MINISTRY FOR FINANCE CHINA MARKET ECONOMY STATUS – EU Consultation EPD – MFIN 23/03/2016 1
BACKGROUND ON THE ISSUE • China is member of World Trade Organisation (WTO) since 11 December 2001 • Article 15 of Accession Protocol specifies that China be granted automatic Market Economy Status (MES) after 11 December 2016, 15 years after accession. • Debate on whether clause is automatic or not as China should fulfil first obligations which were part of the accession package (which are legally binding) • Number of WTO Members argue that China must demonstrate that it has reached MES for either the whole economy or for some sectors 2
BACKGROUND ON THE ISSUE (1) • On the basis of Article IV of the General Agreement on Tariffs and Trade and WTO Anti- dumping Agreement (ADA) Members of the WTO are allowed to take action against ‘dumped’ products • MES is only relevant to anti-dumping investigations and not to additional implications • US has also not granted MES to China, but other trading partners that have 3
Economic importance of trade defence measures against china • Imports from China were subject to 56 definitive anti- dumping measures by April 2016 • Share of EU imports from China affected by measures is 1.38% • Industries with most measures: (i) chemicals & allied (ii) iron & steel (14 and 13 definitive respectively) • Ceramics, iron & steel, other mechanical engineering (bicycles), and electronics (solar panels) are the sectors that provide highest number of jobs 4
ANTI-DUMPING AND THE EU APPROACH • Dumping is practice of exporting products at lower prices than what is normally charged in home market (‘normal value’) • To counteract dumping and defend domestic industries, WTO Members can apply AD • WTO allows importing Members to charge anti-dumping duties on particular products • EU applies own Anti-dumping Regulation (Basic AD Regulation) which is known to be WTO+ in order to restrict the use of dumping 5
ANTI-DUMPING &THE EU APPROACH (1) • EU Basic Regulation on anti-dumping (CE 1225/2009) lists China as a non-market economy • Other non-MES: Vietnam, Kazakhstan, Albania, … • EU applies ‘lesser duty rules’ in anti-dumping investigations: i.e. duties at minimum level sufficient to remove injury suffered by EU industry, if level is lower than dumping margin • EU conducts ‘Union interest test’ which considers whether positive effects on EU industry are offset by negative effects in other areas/sectors of economy, after considering all relevant EU interests 6
CURRENT EU PRACTICES IN ANTI- DUMPING INVESTIGATIONS 7
MES Criteria in EU AD Regulation • Member are allowed to use own legislation to establish whether or not a country should have MES as there is no common WTO definition. • EU uses 5 technical criteria to be met for MES: 1. Low degree of government influence over allocation of resources and decisions of enterprises 2. Absence of state-induced distortions in operation of enterprises linked to privatisation and use of non-market trading or compensation system 3. Existence and implementation of transparent and non-discriminatory company law which ensures adequate corporate governance 4. Existence and implementation of a coherent, effective and transparent set of laws which ensure respect of property rights and operation of a functioning bankruptcy regime 5. Existence of genuine financial sector which operates independently from the state and which in law and practice is subject to sufficient guarantee provisions and adequate supervision * Last technical assessment carried out by EU Commission in 2011 concluded that only one criteria related to ‘the absence of state intervention in enterprises linked to privatisation and absence of non-market forms of exchange or compensation such as barter trade’ was fulfilled. 8
The role of mes in eu anti-dumping investigations • Article 15(a) of Accession Protocol provides specific measures for comparing prices in anti-dumping cases: Industry level – if Chinese producers show that ME conditions 1. prevail in industry in China, importing WTO members must use Chinese costs and prices 2. If Chinese producers cannot show ME conditions prevail in their industry, importing Members can use methodologies that are not based on a strict comparison with Chinese prices and costs (EU uses analogue country) – If China is granted MES, provision 2 would not be possible anymore – EU would be open to litigation under infringement of WTO law if procedure 2 is maintained 9
