Disputes continue

According to China’s WTO admission protocol, the use of the “surrogate country” method in anti-dumping investigations against China ended on December 11.

Under the surrogate country method, authorities determine whether or not to impose tariffs on the basis of reference prices in a third country rather than product prices in the exporting country. As a result, more Chinese products end up being investigated, and in most cases, they have to pay higher anti-dumping duties compared with countries not subject to the surrogate country method.

But the European Commission on November 8 submitted to the European Council and the European Parliament an amendment proposal on protection against dumped imports.

In the proposal, the EU has introduced the concept of “market distortion,” which will take multiple criteria into consideration - state policies and influence, the extent to which government-owned enterprises operate in the sector, discrimination in favor of domestic companies and the degree to which the financial sector is independent. According to the new EU proposal, the surrogate country method will still be used in cases involving countries found to have so-called market distortions.

China has expressed its discontent about the proposal. “We have taken note of this, and we have concerns,” said Lu Kang, Spokesperson of the Ministry of Foreign Affairs.

Lu said China acknowledges the European Commission’s proposal to remove it from the list of non-market economy countries, which reflects the EU’S willingness to fulfill Article 15 of the Accession Protocol of China to the WTO.

“Much to our regret, however, the new methodology proposed by the EU, which replaces the non-market economy concept with that of market distortion, fails to uproot the practice of surrogate country. It only gives it a new cover. That’s neither a thorough implementation of Article 15 nor compliance with WTO rules,” Lu said.

The latest EU proposal mainly targets China, although the new rules may also be used against other countries, according to Tang.

Tang said the EU was concerned about the expiration of Article 15. If the EU stops using the surrogate country method in anti-dumping investigations against imported goods from China, a number of industries, including iron and steel, ceramics and photovoltaics, will bear the brunt, and according to a report by European Industries, close to 200,000 Europeans will lose their jobs, a prospect which sparked massive protests in Brussels in February.

The European Commission is under lots of pressure and caught in a dilemma. Consequently, it has created the market distortion concept to protect European industries most vulnerable to Chinese exports, Tang said.

According to Cheng, the WTO itself does not actually define the nature of a market economy. “Domestic trade laws have created the concept of market economy status and the criteria for granting it.”

The protocol, however, does say that “in any event,” WTO members may not use the surrogate country method against Chinese exports beyond the 15-year transition period following China’s WTO accession.

According to German Ambassador to China Michael Clauss, positive progress will be made with regard to China’s market economy status.

“I think things are developing toward a good direction,” Clauss told Chinafrica. “In the meantime, the EU will strengthen trade remedy measures. Overcapacity exists globally, including in China, therefore the EU needs to take some effective measures to fight against dumping in some industries.”

But Yao Ling, Associate Researcher with the Chinese Academy of International Trade and Economic Cooperation, disagrees with Clauss, saying that overcapacity should not be an excuse for not abiding by the rules.

“Overcapacity is a globally prevalent issue resulting from stimulus policies in the wake of the 2008 financial crisis. It should be solved by negotiation. There’s no need to relate this issue to China’s market economy status or whether or not to abide by some of the provisions in its WTO accession protocol,” Yao said.

By 2015, the EU had been China’s largest trading partner for 11 consecutive years, while China had been the EU’S second largest trading partner for 12 consecutive years.

If the EU can fulfill its obligations stipulated in Article 15 and maintain its status as an advocate for and leader of free trade within the WTO, it will be a win-win choice for both China and the EU, Yao said.