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  September 21st, 2015 | Written by

EU Warned of the Risks of Granting China Market Economy Status

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  • EU decision to grant China MES will result in disaster for the steel, paper, glass, ceramics, and auto parts industries.
  • China has subsidized industries and used currency manipulation to accumulate gluts it can export at discount prices.
  • Between 779,300 and 1,558,700 jobs in the EU’s manufacturing sector would be eliminated should China be given MES.

A unilateral decision by the European Union to grant China Market Economy Status (MES) “would increase manufactured imports from China by 25–50 percent” and cost the 28-nation member bloc upwards of 1.6 million manufacturing jobs, according to a critical analysis published by the Washington, D.C.-based Economic Policy Institute.

An EU decision to grant China MES, “will raise pressure on the United States and other countries to follow suit, with disastrous consequences for industries like steel, paper, glass, ceramics, and auto parts,” said Institute Director of Trade and Manufacturing Research Robert E. Scott, who co-authored the study with Xiao Jiang, assistant professor of economics at Denison University.

“Before granting China market economy status, the EU would be well-advised to consider how many billions of euros of output and millions of jobs this decision could cost,” said Scott. “China has extensively subsidized a range of industries and used currency manipulation to support production and exports, allowing it to accumulate widespread gluts of goods that it can export at discount prices.”

Elevating China’s trade status by granting MES, he said, “would harm producers of these goods in the EU, the United States, and other countries by exposing them to a flood of cheap Chinese products,” adding that anti-dumping laws “make it illegal for exports to be sold in other countries for less than their fair value, which generally means the prices charged for them in their home market.”

When China joined the World Trade Organization (WTO) in 2001, “it joined under terms that allowed other WTO members to ignore Chinese prices and costs in anti-dumping cases and instead use external benchmarks when calculating dumping margins.”

The result has been “much higher duties on Chinese imports than would prevail if China were treated as a market economy. Because of a clause in the original 2001 agreement, the EU is considering unilaterally granting MES to China in 2016, asserts Scott.

According to the study, between 779,300 and 1,558,700 jobs in the bloc’s manufacturing industry would be eliminated should China be given MES.

“This represents the largest number of jobs at risk of any major industry, with the largest manufacturing job losses occurring in textiles and apparel with an additional 2.7 million jobs in highly import-sensitive industries at risk, meaning the total job losses could easily exceed 3.5 million, it said.

Those “import-sensitive, at-risk industries” include motor vehicle parts, paper and paper products, steel, ceramics, glass, aluminum, and bicycles and parts.

MES for China, it concluded, “would make it more difficult to enforce anti-dumping laws in the EU and other countries by requiring the EU to measure the value of Chinese exports based on costs and prices in the Chinese market, which are artificially depressed by extensive government subsidies to raw materials and other inputs, and by its controls over the economy and finance.”