Europe Set to Award China `Holy Grail’ With Tariff-Rules Revamp

European industries from steel to solar are bracing for a new set of tariff rules that may make it harder to fend off low-cost imports from China and other foreign countries.

European Union governments are due on Monday to rubber-stamp the biggest revamp of the bloc’s method for calculating duties aimed at countering below-cost — or “dumped” — imports. The move is a response to longstanding Chinese government demands for more favorable treatment while stopping short of saying those shipments are fairly priced.

The overhaul will end an EU presumption that Chinese exporters and those in nine other members of the World Trade Organization operate in non-market conditions. That approach, which has allowed for higher European anti-dumping duties, is being replaced by a more opaque procedure for determining whether imports unfairly undercut domestic producers.

“There’s going to be much more work for European industries to make their dumping cases,’’ said Laurent Ruessmann, a partner and trade expert in the Brussels office of law firm Fieldfisher LLP. “There’s a lot of discretion for EU trade authorities in the new system. The question is how that discretion is used and what the political influence will be.’’

Political, Economic Rewards

The EU carrot to China comes as both seek to claim a global leadership role in trade amid U.S. President Donald Trump’s protectionist stance, which has shaken the post-World War II commercial order. The U.S. has taken a different tack from the EU, rejecting China’s claim of market-economy status and refusing to alter how it calculates anti-dumping duties.

Europe is offering political and economic rewards to Beijing by removing China from the European list of non-market-economy countries in dumping investigations. While being the EU’s No. 2 trade partner behind the U.S., China is grouped with the likes of Belarus and North Korea in lacking market-economy designation by Europe and faces more European anti-dumping duties than any other country.

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Such EU levies cover billions of euros of Chinese exports such as reinforcing steel, solar panels, aluminum foil, bicycles, screws, paper, kitchenware and ironing boards, curbing competition for producers across the 28-nation bloc.

“China has coveted market-economy status as the ultimate recognition from the West,” said Hosuk Lee-Makiyama, director of the European Centre of International Political Economy in Brussels. “It’s their holy grail.”

European Protection

The EU has traditionally used other nations’ figures to calculate anti-dumping levies against China on the grounds that Chinese state intervention artificially lowers domestic prices and makes them an unreliable indicator of a good’s “normal value.” This practice, known as the analogue-country model, has resulted in higher EU duty rates against Chinese exporters and — by extension — more protection for European manufacturers.

China’s agreement on joining the WTO 16 years ago made it harder for the EU to justify using the analogue-country model against Chinese exporters after a specific provision expired in December 2016. To drive home the point, Beijing filed a complaint the same month against the EU at the Geneva-based global trade arbiter, hastening European deliberations over an overhaul of anti-dumping rules.

EU legislators negotiated a deal in October and the full European Parliament offered its endorsement the following month, leaving national governments to give their final approval on Dec. 4.

The legislation, due to be published on Dec. 18, features elements of compromise between free-trade governments in northern Europe allied with China and more protectionist member countries in the south.

‘An Elegant Solution’

“It’s quite an elegant solution,” said Lee-Makiyama. “The EU has found a near-impossible compromise between the demands of European industry that thinks China is the enemy and the bloc’s legal obligations under the WTO. There remains plenty of scope to defend manufacturers in Europe because, in a way, Europe is abolishing the diploma just as China graduates.”

To ease the impact of the new system on European manufacturers, the EU will have recourse to a special formula for calculating anti-dumping duties against countries whose markets are deemed to have “significant distortions’’ resulting from state intervention. Under the new rules, the EU will be able to construct the normal value of a good in an exporting country using undistorted costs.

In a sign of the balance that the new system strikes, the Chinese government is sending out skeptical signals about the EU changes.

The Ministry of Commerce in Beijing said in mid-November the notion of significant market distortions will cause “serious damage” to the WTO’s anti-dumping legal system. The ministry also said “China reserves its rights under the WTO dispute-settlement mechanism and will take the necessary measures to protect the rights of Chinese companies.”
Source: Bloomberg

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