Just as legislators in the U.S. and Europe are taking increasingly strident action to curb imports from countries like China under anti-dumping legislation, the tools available to them are being withdrawn.
Historically, China and a number of other emerging markets have been classified as non-market economies. This means that the state plays a major role in allocating resources and setting prices, making the cost of products less relevant to the economies of manufacture. Under U.S. law, a non-market economy is defined as one that does not operate on market-based principles, and therefore, its prices for final goods do not (necessarily) reflect fair value.
We talk of China in this context because the country is the world’s largest non-market economy, but it is far from alone: there are many other emerging and previously emerging markets that are classified accordingly.
There lies the problem. China is being reclassified, at least in Europe, under a deal negotiated in October. The Telegraph reports that the full European Parliament then offered its endorsement last month, just leaving national governments to give their final approval on December 4.
China has been pushing hard for its economy to be re-classified. Some suggest that the EU agreement was in part motivated by a desire to improve trade with China. After the U.S., the EU is China’s second largest trade partner.
However, many European manufacturers are probably thinking, “Be careful what you wish for.”
As the article points out, these changes mean it will be harder for European companies to argue they are competing against subsidised competitors, with the new system being more flexible in determining whether domestic producers are being undercut. Anti-dumping measures are in place for some grades and forms of steel and for aluminium foil at present, both of which would be harder to renew if the change in status is accepted.
The EU is not united on this. Northern states are keener on free trade, whereas Southern states take a more protectionist stance.
But objections are being voiced from steel producers all over the EU, and not surprisingly, the industry was nearly been bought to its knees since the financial crisis. Nor is it just China. Imports from Russia, Ukraine and South Korea also feature prominently.
But as China produces about half of the world’s steel, its role in setting global prices obviously garners a lot of attention. This is despite the fact the CIS states supply more steel, largely on the basis of price, than Asia overall, according to data from the International Steel Statistics Bureau (ISSB).
The US remains opposed to China’s request for re-classification before the WTO, so what impact the EU’s decision will have remains to be seen. It is unlikely to sway any minds in Washington, but assuming it is ratified in Europe after publication later this month, this will leave the U.S. position more isolated than before.
More to the point, it will make it harder for European steel and aluminium producers to make a case for unfair price competition originating from China in the future. But therein may lie Europe’s thinking.
Imports from China — and indeed total Chinese steel exports — have been dropping ever since their supply side rationalisation began to bite. Capacity utilisation in China’s steel industry is running at around 85%, yet exports have not been so low for years. According to Reuters, this year they slumped by 30%, or 28 million tons, down from 100 million tons in 2015-16.
Perhaps the peak from China has passed, and normalised trade will provide more value than keeping what is becoming a less significant threat at arm’s length.