China's Status In EU Trade Defence Investigations (And Why It Matters To Britain)

Author:Ms Bernardine Adkins and Rory Jones
Profession:Gowling WLG

UK-China trade relations are making headlines, with China's appetite for future investment in the UK in the balance as the newly-minted British government hesitates over the involvement of Chinese companies in the UK's infrastructure.

The EU also faces a dilemma with respect to EU-China trade relations. Buoyed by a change to the terms of China's World Trade Organization (WTO) accession agreement, China is now mounting pressure on the EU to grant it 'market economy status' (MES) under EU trade defence legislation, an outcome that would leave Chinese exporters less vulnerable to swingeing anti-dumping duties.

From an EU perspective, however, there remain concerns as to how EU industry is to be shielded from unfair competition from Chinese manufacturers in a number of strategically important sectors, such as steel, at a time of excess capacity in China. This capacity may be being 'dumped' into the EU to the detriment of the Community industry.

Accordingly, in this guidance alert, we consider the European Commission's (the "Commission") latest proposals for reform and explain why the treatment of Chinese imports under EU trade defence legislation is (and will continue to be) of significance to British manufacturers.

Market economy status

At the heart of the EU's trade defence policy is the belief that the EU's commitment to open trade with third countries can only be viably maintained if EU industries are protected from unfair trading practices such as 'dumping'1.

Under EU trade law, the methodology for determining the maximum level of anti-dumping duties that may be imposed is predicated upon whether or not the exporting country holds MES.

Consequently, the status of the exporting country under EU trade law determines the maximum level of protection that may be offered to EU manufacturers. A concern voiced by those opposed to China being granted MES is that the application of the standard methodology to a non-market economy would fail to take account of State-induced distortions in that economy, resulting in artificially low dumping margins and a reduction in the level of legitimate protection that may be afforded to EU industries2.

Why the change?

China's bid to attain MES in EU trade defence investigations has, to date, been rejected on the basis that it does not yet satisfy all of the EU's predetermined market economy criteria.

Instead, there is a presumption in EU trade defence investigations (rebuttable on a case-by-case basis) that Chinese exporters do not operate within a market economy and that...

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