Put simply, market economy status determines how dumping—or exporting product at a price lower than that charged in its home market (or cheaper than the cost of production)—gets assessed.
If China were granted the sought-after status, it would be more difficult for Europe, China’s largest trading partner, to impose anti-dumping duties on Chinese goods sold at unfairly low prices, which according to Reuters, would change the way fair price is determined.
The European Union could lose as many as 3.5 million jobs if it relaxes trade defenses against China.
Some are staunchly opposed to granting China the status, believing the country isn’t at all a market economy.
An article in the South China Morning Post, however, said that granting China market economy status would be globally beneficial.
“Dropping trade and investment barriers benefits Europeans by providing less expensive goods and giving companies greater access to China’s ever-growing markets,” the article noted. “That would be especially so for firms higher up the value chain involved in advanced technologies. Choice and variety would be increased for Chinese consumers and the impetus for economic reforms pushed. The world also benefits; the more the Chinese and international economies integrate, the better the chances of global peace and stability.”
Since China is presently a non-market economy, its domestic prices aren’t considered a good benchmark for determining whether it’s exporting at prices lower than local prices, so its exports are assessed against another country’s domestic prices, sometimes even those of the U.S. where labor rates are considerably higher. The result of which, at times, has caused U.S. producers in competition with China to inflate price estimates, Reuters noted.
The Commission doesn’t expect to settle on a final decision before summer, but the likelihood of the EU accepting China as a market economy is high. According to Reuters, the EU may maintain existing duties until their natural expiry as a transition period.
Some countries in the EU’s 28-member bloc are in favor of the status for China, but others, like Germany, may be less likely to support it as China has made efforts to produce a level of product that directly compete with Germany.
The status shift for China could also affect Europe’s trade with other nations, like the U.S. United Steelworkers, according to Reuters, have already warned Washington that the move to grant China preferential status would give EU companies using Chinese imports an unfair advantage over U.S. counterparts, which, they said, should be considered as the U.S. and EU continue negotiations on the Transatlantic Trade and Investment Partnership (TTIP).