Concussion, but no schrapnel from coming Eurocrat-Shanghai Sharks trade talks
 With Marine Le Pen's Trumpist challenge a fading memory, Eurocrats can rest easy with the election of the nominally socialist banker Emmanuel Macron as President of France.
But many expect they will soon have cause to the value an ally they have long despised in the form Donald Trump President of the United States.
That's because EU trade officials are likely to find the US president best cast in the role of the rambunctious American bad cop to Europe's civil and civilising good cop in the inevitable battles with China over trade.
Now that 15 years have elapsed since China joined the World Trade Organisation, without - some say - living under the economic ground rules that would justify legitimate entry, it question is now on the table again whether China can be truly considered a "market economy," a status that affects the ease with which often-sought anti-dumping measures can be imposed.
As far as China is concerned, once the 15 years are up in the WTO jailhouse, "market economy" status is automatically granted. That's because Article 15 of the treaty says so - "the provisions of subparagraph (a)(ii)[which provide rules for "non-market economy" status] shall expire 15 years after the date of accession."
There are all sort of other provisions in the treaty which deal with the supposed need for a "non-market economy" like China's to become a "market economy", but they lack teeth. The 15 years provided were understood to be spent from getting to one state to another, but definitive language appears only in get-out-of-jail-free card given after 15 years under Article 15.
Views differ on whether to let this slide. In trade finance, no one's hands are clean and trade with China is vital for all. EU-China trade has increased dramatically and China is the EU's No 1 source of imports by far, as well as its fastest growing export market, trading more than EUR1 billion a day.
EU imports from China are dominated by industrial and consumer goods: machinery and equipment, footwear and clothing, furniture and lamps, and toys. EU exports to China are concentrated on machinery and equipment, motor vehicles, aircraft, and chemicals.
Of course the EU, like most western jurisdictions, deplores China's lack of transparency as well as its industrial policies and non-tariff barriers that discriminate against imports.
The EU also complains of the "strong degree of government intervention in the economy", resulting in a dominant position taken by state-owned enterprises, and an unequal access to subsidies as well as selectively available easy financing. But again, few hands are clean. France is the home of "dirigism", its economic system since 1945, in which the state directs rather than regulates various industrial sectors.
The EU's official view is summed up on the European Commission website: "Obviously, at high levels of trade irritants occur, and the EU remains firm on the need for China to comply with its international commitments. But this should not stand in the way of both sides developing a long-term vision of cooperation. Moreover, the EU and China have demonstrated willingness and ability to diffuse tensions through dialogue and cooperation."
This easy-going view hardly satisfies America, frustrated with the go-along-to-get-along attitude of the Eurocratic world. Donald Trump's new reciprocity-minded adminstration does not believe in giving a China something for nothing. And that is what the US believes the EU is doing by granting it de facto "market economy" status, which is entirely undeserved.
On the face of it, China has come a long way since Chinese president Deng Xiaoping opened up the mainland economy in the 1980s and '90s, but it is still a state-run operation. And while many sectors have been privatised, many question whether a one-party state with such a high degree of social control over its people can have anything close to a market economy, where people are free and all - including the state - live under rule of law.
Practically, speaking, the key change in according "market economy" status involves anti-dumping measures that can be taken against "market economies" vis-a-vis "non-market economies".
The change makes it far harder to prove dumping and have anti-dumping duties. Until now, the onus was on the Chinese producer to prove that "market economy" conditions prevailed in that particular sector in China. And such trials were supposed to induce China to "show that market economy conditions prevail" before anyone was obliged to treat them as a "market economy".
Until they did so, under WTO rules, prices and conditions in China could be compared to those in other countries when assessing the nature and extent of dumping.
Beijing has long argued that the old system was unfair and an example of “reckless trade protectionism”. Speaking unofficially through its offical news agency, Xinhua, China spoke of the comparative advantage it possessed in labour-intensive industries while the US trumped China in capital-intensive sectors and high-yield agriculture.
"Both countries can develop deeper and more innovative complementary cooperation, especially in energy, infrastructure, high-tech and manufacturing sectors," Wei Liqun, former director of the State Council Research Office told the conference.
What the European Commission did was to decriminalise dumping by ending the distinction between "market" and "non-market economies, classifying them instead as members or non-members of the WTO.
"China has failed to demonstrate that it is a market economy and yet the commission seeks to treat it equally with market economies. This is unfortunate," complained Edward O'Connor, managing partner and editor of Across the EUniverse of Brussels.
But Washington will have none of it, insisting that China is not a "market economy" will thrash the matter out at the World Trade Organisation. The US is frustrated by the EU’s approach. It feels that the EU evades the question of whether China is genuine market economy, simply by removing distinctions between “market” and “non-market” economies in dumping cases.
Said David Kleimann, a trade lawyer at the European University Institute: "This methodology had already been found to violate international trade rules before. Chances are high the new legislation will therefore be ruled illegal."
Mr Kleimann noted the EU court in Luxembourg had already ruled against this approach and would likely do again.
Many see the EU's trouble with trade dating back to the 1992 Maastricht Treaty. Not with the treaty so much as with the member states' inability to live up to it. Under Maastricht, public debt was not to exceed three per cent of GDP. Having pandered to voters with easy money at low interest rates, member states went further by "securitising" or bundling under-performing loans into junk bonds to mask mounting deficits.
This was unmasked in the 2008 financial crisis, and Greek debt was revealed to be 12 per cent of GDP rather than the agreed upon three per cent. Unmasking spread to Ireland and Portugal, while raising concerns about Italy, Spain, and the European banking system, and more fundamental imbalances within the eurozone.
While statists can rejoice they have been spared defenestration by the hands of angry Le Penists, they will soon have reason to fear the sound of tumbrils of guillotine-minded rightists marching in from small town France to be joined by urban jobless if they do not create substantially more low-skilled jobs, and stem hostile Muslim immigration, not only in France by across Europe. Even the most willfully blind eurocrats cannot believe anything other than this is a situation, which is bound to get worse.
Hard as it is to admit, it is also clear that despite the worst efforts of the American left to derail the new virility of the White House, the stock market has been up, with employment numbers as President Trump's bark seems as effective as his bite.
Thus making a deal with China, Europe can find no better ally. But if such an arrangement, does not suit eurocratic tastes, then they could do worse than follow Trump's get tough example going forward.
And while China may feel ganged up on, Beijing is old at this game. One is certain that Beijing's 8th Route Army team and the Shanghai Sharks, will give the Eurocrats and Yankee Traders a run for their money before all discover the art of the deal, kiss and make up.
It will be fun to watch. Lots of concussion, but likely no scrapnel. |
