China fails key test of EU market economy rules

Date: 17/02/2000

By Peter Chapman

THE first key test of China's bid to be treated as a market economy by the EU has ended in failure.

A group of Chinese steel companies had contested European Commission plans to impose anti-dumping fines on the sector by arguing they were now operating in a market economy and should be judged accordingly.

But the Commission has rejected this argument and decided to press ahead with a 13.2% levy on imports of heavy gauge 'quarto' steel plate from China, insisting that Beijing is still intervening heavily in the sector and totally distorting the market.

"Six Chinese companies applied for market economy treatment. The investigation at their premises showed, however, that all were operating under significant state influence," it said in a statement. The Commission added that the way the firms' accounts were audited and their materials sourced, and the rules governing land ownership, all failed to meet the market economy criteria. All those involved were also "either completely or majority state-owned".

The Commission's decision is a serious setback for the Chinese companies, whose lawyers had argued that they should be allowed to take advantage of the right offered to Beijing and Moscow by the EU in 1998 to fight dumping allegations by submitting price data from their domestic markets, rather than from a comparable 'reference' country which exports the same product.

This is the key difference between the way the Commission handles complaints against firms operating in market economies and those which do not. Critics of the institution's decision claim companies are much more fairly treated under the market-economy approach, arguing that the reference country system is opaque and is likely to lead to higher anti-dumping duties.

In this case, the European steel lobby group Eurofer, which brought the complaint, asked for data from Taiwan to be used, although the Commission finally decided to compare the Chinese market with India.

The Chinese firms insist that the low prices they charge reflect true market conditions in low-cost China, and do not result from subsidies and other distortions typical of a command economy.

Jim Searles, a trade lawyer with US firm Oppenheimer Wolff and Donnelly who is representing the Chinese firms, said a Commission decision to grant the companies 'market-economy status' could have led to lower dumping duties being imposed, or none at all.

"This is the first economically important case involving market-economy status," he said, insisting that it was "blatantly clear" that this status should have been granted in this instance.

There are fears that the Commission's decision will sour the atmosphere at next week's talks on Beijing's bid to join the World Trade Organisation.

The first key test of China's bid to be treated as a market economy by the EU has ended in failure. A group of Chinese steel companies had contested European Commission plans to impose anti-dumping fines on the sector by arguing they were now operating in a market economy and should be judged accordingly. But the Commission has rejected this argument.