complex and sensitive issue will stay a key part of the Brussels trade agenda for the rest of the year. FTI Consulting’s trade experts will continue to follow the MES agenda and bring more insights to your attention.

Vladimir Beroun is a Senior Consultant at FTI Consulting in Brussels

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