Europe must not let itself be guided by fear

Updated: 2016-05-16 08:40

By Luigi Gambardella(China Daily USA)

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Semantics are often the cause of misunderstandings, and this is true of the debate in the European Union over whether or not to grant China market economy status.

When China joined the World Trade Organization in 2001, it agreed to a 15-year transitional period during which other WTO members were allowed to apply the "nonmarket economy methodology" in anti-dumping procedures concerning China.

Under this methodology, the trade officials of the EU Commission are entitled to estimate by analogy the domestic production cost and prices of export products, instead of basing their investigation on domestic market prices.

The Chinese government argues that when the transitional period ends on December 11, 2016, the trade officials from the Commission will no longer be entitled to apply the nonmarket economy methodology.

Conversely, some lawyers argue that until the other WTO members grant market economy status to China in their national legislation, their anti-dumping investigators can continue to use the nonmarket economy methodology. That, in a nutshell, is what the whole China market economy status debate is about.

The interpretation of the WTO agreement could be tested in a dispute settlement procedure. But is this advisable? Let us not forget the political and symbolic dimensions of the debate. According to the Mission of China to the EU, more than 80 countries, including New Zealand, Australia, Peru, Chile and Association of Southeast Asian Nations countries, have already granted China market economy status. Their choice was primarily dictated by political reasons, including the conclusion of free trade agreements.

To deny market economy status to China would be a strong political signal from the EU and could cause the deterioration of the warming political relationship between the two economies. In the short term, there are concrete risks of retaliation from China that would cause the EU economies serious pain and uncertainty about the end result. It would also threaten the positive outcome of the ongoing negotiations for a bilateral investment treaty and the potentiality to conclude an FTA between China and the EU - which, according to Commission estimates, could raise European prosperity by 250 billion euros ($282.71 billion).

Closing the door to China would thus likely have very negative effects.

As the saying goes, the best way to win a dispute is to avoid it. A wise decision would be to adopt a forward looking political approach, whereby granting China market economy status could be used by the European institutions to strengthen dialogue with the Chinese authorities in support of the business activities of the EU companies in China.

One of the main drivers of the market economy status debate is the fear of job losses in Europe's less competitive manufacturing industries. It is however time for the EU to reflect on why its ability to compete with other economies is getting worse in many sectors. One of the reasons is no doubt the burden of too many EU regulations that hamper the overall ability to innovate and invest. There would probably be fewer dumping disputes if European governments proceeded with the necessary structural reforms.

In conclusion, what is needed is more dialogue not less. We need to find win-win solutions rather than start a new fight. Today the key word is cooperation. History has demonstrated that dialogue and cooperation overcome misunderstandings and reduce distances. Europe must not to be afraid of China. Fear is a bad advisor.

So let us not to allow fear to guide us. On the contrary China and Europe should work together more closely in the future and for the future. Cooperation with China on the fourth industrial revolution will be crucial if we want to keep European industry competitive and strong.

The author is president of the business-led international association ChinaEU, which is headquartered in Brussels.


Europe must not let itself be guided by fear

(China Daily USA 05/16/2016 page12)