In the struggle to manage its rising tide of Chinese imports, the European Union is considering a subtle but important shift in its approach to Beijing.The EU strategy, which people familiar with the matter say is still under discussion, would be to offer China recognition as a "market economy" in the hope of extracting a range of concessions the Europeans deem crucial to balancing the trade relationship.
While the shift would largely be a technical matter, it is a priority for Chinese trade officials and does offer practical gains. Beijing would find it easier to defend against persistent European complaints that Chinese goods compete unfairly with local manufacturers.
In trade jargon, a country achieves market-economy status when it limits state aid, bans monopolies and fulfills other criteria. Only 56 of the World Trade Organization's 150 members give China full market-economy status; the U.S. and the EU, by far China's biggest trade partners, are among those that don't. The U.S. isn't planning to change its policy, and in fact has recently pursued a more aggressive approach against Chinese imports than the EU, imposing extra duties and filing two suits at the WTO.
When China joined the WTO in 2001, it agreed to a 15-year delay before being granted market-economy status. So no matter what, the WTO's 149 other members must offer the label by 2016.
The EU's thinking, according to people familiar with the matter, is to use the designation as a bargaining chip while it still has value to help coax Beijing to stem the proliferation of pirated goods and to offer greater market access to European companies -- especially in the services sector. There are also EU officials who believe China has made legitimate progress, they add.China has been lobbying for market-economy status for some time. "If 498 out of 500 Fortune 500 companies do business in China, it's because we're a market economy," Chinese Commerce Minister Bo Xilai told reporters in Brussels recently.
Countries labeled as having nonmarket economies are generally more vulnerable to punitive import tariffs on their goods. That is because the designation forces trade investigators to assume companies in places such as China or Cuba receive some level of state support.
To research complaints, therefore, investigators use a surrogate "market economy" to determine what costs really should be and calculate whether goods are being unfairly underpriced on world markets -- a practice known as dumping.
Critics say that method is arbitrary, time-consuming and wildly imperfect.
In China's case, for example, EU and U.S. trade officials often use costs in Turkey or India as a proxy for those in China, though domestic prices in those countries tend to be higher than China's. That makes it easier for U.S. and European companies to level dumping charges.
Countries with heavy manufacturing sectors such as Spain, France and Italy are eager to preserve this leverage. They recently lashed out at a report by the office of EU Trade Commissioner Peter Mandelson that said China had made considerable progress toward earning market-economy status.
EU's Horse Trading with China
The Wall Street Journal notes that the EU is trying a new tack with China aimed at getting the latter to move more quickly on the matter of intellectual property (IP) protection. By designating China as a market economy well ahead of time, the EU may get a better response from China, or so it hopes:
