backYou can please some of the people all of the time, you can please all of the people some of the time, but you cant please all of the people all of the time. John Lydgate
One open issue for the EU in addressing Chinas Non-Market Economy (NME) status is whether by trying to please all of the various interests, it will place itself in a position to please none (or maybe just China). Unless its proposed alternatives are just a well-orchestrated distraction from a more sinister plan to simply de facto grant China market economy status, the EU may be veering down precisely this path.
The EU is currently discussing the economic and legal implications resulting from the expiry on 11 December 2016 of certain provisions in Chinas Protocol of Accession to the World Trade Organization (WTO) relating to its status as a NME in anti-dumping investigations. The discussion centers on whether the EUs anti-dumping and anti-subsidy rules need to be revised vis--vis China.
China is the main target of EU trade remedy investigations, in which anti-dumping proceedings are most prevalent. Under existing rules, Chinese producers are considered not operating under market economy conditions, unless proven otherwise. For the calculation of dumping margins, the EU may therefore disregard these producers own prices and costs of production and substitute them with data from producers in third-country market economies, like Thailand or India. This methodology generally allows the EU to calculate dumping margins for Chinese producers that adjust for the distortions of Chinas state intervention and thereby ensure adequate protection for competing EU industries.
With the expiration of certain WTO Protocol provisions in December 2016, the European Commission, the executive arm of the EU, is purportedly drafting a proposal to be tabled by the end of the year that will provide alternatives to Chinas market economy status sufficient to establish an equivalent level of protection. The European Commission is also calling on the EU Member States to act quickly and adopt a 2013 Commission proposal to modernize the EU's trade defense instruments. In the context of these proposals, the Commission is seeking to balance the impact on EU industries that rely on anti-dumping remedies, on EU importers that benefit from cheap imports from China, and on its relations with the Chinese government, which strongly argues that it must be granted market economy status.
The Commission is purportedly considering an approach that removes the formal designation of China as a NME, ignores the non-expiring provisions of Chinas WTO Protocol, applies current market economy rules on a non-discriminatory basis, and preserves an option to use prices and costs outside the target country if certain conditions are satisfied. Presumably, the Commission believes that this approach will please China because it terminates formal NME status and concedes that Chinas WTO Protocol no longer applies and will please EU industries and the EU Parliament because it preserves the ability to use prices and costs outside China (i.e., some form of NME methodology in practice).
Unfortunately for the EU, this effort to thread the needle ignores current WTO case law that may undermine the legal basis for its approach. In EU Anti-Dumping Measures on Biodiesel (DS473), Argentina challenged before a WTO dispute settlement panel the EUs anti-dumping methodology regarding the imposition of anti-dumping duties on imports of biodiesel from Argentina. The EU rejected the reported cost of production of Argentinian biodiesel producers and replaced them with an international reference price for soya beans, because the costs in Argentina were distorted by government intervention in the form of an export tax. The WTO panel found that the EU acted inconsistently with its obligation when it rejected the reported costs of the Argentinian producers. The EU appealed the panels findings to the WTO Appellate Body. If upheld, this case will raise serious doubts as to whether market economy WTO rules would support the use of prices and costs outside China.
Although the subject of rigorous debate, the non-expiring provisions of Chinas WTO Protocol appear to preserve the option in anti-dumping cases on imports from China to continue using prices and costs outside China provided relevant conditions are satisfied. Thus, if the Appellate Body forecloses the use of prices and costs outside the target country under existing market economy rules, the Commission will need to rely on the non-expiring provisions of Chinas Protocol in order to preserve the ability to use prices and costs outside China and thus maintain an equivalent level of trade remedy protection for EU industries.