WHAT CAN WE CONCLUDE FROM PAST EU AD EXPERIENCE? • Some exceptions to general application of non-MET of Chinese products in EU AD investigations have been made to Chinese exporting companies • In such cases AD duties were therefore calculated on the basis of Chinese prices • On average, resulting prices were 30% lower than those calculated by ‘analogue country’ procedure • Lower dumping margins may result if China is granted MES, but differences in dumping margins vary according to sector 10
OPTIONS BEING CONSIDERED BY THE COMMISSION • Commission proposed options: I. Leaving EU legislation unchanged (Continuing to apply the non-market economy methodology.) II. Changing AD methodology for trade defence investigations against China with no mitigation measures (Removing China from the list of non-market countries.) III. Changing AD methodology for China as part of a package including mitigating measures (Same as option 2 however the related provisions of the legislation will be strengthened) 11
1. Leaving EU legislation unchanged – Continue to apply the non-market economy methodology for anti-dumping investigations concerning Chinese products. – Could put the EU in breach of WTO obligations and hence this could trigger challenges for compensation by China (in a dispute settlement case). 12
2. Changing methodology for TDIs against China with no mitigation measures • EU law would be modified to reflect the expiry of the transitional arrangement. • Remove China from the list of non-market economy countries and utilise the same procedures as applied for other market economies. 13
3. Changing AD method for China as part of package incl. mitigating measures • Modify EU legislation by removing China from the list of non- market economy countries • Strengthen other related provisions of the legislation which may include for example: – Safeguarding the definitive anti-dumping measures in place (‘grandfathering’) . – Reinforcing the EU’s trade defence instruments (AD/AS) to ensure the continued effectiveness of the instruments for future cases (e.g. removing the lesser duty rule) The exact scope and design of such mitigating measures remains to be defined. 14
CURRENT AD MEASURES IN FORCE AGAINST CHINA 15
CURRENT AD MEASURES IN FORCE AGAINST CHINA 16
CURRENT AD MEASURES IN FORCE AGAINST CHINA 17
CURRENT AD MEASURES IN FORCE AGAINST CHINA 18
ARGUMENTS IN FAVOUR OF GRANTING CHINA MES It is clearly stated in Protocol on China’s Accession to WTO that surrogate country method could not be used after 11 December 2016 China has undergone remarkable achievements in economic development and has developed a pathway to market economy MES would benefit certain downstream industries in the EU and consumers of goods from China The issue creates a possibility for a major legal challenge in the WTO 19
ARGUMENTS AGAINST GRANTING CHINA MES • China does not fulfil EU MES criteria • EU operators would be disadvantaged in competing with Chinese exporters with expected job losses (in specific sectors) China’s MES issue may have further implications than just EU- China relationship (such with US, Canada and Japan) Most AD measures in force on Chinese imports are concentrated in specific sectors which serve both downstream and upstream industries and would damage the EU’s general economy. 20
POINTS FOR CONSIDERATION: • a. Direct impact on consumers / importing producers from AD measures which, in turn, adversely effects inflation; • b. The interests of industry in measures, particularly companies benefiting from measures and others being affected negatively. Data indicates mix of primary, intermediate and finished products for consumers and industry in areas where Malta has limited or no production (confirmed by consultations on specific cases); 21
Consultation Questionnaire • Info on respondents • Possible implications on expiration of certain provisions of section 15 of China’s WTO accession protocol • Additional measures: – Info on exiting measures and their impact if any on respondents – Dealing with significant distortions – Non-application of the lesser duty rule (LDR) – Amending the anti-subsidy regulation 22
Links • Link to EC consultation: – http://trade.ec.europa.eu/consultations/index.cfm?consul_id=191 China’s WTO accession protocol can be found on the following website: • https://www.wto.org/english/thewto_e/acc_e/completeacc_e.htm • Our contact details: Economic Policy Department St Calcedonius Square, Floriana FRN 1530 – e-mail: economicpolicy@gov.mt – phone: 21249359 23
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