Transcript PowerPoint-presentatie - EESC European Economic and Social

Market Economy Status
China
UK steel sector imploding, Tata
Steel blames cheap Chinese
imports
Guido Nelissen
Economic Adviser
CCMI, 5 March 2016
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The position of China
• “According to the WTO, China will obtain this market economy status
in 2016, next year. So we hope that all sides abide by WTO rules and
don’t resort to protectionism and prudently use trade defence
instruments” Yang Yanyi, China’s ambassador to the EU (14/4/2015)
• “We trust in the EU’s political wisdom and look forward to the EU’s
timely compliance with the WTO agreement and recognition of
China’s MES. Such a constructive move will strenghten an open and
reliable bilateral economic environment, boost trade and investment
and reduce trade frictions, Yang Yanyi, speech to the EP (1/2016)
• “It’s an unreasonable practice that a nation is still regarded as a nonmarket economy after it has joined the WTO”, Zhou SHIJIAN, Center
for US-China relations, Tsinghua University
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Anti-dumping and anti-subsidy investigations
initiated against Chinese imports
(source: Eurofer)
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1.China still at the wrong side of a market
economy
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prohibition of exports of raw materials
closing borders for imports in key sectors
state-led import cartels for raw materials
non-tariff barriers to imports
state control of inward/outward foreign direct
investments
• Indirect subsidisation in key sectors by:
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soft loans
debt forgiveness
debt for equity swaps
exoneration of loan repayments
preferential tax arrangements
dividend foregoing, equity infusions
free use of land
cheap access to energy and raw materials
VAT rebates for export activities
in-kind resources (government-mandated
mergers at no cost)
– no transparency in subsidy schemes
• Direct government intervention:
– central role of the Party in the organisation of
the economy
– 5-year plans (state-controlled economic
development/investments)
– state-owned enterprises dominate key
sectors like steel
– in price setting (regulated prices)
– creation of production capacities (huge
overcapacities in the steel sector: created to
conquer export markets?)
– strong political role of industry associations
(the regulated are also the regulators)
– no independent financial sector
• Absence of markets for labour, capital,
land and energy
• Respect of IPRs
• Access to public procurements
• Sustainable development:
– no recognition of labour rights
– no internalization of external costs
(safety, environment)
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• Trade:
World Bank, China Economic Update, June 2015,
p.28-29
• “Instead of promoting the foundations for sound financial
development, the state has interfered extensively and directly
in allocating resources through administrative and price
controls, guarantees, credit guidelines, pervasive ownership of
financial institutions, and regulatory policies. These
interventions have no parallel in modern market economies.”
• The provision of low-cost credit to certain sectors had resulted
in “wasteful investments, excess capacity, and weaker loan
portfolios”
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2. There is no automaticity in article 15
Art. 15(a): In determining price comparability under Article VI of the GATT
1994 and the Anti-Dumping Agreement, the importing WTO Member shall
use either Chinese prices or costs for the industry under investigation or a
methodology that is not based on a strict comparison with domestic prices
or costs in China based on the following rules:
• Art. 15(a)(i): If the producers under investigation can clearly show that
market economy conditions prevail in the industry,..., the importing
WTO Member shall use Chinese prices or costs...
• Art. 15(a)(ii): The importing WTO Member may use a methodology that
is not based on a strict comparison with domestic prices or costs in
China if the producers under investigation cannot clearly show that
market economy conditions prevail in the industry
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Article 15
• Section 15(d) is also of importance:
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China should respect the EU criteria for defining a
market economy
• No interference of governments in the allocation of resources,
production costs and decisions of enterprises
• No state-induced distortions in privatised enterprises (absence
of the use of non-market trading or compensation system (this
criterion is considered as fulfilled)
• A transparent and non-discriminatory company law which ensures
adequate corporate governance (international accounting standards,
protection of shareholders, public availability of accurate company
information)
• Laws which ensure the respect of property rights and the operation
of a functioning bankruptcy law
• A genuine financial sector which operates independently from the
state and is subject to sufficient guarantee provisions and adequate
supervision – exchange rate conversions are made at market prices
Although not a member of the WTO, Russia was granted MES in 2002
China is treated as a market economy by South-Africa, Australia, ASEAN, Congo, Argentina,
Chile, Peru, New Zealand
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3. Don’t forget the other articles in the Accession
Protocol
• “Art. 9. Price Controls. China shall,...., allow prices for traded
goods and services in every sector to be determined by market
forces, and mult-tier pricing practices for such goods and
services shall be eliminated;”
• “Art. 10. Subsidies. China shall notify the WTO of any subsidy
within the meaning of Art. 1 of the Agreement on Subsidies
and Countervailing Measures, granted or maintained in its
territory, organized by specific product, ...”
