EVERYONE loves a good trade war or at least a trade skirmish. As a reporter, I’ve written endlessly about quarrels between nations over imports and exports of textiles, footwear, bicycles, steel and other equally mundane products.
The battles are over tariffs (too high or too low), market access, quotas, subsidies, non-tariff barriers and other obstacles and restrictions. And they usually involve the European Union — after all I am based in Brussels and the EU is the world’s largest trader — and a motley group of nations including the United States, Japan, China, India, Pakistan and so on.
With global trade in goods running at around 18 trillion or so dollars a year, it is hardly surprising that nations sometimes rub each other the wrong way. Trade is important because it creates jobs, growth and development.
But confrontations over steel, textile and other products have a nasty way of infecting not just the conversation on trade between states but also their overall “beyond trade” relationship.
This is what may happen in the ongoing debate in the EU over granting market economy status (MES) to China.
The story goes back to 2001 when China joined the World Trade Organisation (WTO) and promised to liberalise trade and undertake a swathe of economic reforms. The deal was that China’s partners would continue to treat it as a “non-market economy” until December 2016 after which according to Beijing’s interpretation it would get full MES.
So what’s so important? If China is granted MES, the EU (and other WTO members) will find it more difficult to slap anti-dumping fines or duties on Chinese products believed to be sold in Europe at unfairly low prices.
China believes it should be granted MES automatically under WTO rules. The EU is split on the issue. And the discussion is further complicated by the global oversupply of steel and the recent increase in Chinese steel exports to Europe.
The European Commission is under pressure from many of its member states to step up action to relieve an ailing steel industry suffering from tumbling prices and cheap imports from China and Russia.
The EU is the second largest producer of steel in the world after China, producing over 177 million tonnes a year and accounting for 11 per cent of global output. But 85,000 jobs in the steel sector have been lost since 2008 representing over 20 per cent of the workforce. The EU also has some of the world’s highest energy costs and green taxes.
Disgruntled steel workers have poured on to the streets of Brussels demanding that the EU stop any moves to grant MES to China because it would worsen their fate. Alarmist studies warn that between 1.7 million and 3.5 million jobs would be lost if China gets MES. Washington is also adamant that Brussels should not meet China’s demands for MES access.
While Brussels deliberates over the matter, Beijing insists that the EU must not renege on its WTO obligation. Tempers are beginning to fray, raising concerns that the carefully-crafted overall EU-China relationship is being impacted.
That would be a pity. Total trade between China and the EU comes to almost one billion euros a day. Anti-dumping actions and the granting of MES only account for a small percentage of such trade. And in any case, granting MES to China would not prevent the EU from pursuing anti-dumping cases against China.
But trade quarrels have a way of becoming politicised and spiralling out of control. Which is exactly why both the EU and China need to think carefully about keeping their relations on track while resolving the MES issue.
It’s no secret that China has an over capacity in the steel sector of 400 million tonnes. Much of the surplus is exported to Europe, with 53 per cent increase of steel imports from China last year.
This has led EU Trade Minister Cecilia Malmstrom to warn that “whatever happens to the market economy status, China needs to behave responsibly and to make sure that its overproduction of steel isn’t dumped into the global market”.
According to some reports, the EU may give MES to China on the condition that Beijing reduces the amount of steel it exports to Europe. Other options could include the negotiation of a “package deal” under which China would agree to restrict its exports of steel and speed up negotiations on a bilateral investment treaty in exchange for an EU decision to grant MES and to undertake an exploratory study on an EU-China free trade agreement, a long-standing Chinese demand.
China has already made some conciliatory moves. In a letter sent to the EU, China’s Trade Minister Gao Hucheng has said Beijing is committed to decrease the steel output “by between 100 and 150 million tonnes”.
But the conversation continues. A decision on MES will likely be made by the EU towards the end of 2016. In addition to the European Commission, the European Parliament and national governments also need to give their approval.
It’s going to be complicated. Both sides need to tackle the issue carefully and cautiously. The focus must be on compromise and cool-headed deliberation.
It would be unfortunate if the carefully-crafted and multifaceted EU-China relationship were to suffer because of discord over trade.