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EU to Recognise China as a Market Economy

By August 9, 2016 No Comments

European Union to Recognize China as a Market Economy: Possible Impacts on International Trade

The European Commission announced that intends to recognise China as a market economy by the end of 2016, as foreseen in China’s WTO Accession Protocol. According to the Protocol, by the end of 2016, all WTO countries should recognise the Asian country as a market economy and, therefore, make use of the same trade remedies applied for market economies.

The measure, however, is not for free. Since 2013, the EU has been discussing improvements in its Trade Defence Instruments, namely antidumping, anti-subsidies and safeguards. The reforms have the goal of providing a more transparent and efficient environment for stakeholders involved in trade-remedy investigations conducted by the EU and comprise, among others, the reduction in the deadline for issuing preliminary determinations, the pre-disclosure of provisional duties before the imposition of the measures, an advanced notice of non-imposition of provisional duties and the publication of guidelines regarding the procedures.

However, not everything is as good as it seems. If, on the one hand, the measures aim to give more transparency and predictability to the European investigations, on the other, more austere and autocratic measures were also put on the table, such as the possibility of starting investigations ex-officio (directly by the Commission), in order to protect the petitioner against eventual retaliations. Such ex-officio investigations would also imply in an obligation for ALL union producers of the subject product to participate in and cooperate with the case.

But the most disturbing measure, clearly aimed to target China, regards the possibility of not applying lesser-duty rules in anti-subsidy cases where there are structural raw materials distortions in the investigated country. The adjustment states that it is not fair that countries that subsidise its economies benefit from the lesser-duty rule, as allowed by the WTO. Furthermore, the measure explicitly mentions that countries identified as interfering in the trade of raw materials, with a view to keep them in their country for benefiting downstream users, would also fall under this ruling.

It can be perceived that EU’s strategy is a two-fold one. If it meets the international obligations in the WTO, regarding China’s recognition as a market economy, it also prevents the EU from being in the tight spot with its domestic industry, by softening trade remedies applied on China and potentially allowing a flooding of China’s products in the continent. Even though EU representatives state that the discussion is not on whether China should be recognised as a market economy, but a comprehensive reform in the block’s instruments in general, the recovery of this discussion – initiated in 2013 – at this time seems very convenient.

Therefore, one can notice a tendency that will probably spill over other WTO members regarding China’s recognition as market economy. Although representing internal – and sometimes arduous – changes in the country’s legal systems, it seems countries might resort to internal changes in order to be able to meet the demands of WTO while protecting their domestic industries, now through anti-subsidies duties. In this regard, we can expect little to change. The only difference will be that, from now on, China will no longer be the greater respondent on anti-dumping investigations, but on anti-subsidies ones.

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