One of the most important issues that will be discussed this year in the area of international trade is how the EU should deal with goods that are brought onto the European market by China for a very low price, which is called dumping. To hear different analyses by experts, the International Trade Committee of the European Parliament organised a workshop about this issue. There will also be a plenary debate about it. It sounds simple enough, selling products below cost price should not be allowed, right? But the legal and economic details and technicalities make this a difficult subject, both on content and politically.
Why is 2016 an important year? In 2001 China became a member of the World Trade Organisation (WTO). When China joined, China and all the other members of the WTO signed a so-called ‘accession protocol’. This document establishes the rules and commitments by China as well as for the other members. The EU is also a member of the WTO. One of the crucial elements of the protocol was to establish the methodology for how WTO member states are allowed to decide whether Chinese goods are being dumped or not. The reason that the dumping of products from China is an issue now is that the text which sets out the rules with regard to dumped products will expire in December 2016.
Normally, when an investigation is launched to see whether dumping is taking place, a comparison is made between domestic prices of a product and the price for which it is being exported. If the export price is a lot lower than the normal or domestic price of that product, it is being dumped. In this case, tariffs are introduced on that product, to make up the difference and to make sure that European industry is protected against (artificially) low-priced products. In the Chinese accession protocol to the WTO, a special clause was introduced. Because the Chinese government intervenes to lower domestic prices, for example through subsidies, the comparison is not made with Chinese domestic prices, but the domestic prices in a country that is analogous to China, such as India.
According to the European Commission, it would be illegal to compare Chinese export prices with for example Indian domestic prices after 2016. Instead, the EU would have to compare Chinese export prices with Chinese domestic prices, of which we know that they are being manipulated by the government. Logically it would become a lot harder to establish that goods are being dumped and the correcting tariffs would often be lower. A part of the European industry is very worried because they fear a huge influx of cheap Chinese goods, especially for example steel, cement and ceramics. The EU would have to change its own legislation to make this possible.
The European Commission is now working on an impact assessment to see what the possible effects could be for the EU. It is expected to be ready around June. The Commission will use this as a basis for a proposal on what to do. Most likely, it will come with a new way to establish dumping and calculate the tariffs. This will require a set of further measures to make sure that we can still protect the European market against unfair competition and to make sure that the EU can still address illegal practices by the Chinese government.
It is a shame that the Commission has only now started to investigate this complex issue. We have known since 2001 that this moment would come and now we have to act under a very tight deadline. But it is crucial that the EU makes sure that it follows the commitments it has made. If we want to keep China to the rules, we also have to stick by them. That is why this discussion should in the first place be a legal one and not an economic one. The rules-based international trading system is a crucial foundation for the European economy, because it is so dependent on trade.
Some are now advocating for not changing the way we deal with dumped goods from China and wait to see what China’s reaction would be, even though it seems likely that this will not be allowed under the agreements at the WTO after 2016. The problem with this approach is that the Chinese will almost certainly launch a case under the WTO dispute settlement mechanism. It would not be good for the EU to lose such a case. The effect would be that we would then still have to find a new way to calculate anti-dumping. That is a situation we should definitely avoid because it would de facto mean outsourcing the EU’s decision making process to a WTO panel, a very weak approach.
The coming months, there will be many discussion and debates about this subject and it will become clearer what the position of the other member states is. It must be a debate based on facts and solid legal opinions, so that we can take a decision that strengthens the global rules-based system and with which we can show that the EU will remain a defender and enforcer of that system.
Watch the speech by Marietje Schaake in the plenary meeting of February 1:
06-11-2015 Blog: Values-based trade