BIG READ – PART 3 – China MES, the steel crisis, and the EU

Continued from Part 2.

EU quest for a way out of a political impasse amidst toxic domestic politics

The EU Commission – the blocs’s executive arm – is left alone with dealing with the ‘China MES’ issue, as it is commonly called. It has missed an opportunity to start preparing the ground on this predictably tricky matter early on. After all it has had fifteen years to see the December 2016 deadline coming.

The Commission takes the view – rightly – that it will have to grant China market economy status by 11 December 2016. Among others, it wants to do it for long-term, systemic reasons. Commissioner Malmström recently said: “The Commission wants an EU trade policy that creates a level playing field and opportunities ….. As the world’s largest trading economy, the best way to do that is by opening markets around the world and keeping our own open as well.  We do that by negotiating trade agreements. If we want those deals to be effective we must also respect them ourselves. That’s why the rule of law is a fundamental principle of our approach. It must apply in [the China MES] case.”

The Commission is treading carefully in the toxic and explosive domestic politics over China’s antidumping treatment. It is trying to work towards a solution by which the EU would grant China MES, but that this would be accompanied by changes in EU law that would allow it to impose higher antidumping duties than hitherto (changing dumping margin calculation methodology, or eliminating the lesser-duty rule). This could involve ad hoc changes to the law, or the revival of an overarching attempt at reforming the EU’s trade defence instruments – TDI reform in the jargon.

The executive body’s problem is that it has had no coherent strategy to deal with China for many years. Antidumping has long served as a method to try to exercise political ‘leverage’ over China and to use antidumping as a big stick of sorts to vent frustrations to Beijing. But the episode of the antidumping cases against Chinese solar power imports in 2013 backfired on the EU’s executive, and politically weakened the Commission on anything that has to do with China. Since mid 2015, it has let itself be overwhelmed by the politics of China MES and be blocked in its actions by the member states. The 28 are themselves deeply divided over the matter and unable to come up with a joint vision and craft political compromises among themselves. Each member state is a ‘naysayer’ in some way on a specific aspect of the whole file or possible package of measures, but nobody is being constructive.

The anti-China MES campaign in the EU is so powerful that it has won over a big part of the European Parliament: no political group is formally supporting the idea of granting China market economy treatment. Without the Parliament’s endorsement the EU will not to be able to change its antidumping law to accommodate China’s market economy status.

The EU Parliament’s debate is at times surreal. In the EU Parliament, among the leading MEPs campaigning strongly against granting China MES one can count a selection of French socialist party members. These are on the left fringe of the EU’s centre-left political group S&D. They blame China for being exactly what they are or want to be: socialist and state interventionist. The German green MEP Rainer Bütikofer, has demonstrated Brussels’ streets with the steel industry in its fight against Chinese dumping, alongside MEPs, like the Frenchman Edouard Martin, whose recent Parliament report on the steel industry calls for continued free allowances for energy-intensive industries (among which steel is the most prominent) in the ongoing reform of the European Emissions Trading Scheme (ETS) – a move that has so far defeated the very purpose of the ETS, which is to help reduce CO2 emissions. China friends in the centre-right trade field have revealed themselves to be hawks on the MES issue. For example, Viviane Reding, the Parliament’s rapporteur on the Trade in Services Agreement, a key proponent of including China in the most market oriented and modern trade agreement currently in the making said she wants: “no MES to China [and] more responsive & more effective EU antidumping”. From an ideas perspective, what is unfolding here is a deep corrosion of ideas and even values. A German Nietzsche-inspired term to express the situation, is “Umwertung aller Werte” or turning values on their head.

Not everyone in the Parliament has lost sight of the bigger picture. The chair of the EU’s trade committee, the social-democrat Bernd Lange, recently wrote an opinion piece called on the EU to devise “a way for the EU to comply with its WTO commitments while ensuring our workers are protected from unfair trading practices”. But the likelihood that the current political stalemate in Brussels over China MEs and antidumping reform be overcome before the end of the year is low.

The Commission is receiving no support from the US. Washington appears blind to the systemic consequences of refusing to engage with China on the market economy status issue. But if China’s expectations on the MES file are not met in some way, Beijing’s commitment to the WTO and its rules and principles could well dwindle, as the trust it has placed in the system will have been shattered. China is no easy WTO partner, but it has overall been compliant with its WTO obligations. Nobody is perfect in the WTO: it might be useful to highlight that the US for its part has continued to practice a disputed method in calculating dumping margins in its antidumping law, ‘zeroing’ until this very day, despite WTO dispute settlement rulings against the method (the latest in February 2016).

China is likely to take the fight on China MES to the WTO’s dispute settlement body after December 2016 if it sees no progress. Its trade policy behaviour towards its Western trading partners could become more aggressive as itself is increasingly subject to protectionist pressures at home.

These are no good omens for the international economic order.