As concerns grow about the likelihood of concluding negotiations on an EU-US trade deal by the year’s end, another trade challenge is looming.

The EU is due to decide by December whether to grant market-economy status to China. The move has been triggered by the fact provisions written in to China's protocol when it acceded to the World Trade Organisation (WTO) 15 years ago kick in on December 11th.

Currently China is not considered a market economy in EU anti-dumping proceedings, meaning the EU uses data from another market economy to calculate anti-dumping duties when it imposes fines on China. If China is granted market-economy status – which the country says it is entitled to – it would make it more difficult to impose steep tariffs on Chinese goods.

While the detail of the proposal is highly technical, the issue is deeply political, coinciding with tension between China and the EU over China’s alleged dumping of steel on global markets. The EU’s 28 commissioners held their first debate on the looming market economy decision in January. A 10-week public consultation followed, and the European Commission is undertaking an impact assessment which it says will take into account the economic effects of any change on each state.

Trade tensions

EU officials say the appetite to grant market-economy status to the world’s second-largest economy is beginning to fade at the highest level of the commission. The escalating trade tensions over steel, which spilled into the public domain with the closure of the Tata steel plant in Wales, Europe’s second-largest steel producer, has strained Chinese-EU relations. With Britain and the US blaming China for the glut of global steel, China retaliated last month by imposing a 46 per cent import duty on a type of high-tech steel made by Tata. Ironically, Britain had opposed the imposition of further tariffs on China, and lobbied to grant market-economy status to China around the EU table. In terms of other member states’ views, opposition to the move is strongest from

Italy

and

Spain

, with

Ireland

, the

Netherlands

and the Nordic countries understood to be in favour.

This week the European Parliament in Strasbourg debated the issue, with MEPs due to vote on a resolution today. In a signal of obstacles ahead for China, the parliament's second-largest group, the Socialists and Democrats (S&D) opposed the change, arguing "millions of jobs and a fundamental share of European gross domestic product are at stake."

Dumping margins

Addressing the parliament, European commissioner

Vytenis Andriukaitis

indicated some form of middle ground may be in the offing, such as a US-inspired model which would calculate dumping margins on a case by case basis. Another possibility is certain sectors would be protected even if market-economy status is granted to China.

The EU's trade commissioner Cecilia Malmstrom has previously taken a tough line with Beijing over steel, urging China to cut overcapacity, and opening three new anti-dumping investigations into Chinese steel products in February.

But while the political mood is souring towards granting market economy access, some officials are concerned about consequences if the move is refused. Ireland would be badly affected if China was to impose retaliatory measures on agricultural imports from the EU, for example, something EU commissioner Phil Hogan is likely to be aware of.

Despite the fact Europe has a trade deficit with China, the country is becoming one of Europe's fastest-growing export markets. With trade between Europe and China estimated at over €1 billion a day, the EU will be conscious of striking a balance between supporting European industries and prioritising new trade opportunities as it prepares to take the decision later this year.