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4. Economically devastating
 If China were a market economy, it would not have been able to increase
• Double its share in global industrial production in a decade
• Its share in global exports from 7 to 15% in a decade
• its share in global steel production from 20 to 50% in ten years time. It has no
comparative advantages at all as it has to import coal and iron-ore and pay the
international market price for these inputs (65% of production cost)
 Lost already a lot of industrial branches: toys, electronic components, consumer
electronics, textiles, solar panels
 Do we want other sectors to follow suit: steel, aluminium, bicycles, ceramics, paper,
glass, electrical equipment, plastics
 Manufacturing capabilities once lost, will never come back again as a certain critical
treshold is required
 Dangerous to give a dominant position in a number of key sectors: dependent on
Chinese goodwill and they will decide about prices/quantities
 At odds with our industrial policy: Increase share of manufacturing to 20%
• IP is driven by strategic cooperation between public and private sector
• China’s ip= interventionist, state-led and much more powerful. It is an unequal fight
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The case of steel
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5. Too many jobs at risk
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Economic Policy Institute Washington
• MES will sharply reduce average dumping margin from 40 to 1O%,
• The absence of any risk for anti-dumping procedure will result in
lower Chinese export prices
• As a result Chinese imports will increase by 25 to 50% above trend in
the medium term (3 to 5 years)
• EU GDP will be reduced by 1 to 2%
• This translates into 1,7m to 3,5m jobs at risk
 478.600 to 957.300 direct jobs
 537.100 to 1,1m in the supply chain
 729.800 to 957.300 due to loss of income of affected workers (multiplier
losses)
• Furthermore another 2,7m direct jobs are at risk resulting from an
additional annual increase of exports of 5 to 10% in a number of
industries with huge excessive capacities and strong government
intervention (‘leading and pillar industries’) that are of strategic
importance in China’s export-led growth strategy
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Growing overcapacities in steel
(source: IG Metall)
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Impact on jobs: the ceramic table ware sector
Source: CU data & Eurostat
• Ceramic tableware sector lost
over 33,000 direct jobs
• Around 25,000 direct job
currently at risk if AD measures
are removed
• Definitive anti-dumping duties
on tableware & kitchenware
mposed on 15 May 2013
• Duty range: 13.1%-36.1%)
• Imports decreased sharply by
more than 44% after imposition
of provisional measures in early
2013 (higher AD duties of up to
58%)
Bicyles: prices 30- 40% lower than high-tech European products
A whole sector at risk…
Established in 2014
Land Area: 1,5 million square meters
Total Government Subsidies: 130 million
USD
Total credit line from State Owned Banks:
650 million USD
Total Capacity: 20 millions bicycles + 5
millions E-Bikes
Total EU Bicycles and E-bikes Market: 25
millions
Assessment by the Commission
• The 52 definitive AD-measures on Chinese products represent
1,38% of the EU-imports from China (0,68% without solar panels)
• 243,300 workers are producing these products (mainly in Italy and
Germany)
• ! 1,38% is ex-post: after AD measures are imposed
• ! We must not only look to individual products but to the whole
sector making these products (esp. Those in which China has
overcapacities)
• ! Commission ignores the deterrent effect on imports from other
products
• ! Some EU industries have already completely disappeared, so there
is nobody left to bring up a case
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MES for China (external study commissioned by the Commission)
• Will reduce anti-dumping margins by 27%, leading to a fall in prices by 19% of the
products subject to AD measures
• Will lead to an increase of Chinese imports by 17-27%
• This will result in 30,400-77,000 job losses (based on the current AD-cases)
• If we take into account potential new dumping cases in new sectors (on bases of
cases launched by other countries) the share of Chinese imports affected by AD
measures could be as high as 5,7%
• This would translate into 73,300-188,300 job losses (63,600 – 211,000 if we take
into account positive and negative indirect effects)
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Other
• D.Autor, D. Dorn, G.Hanson, “The China Syndrome: Local
Labor Market Effects of Import Competition in the United
States”, American Economic Review 2013,103(6)
Increased Chinese import penetration in the US between 1999 and
2011 has led to:
A decline of 560,000 direct manufacturing jobs
425,000 indirect losses in supplier industries
An additional 1m lost jobs in the overall economy
Combined with reduced wages and increased government transfers
(welfare programs, social security payments)
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• M.Ruiz, R. Somerville, A. Szamosszegi, Assessment of the
Probable Economic Effects on NAFTA of Granting MES to
China, November 10, 2015
GDP minus 0,2 to 0,3%
Job losses in the US in a range between 400 to 600,000
Absolute decline in the capital stock
• AEGIS
Products under anti-dumping measurs (or under investigation) in the
EU with China involve 260-000 to 300,000 jobs
Based on existing dumping cases, not potential
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6. In contradiction to the objectives of sustainable
