EU to change trade defence rules in response to China

BRUSSELS (Reuters) - The European Commission outlined on Wednesday a new way of assessing whether Chinese companies are exporting at unfairly low prices, as Beijing demands that it no longer be treated as a special case.

The European Union has been debating whether to grant China "market economy status" (MES) from December, which China says is its right 15 years after joining the World Trade Organization. Failure to do so could spark a trade war.

In cases of alleged dumping, EU trade investigators currently compare Chinese export prices to those of a third country, such as the United States, rather than to domestic prices.

China says this is discriminatory and, in any case, will breach WTO rules from Dec. 11, marking its 15 years in the organisation.

European Commissioners from the 28 EU members discussed three options: do nothing, simply grant China MES or adopt a new approach.

Commission Vice-President Jyrki Katainen and Trade Commissioner Cecilia Malmstrom told a news conference that the commissioners favoured the third option, setting aside the issue of whether or not China is a market economy, while still abiding by WTO rules.

"China is not a market economy. We are not granting it market economy status. If it were a market economy, it wouldn't have the problems we are seeing," Malmstrom said.

Katainen said the new approach would lead to duties very similar to those in place today. He also advocated speeding up the time it takes for anti-dumping tariffs to apply - to seven from nine months.

The European Union has 59 sets of measures in place to counter dumping or subsidies on products coming from China, ranging from aluminium foil to wire rod. Of 34 ongoing investigations, 22 concern China, the most notable related to different grades of steel.

In future, the EU could determine that overcapacity or state intervention distorted the market, rendering domestic prices or production costs an inadequate comparison, and instead establish dumping on the basis of international prices.

"We are not singling out China. This could go for any country. What we are looking for is whether there are any distortions in a country or even in a sector ... This is the new proposal," Malmstrom said.

China's commerce ministry said it would "pay close attention to the relevant process and further assess it after the proposal in more clear".

All WTO members must end their anti-dumping surrogate country practice targeting China come December, the ministry reiterated in a statement on its website on Thursday.

"It does not depend on any member's domestic standards and has nothing to do with overcapacity problems. China hopes the relevant members will strictly implement their duties under the WTO," it said.

Aegis Europe, an alliance of some 30 industry lobby groups that includes producers of metals, ceramics, glass and bicycles, said not granting China MES was positive, but warned against a "rotten compromise", saying the issue of market distortion must still be for the European Commission to decide and subject to legal challenge.

It said the EU should stick to its five market economy criteria, chiefly that state influence is reduced, and with the burden of proof on China to show it merited a new approach.

The EU and China agreed at a joint summit last week to discuss how to deal with overcapacity, although it is not clear whether this goes beyond production of steel.

The Commission will make a formal proposal to EU member states and to the European Parliament later this year.

(Additional reporting by Ines Kagubare and Michael Martina; Editing by Robert-Jan Bartunek and Robin Pomeroy)