CHINA: MES? The concerns of the EU Industry Fondation Madariaga - 22 June 2012 Inès Van Lierde - Chair of BUSINESSEUROPE TPI Working Group

China became WTO member in In the WTO Accession Protocol, a transitional period (up to 11 December 2016) was agreed upon in respect to several topics, one of those being the potential granting of “Market Economy Status” (MES) WTO and MES are, de facto and de jure, two independent concepts: There are WTO members which were not granted MES at the time of their accession (China) There are non WTO members which were granted MES (Russia) China and the WTO

In 2016, the Accession Protocol provides for the recognition of China as a market economy, though there is a legal debate (and uncertainty…) about the “automaticity” of such a recognition by WTO Members. The question (and the debate..) there is: - Is this recognition automatically granted pursuant to the Accession legal provisions (in particular Art. 15 of the Accession Protocol) OR - Could WTO members unilaterally decide after 2016 that China still has to proof MES according to their own criteria (EU, US…), by industrial sector or case by case? China and the WTO

Article 15(a) of the Accession Protocol provides specific measures for comparing prices in anti-dumping actions. i) If Chinese producers can show that ME conditions prevail in their industry in China, then importing WTO members must use Chinese costs and prices to determine the normal value. ii) If Chinese producers cannot show that ME conditions prevail in their industry, then importing Members can use methodologies not based on a strict comparison with Chinese prices and costs. In December 2016, this second provision (ii) expires. China and the WTO

Article 15(d) of the Accession Protocol provides that it is China that must show that it has MES either for the whole economy or for subsectors of the economy. Hence, there is nothing automatic in the granting of MES. ‘Showing’ MES is not one single act valid immediately in all WTO Members. China must show that it has achieved MES according to the criteria laid down in the relevant law of each WTO member. As China was not granted MES on WTO accession, some Members consider China to have MES. Others do not. China and the WTO

The problem facing investigating authorities (the Commission in the EU) is what happens if the exporting producers cannot show that ME conditions apply in their industry (or China is unable to show that it has achieved MES). In that situation, the investigating authority is not obliged to use the domestic Chinese prices and cost. It is likely that the investigating authority will have to use prices that are somehow comparable to domestic prices but not the actual prices. In other words, prices and costs adjusted to true market conditions. This issue still has to be resolved. China and the WTO

The criteria for granting MES in the EU are purely technical: -Prices and costs are made without State interference, at market values -Accounting records are in line with international standards -Production costs and financial situation are exempted from former NME legacy (public ownership, barter trade…) -Bankruptcy and property laws do provide legal certainty and stability -Exchange rate conversions are carried out at market rate the criteria are technical… and their assessment should remain technical as well! China and the WTO

According to the Basic AD Regulation:  A product is considered as dumped if sold in the EU, to the first independent buyer, at less than its “normal value”. Both values (domestic price, i.e. the normal value”) and the export price are calculated ex works.  The “normal value” for products exported from NME countries is mainly defined as the price in a market economy third country or its reconstructed value.  The “normal value” for product exported from countries with MES is defined as their domestic price very low in the case of China, should China be awarded the MES. MES and the PRACTICE

The impact for the EU industry of the current MET practice is a quite valid anticipation of what future MES could mean to industry. Ferro-Molybdenum: AD investigation regarding imports from the PR China -MET requests had been received from 10 companies -Only one company did comply with the MET criteria (no State interference) -Provisional AD duty: 3,6% (other measures varying between 9,8% and 26,3%) -Between provisionals and final duties, a meeting took place under the auspices of the China Chamber of Commerce and Minmetals (CCCMC): exports quotas were allocated according to the lowest level of AD duty, i.e. the company with MET… -At the definitive stage, MET was withdrawn. A country wide duty has been imposed: 22,5% MES /MET and the EU PRACTICE

Other examples: FeSi originating from PR China: company with MET15,6% another company (IT)29% residual duty31,2% Silicon originating from PR China:company with MET16,3% residual duty19% MES/MET and the PRACTICE

MET: Evidence to be provided for in the current AD practice -MET questionnaire to be filled in and documented by the companies requesting MET -Non confidential version of the replies: very poor…. -Complainants not in a position to rebut or comment! -Deadlines extremely short: « a determination (…) shall be made within three months of the initiation of the investigation (…) after the Community Industry has been given an opportunity to comment » (Art.2 (7) c) of the Basic ADR) -BUT: comments in practice are quite difficult if not impossible! MES/MET and the PRACTICE

MES: same difficulties…but at the level of the country (or industry’s sector)! It is the industry’s opinion therefore that: -All MES criteria should be screened and checked very carefully, on TECHNICAL grounds only! -Given the « lesser duty rule » in the EU, AD duties are already extremely low as compared with the US. -EU industry would be very exposed to Chinese dumping practices should MES be granted automatically or for political reasons…. SOME FINAL THOUGHTS