EU: China Not Yet a Market Economy

BRUSSELS -- The European Union has refused to grant China coveted Market Economy Status following a request submitted by Beijing last June, the bloc's executive commission said Monday.

"Remaining shortcomings in four broad areas, which affect the conduct of anti-dumping investigations, mean that it is not possible to grant MES at this stage," it said in a statement.

The European Commission said the finding only concerned trade defense investigations that cover anti-dumping and anti-subsidy cases. In 2003 only 0.5 percent of Chinese exports of goods to the EU were subject to anti-dumping measures. Dumping involves exporting goods at a lower price than they are sold for domestically.

Commission spokeswoman Arancha Gonzalez said when China joined the World Trade Organization in November 2001, it had agreed to be considered a non-market economy for 15 years, but had sought to have this overturned by a special procedure.

This request was what the commission turned down Monday, as Gonzalez said it could not accept China's estimates of costs and prices at face value when it calculated anti-dumping duties.

"Anti-dumping duties are calculated on the basis of the costs and prices given by the company," she said. "We don't take the prices and costs given by the company at face value because the state has a major influence in fixing prices and costs in that country, so we use the prices or the costs of a company in a third country."

Granting China MES would have a symbolic value for Beijing, but would also give practical benefits by reducing trade barriers to Chinese goods.

"MES does not have an impact on the number of anti-dumping/anti-subsidized cases; it is simply a method to calculate AD [anti-dumping] duties," the commission statement said.

The four conditions that must be met before the bloc will grant MES are:

State influence -- ensuring equal treatment of all companies by reducing state interference, either on an ad hoc basis or as a result of industrial policies, as well as through export and pricing restrictions on raw materials.

Corporate governance -- increasing compliance with the existing accounting law to ensure the usability of accounting information for trade defense investigations.

Property and bankruptcy law -- ensuring equal treatment of all companies in bankruptcy procedures and in respect of property and intellectual property rights.

Financial sector -- bringing the banking sector under market rules.

"This preliminary assessment is not an overall judgment on the state of development of the Chinese economy, but a technical analysis linked exclusively to the determination of companies' costs and prices in trade defense investigations," the commission said.