The European Parliament has approved the new anti-dumping rules for products imported from non-EU countries, in practice, a slander to China
These new anti-dumping rules, which serve to determine whether to impose duties or not, will take into account not only the cost of production, as it has always been, but a more generic concept of “market distortion.” There is no longer a distinction in the treatment of third countries between market economies and not. What does all this mean in the relationship between China and Europe? To date, duties were imposed mainly in the presence of dumping, ie when the selling price of the products was below production costs.
In establishing the reference production costs to be used, there are two methodologies:
- For countries considered as market economies, reference is the prices in the exporting country;
- For economies not considered market economies, reference is the price in international markets. (To learn more about the technical details from the WTO website).
In the case of China, this distinction is very important. China is not recognized as a market economy by the European Union, so Europe can use as a reference for the calculation of duties the prevailing prices in international markets, which are generally higher than those of the Chinese domestic market. In conclusion, as long as China remains a non-market economy, the European Union will have more freedom in imposing duties on imported products from China.
China does not agree with this and calls on the Union to be considered a market economy, so that Europe can no longer use the leverage of ‘international prices’, forcing it to lower its duties.
Example. In China, one kilogram of rice costs 100 lire, but in the international markets 150 lire: suppose that China sells rice in Europe for a price of 90 lire. If China were a market economy, the European Union could impose a 10-lire duty, but if China were not a market economy, Europe could impose a fine of 60 lire (I simplified it for clarity).
With the new rule approved by the European Parliament, this impasse on ‘whether China is a market economy or not’; and the European Union will now have the right to impose the duties it wants if it considers that there are ‘distortions of market’. This is a much more generic and subjective definition than the market (domestic or international) prices, which give EU much more flexibility when imposing duties:
- without debating too much on whether or not China is a market economy;
- being able to use vague and subjective concepts that can hardly be handled by China.
In conclusion, with the new anti-dumping rules, Europe will continue to treat China as a non-market economy without the Chinese being offended. But China has already understood this and is already starting counter-measures.