Letter on the Commission's proposal on China's protocol of accession to the WTO

28 October 2016

Following a meeting held in the European Parliament on 28 September 2016, a group of progressive MEPs and local representatives in the EU's Committee of the Regions as well as steel unions and employers, defined a common set of demands to the European Commission on the controversial issue of whether the EU should grant Market Economy Status (MES) to China.

China joined the World Trade Organisation in 2001. In exchange for accessing the global market, China promised to reform its economy to limit the scope for unfair state intervention which distort international competition. Yet, little has been done by Chinese authorities since 20011. The Chinese economy is still not a market economy and the country has been dumping massive quantities of goods such as steel onto the European market, below production costs, thanks to state subsidies.

A provision included in the Chinese accession protocol to the WTO means that the exception regime applied by other WTO members – including the EU – to deal with Chinese dumping could be challenged by China from 11 December 2016.

The EU imposes, in accordance with WTO rules, trade defence measures to protect itself against unfair competition. Anti-dumping and anti-subsidy measures have been applied by the EU to 37 different steel products originating from China. These measures result in the imposition of extra tariffs on imports from China, which are calculated using a specific methodology known as the "analogue country" methodology: since costs on the Chinese market, being heavily distorted due to state intervention, cannot be trusted the Commission uses costs on other countries' markets to determine the harm done to EU producers.

In the EU legislation, this is possible thanks to an annex to the EU's general anti-dumping regime which lists "Non Market Economy" countries for which alternative methods can be used.

In July 2016, the EU announced that it would soon propose a change to the EU legislation that would adapt our trade defence instruments to make them immune to any challenge by China after 11 December, while retaining the ability to protect EU production against Chinese dumping. Rather than grant market economy status to China, the Commission proposed to scrap the "non-market economy" list altogether and define a new methodology that would be compatible with WTO rules.

Beyond this specific issue with Chinese imports, the EU has been attempting to reform its trade defence instruments for years. The Commission proposed a reform in 2013 which was adopted by the European Parliament in 2014. But a minority of EU member states led by the UK has been blocking the reform, which would have resulted in much higher anti-dumping duties being imposed.

The signatories to this letter make it clear that they reject granting Market Economy Status to China, and make a series of demands to the Commission: the new methodology should remain based on the EU's criteria to define a market economy, even if the list of non-market economies is abandoned; the burden of the proof should remain on China, and the new EU system should not assume that China complies with EU rules unless EU producers demonstrate otherwise; the new proposal should not discriminate between different sectors of the EU economy. In addition, the letter calls for a swift approval of the reform of EU trade defence instruments, and recalls the position of the European Parliament in this respect which called for the introduction of corrective measures against social dumping as well as economic dumping. The letter also demands the publication of the long overdue assessment carried out by the Commission on the impact of granting MES to China.

The text of the letter is avaible below:

We have taken note of the announcements made by the European Commission following the Collegeof Commissioners’ orientation debate on the treatment of China in anti-dumping investigations which took place on 20 July 2016. We also read carefully the Commission’s communication “Towards a robust trade policy for the EU in the interest of jobs and growth”, adopted on 19 October.

We welcome the fact that the Commission publicly stated that it will not propose to grant Market Economy Status (MES) to China. Instead, the Commission intends to propose a new non-standardmethodology which, in our view, should be firmly founded on the provisions of Section 15 of China’sWTO Accession Protocol which remain in force after December 2016 and must not lead to a defacto granting of MES to China.

In its new communication, the Commission made clear that it intended to include a grandfatheringclause in its forthcoming proposal - that would ensure that the analogue country methodology will stillapply legitimately for all anti-dumping investigations that will start after 11 December 2016 and until the entry into force of the new legislation.

We also recognize the Commission’s efforts to unlock the modernization package of the trade defence instruments through the partial lifting of the so-called lesser duty-rule. In this respect, we would liketo recall the position of the European Parliament adopted at first reading on 16 April 2014. Nevertheless, we wish to stress that MES China and TDI modernization are two separate issues thatshould be tackled at the same time. If the proposed “new methodology” does not effectively shelter EU producers from unfairly dumped Chinese exports, our ability to mobilise TDIs - even if the intentionis to reinforce them - will be severely diminished.

We understand the Commission intends to propose a “country-neutral” methodology and it promisesto maintain the same level of protection from Chinese dumping as now.

With the purpose of maintaining a strong anti-dumping tool, we ask the Commission to include the following elements in its forthcoming legislative proposal:

- A clear link between the trigger of the new “non-standard” anti-dumping methodology and the EU’s market economy criteria: the use of Chinese prices and costs as a basis for calculating dumping should depend on China’s and Chinese producers’ complete fulfilment of the EU’s five criteria as establishedby EU law and practice

- Non-reversal of the burden of proof: it should remain up to China and Chinese exporters to prove that they operate under normal market economy conditions

- Non-discrimination between economic sectors: the new methodology should be actionable equally by all industrial sectors and EU producers affected by injurious dumping.

Moreover, in order to better assess the possible consequences of the forthcoming legislative proposal, we urge the Commission to publish as soon as possible the results of the impact assessment and of the public consultation it held in the spring. We hope you will be able to share our views on this decisive file.

Best regards,

For the European Trade Union Confederation For IndustriAll European Trade Union
Mr Luca Visentini, General Secretary Mr Luc Triangle, General Secretary

For AEGIS Europe,
Mrs Ines Van Lierde, Chair

In the Committee of Regions,
Mrs Catiuscia Marini, President of Region of Umbria Mrs Isolde Ries, Vice-President of the
Saarland Landtag, CoR rapporteur on steel

In the European Economic and Social Committee
Mrs Gabriele Bischoff, President of the Mr Andrés Barceló, Member of the
Workers’ Group Employers’ Group

In the European Parliament:
Edouard MARTIN
Emmanuel MAUREL
Georges BACH
Hugues BAYET
Tiziana BEGHIN
Goffredo BETTINI
Fabio Massimo CASTALDO
Sergio Gaetano COFFERATI
Nicola DANTI
Isabella DE MONTE
Eleonora FORENZA
Alessia MOSCA
Dominique RIQUET
Claude ROLIN
Massimiliano SALINI

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