development
• A threat for the global climate policy
 China’s economy is for 80% based on coal, the EU only for 20%
 EU’s industrial installations are state of the art regarding resource- and
energy-efficiency
 The current Chinese imports represent additional emissions equal to 2,1m
midsize cars (Eurofer)
• A threat for our social model. China is the new economic powerhouse
entering the global economy based on its own set of rules. China has
ratified only four of the eight core ILO labour standards
• It has ratified only 26 out of 177 other conventions
• Free trade must be fair trade as well and that means that everybody
plays by the same rules, in law and in practice
• Giving MES to China will remove any incentive to move from a stateled economy to a social market economy
7. “Mitigating” measures will not work
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Mitigating measures
• Non-use of the “lesser duty rule” (application of a lesser duty than the dumping
margin if this is sufficient to remove the injury caused by the dumping prices)
 makes only sense if there is a dumping margin
 Cannot be applied in a discriminatory way (not for China only)
• Cost adjustment procedure
 correcting Chinese producer costs to take into account price distortions in Chinese
inputs
 difficult to implement because of lack of transparency and the many inputs of which
prices are distorted
 EU’s use of cost adjustment is currently challenged at the WTO (infringement of the
EU’s WTO obligations)
• Anti-subsidy procedure
 lack of transparency in Chinese subsidies (no public available information, many
bodies involved: regions, cities, investment funds, holding companies)
 Artificial low prices for industrial inputs are not considered to be subsidies
 As a result 50% of the EU anti-subsidy investigations have been closed without the
imposition of measures, and the average rate of the anti-subsidy duty has been 6%
• Grandfathering: maintaining all existing measures
• Sectoral exceptions: MES with exception of all sectors covered by AD measures
(reversal of the burden of proof)
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Conclusions
• China is not a market economy: it is too early for granting MES to China
• Expiration of Art. 15(a)(ii) does not automatically mean that China is a market
economy or that analogue methodologues cannot be used anymore
• So the right to use non-MES methodologies for calculating price differences
must be maintained as the only way to reveal the true level of dumping
• China must honour the commitments it made when joining the WTO:
 meeting the technical criteria (latest assessment was in 2011)
 Respection the terms of the Accession Protocol e.g. Section 9 stipulates that prices
have ‘to be determined by market forces’ or to provide full transparency on subsidy
schemes
• If the criteria cannot be met yet, it is up to China to show that individual sectors
are operating in a market environment
• Granting MES
 would remove any incentive for China to move from a state-led economy to a social
market economy and to create a global level-playing field
 Will lead to persistent imbalances on certain markets between supply and demand,
leading to artificial low prices, overcapacities and export surges
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• If the EU wants to:
• keep a strong industrial base (20% objective!)
• avoid that China exports its restructurings by keeping its companies artificially afloat
• avoid that bad (high C02 footprint) companies drive out good (low CO2 footprint)
companies and to increase global emissions –Chinese industry is for 80% based on
coal against 28% for the EU)
• avoid that China acquires a dominant position in strategic sectors of industry
• a level playing field between the EU and China is essential to maintain core
industrial activities, to avoid European workers falling victim to unfair
trading practices and to avoid further erosion of our social model.
• This means that the right to use analogue methodologies for calculating
price differences must be maintained as the only way to reveal the true
level of dumping
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• It is not up to the EU to interpret the WTO Accession Protocol and
to take a decision. The WTO is the only competent organisation to
interpret the Protocol and it is up to China to initiate WTO dispute
settlement proceedings
• If MES is granted to China, this has to be done in coordination
with other major trading partners like the US in order to avoid a
surge in EU imports (diversion of trade flows)
• MES is in contradiction with the new trade strategy of the
Commission ‘trade for all’ which advocates a more responsible
trade policy based on values. We don’t think that granting MES
will be to the benefit of all and that it will support our common
values.
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• “We have to stand up to Chinese abuses. Right now,
Washington is considering Beijings’s request for “market
economy” status...we should reply with only one word: No.
With thousands of state-owned enterprises, massive subsidies
for domestic industry; systematic, state-sponsored efforts to
steal business secrets, and a blatant refusal to play by the
rules, China is far from a market economy. If China wants to be
treated like a market economy, it needs to act like one”, Hilary
Clinton, Winning the fight for manufacturing jobs, What i will
do as president, 22/2/2016.
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Thank you for your attention
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