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Doru FRANȚESCUdirector and co-founder of VoteWatch @dorufrantescu

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T h e E u r o p e a n retaliate. China has P a r l i a m e n t h a s made subs tant ia l recently said “no” to investment deals with g r a n t i n g m a r k e t both the EU and its economy status (MES) Member States, which to China. At the final EU pol i t ical el i tes v o t e , 8 4 % o f i t s inevitably take into Members backed the a c c o u n t w h e n EP document, which m a k i n g a made it look to the c o m p r e h e n s i v e outsiders like there is a analysis of the costs b r o a d c o n s e n s u s a n d b e n e f i t s o f against MES for China. u p g r a d i n g E U ’ s However, a closer look commercial ties with at the actual text the Asian power. This adopted and on how analysis looks at the MEPs voted on key polit ical dynamics amendments shows a behind this apparently much more nuanced technical decision.picture by country and political family.

As expected, Beijing is not happy with this re su l t and subt l y indicates that it might

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This analysis looks at the political dynamics behind this apparently t e c h n i c a l decision.

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ROMANIA

BULGARIA

HUNGARY

POLAND

FINLAND

SWEEDEN

UNITEDKINGDOM

IRELAND

GERMANY

FRANCE

SPAIN

ITALY

AUSTRIA

CZECH REP.

SLOVAKIA

LATVIA

LITHUANIA

CROATIASLOVENIA

THE

NET

HERLA

NDS

BELGIUM

DEN

MA

RK

PO

RTU

GA

L

GREECE

ESTONIA

MOST OPPOSED

LEAST OPPOSED

CYPRUS

MALTA

LUXEMBOURG

TO CHINA

Relative position of EU

Parliamentariansto granting market

economy status

Italian and French MEPs lead the o p p o s i t i o n t oMES, the Polish and Dutch are among the least hostile

The final text adopted by the EP says that China is not Denmark, Finland, Slovenia, Latvia, Estonia and

a market economy and, as such, non-standard Luxembourg).

This is shown by the motions tabled by the individual measures in trade investigations that determine

political groups: the motions by ALDE and ECR price comparability should be kept in place (read:

focused on the need for the EU to comply with WTO’s applications of higher customs duties on certain

rules (read: to grant MES to China by the end of products). However, the motion approved by the

2016). Additionally, ALDE and ECR did not mention in plenary does not explicitly state that a MES to China

their versions of the document that China is not a should be denied in case the five key criteria are not

market economy or that unilateral recognition of met (they are summarized ). Notably, an

MES by the EU should not be granted. ALDE’s motion amendment to the joint motion that linked explicitly

even recalled the importance of the trade with the grating of MES to the fulfilment of the 5 criteria

China for European economic growth and the .

creation of jobs.

In fact, despite the apparent broad

Comparatively, the versions proposed by the consensus, there are nuances in the

European People’s Party (EPP), the Socialists positions of the European political families

and Democrats (S&D) and the Greens all on this thorny issue. In particular, the groups

mentioned explicitly that China is not a market which are traditionally the most favourable to

economy. In this regard, the final joint motion is the principles of free market seem also the most

textually more similar to the ones tabled by the EPP favourable to upgrading trade relations with China.

and S&D (the two biggest political groups in the These are the European Conservatives and

European Parliament). Notably, the EPP and S&D Reformists (ECR, the political family of David

control the biggest share of EU governments, Cameron and Andrej Duda, governing over UK and

including big and average-size countries such as Poland, respectively) and the Alliance of Liberals

Germany, France, Italy, Spain or Romania. and Democrats (ALDE, whose members are leading

the governments in the Netherlands, Belgium,

here

was rejected

There are differences among EU political families

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Our analysis of the debates and votes of the TTIP, even against the position of their fellow EU parliamentarians shows that Italian and colleagues from the same European political French MEPs (from almost every political family.group) are the most active and vocal in their

At the same time, the German parties do not opposition to granting MES to China. At the seem to have a common position at this other end, most Polish, Dutch and Swedish point. The Social Democrat Party (SPD, MEPs have shown a much more favourable junior coalition partner in Merkel’s stance. Interestingly, the Polish far-right government) followed its political group’s leader Janusz Korwin-Mikke was the only line and decided to abstain on the critical one during the debate who praised the amendment. For their part, Merkel’s own EU cheap steel coming from China and its Parliamentarians (the largest delegation in potential benefits for European consumers. the EP) did not support the critical O v e ra l l , o n l y 1 5 % o f P o l i s h E U amendment, although they still backed the Parliamentarians are clearly opposed to joint resolution stating that China is not a granting MES to China, whereas this figure market economy. The hesitations of the rises to no less than 97% in the case of the German politicians can be explained by the Italian EU Parliamentarians and 92% in the different interests of various sectors of case of the French. Whereas Berlusconi’s their society: while Germany’s labour force and Renzi’s MEPs abstained on a hostile (to seems to be among the most exposed to MES) amendment, French MEPs from every upgrading commercial ties with China, political group (with the exception of the far Germany-based importers are among the left) supported it.main beneficiaries of reducing custom

Remarkably, the EU Parliamentarians of the duties, also considering that the port of French President Hollande (the French Hamburg is the second biggest point of entry Socialists) were among the most vocal for Chinese goods into the EU.against the MES (they were the only ones in

Speaking of ports, Rotterdam is number one the S&D group voting in favour of a very in this respect, which perhaps explains the explicit statement against China’s MES). It is small appetite of Dutch politicians to oppose worth noting that the French Socialists are MES for China.generally opposed to free trade and they are

alsoDivisions among Member States are also .observed when looking at the positions of the various eurosceptic parties. Whereas Also, the Hungarians of FIDESZ, which are most eurosceptics, in particular the Italian the EU Parliamentarians of Prime Minister ones, are strongly opposed to opening the Viktor Orban, are not supportive of MES to market to Chinese competition, the Polish China, despite the fact that the Hungarian Congress of the New Right, the Dutch Party Prime Minister is deemed to be tightening for Freedom and the German Alternative the bonds of his country with China. In this for Germany did not follow their groups’ case, the protectionist attitude of Hungarian position on this issue (i.e. they were more MEPs apparently played a more important favourable to the MES for China).role. In fact, Orban’s MEPs have also

expressed strong reservations with regard to

opposing the trade agreement with the United States (TTIP)

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The government in Beijing is more than now, but on the long run it is the overall anxious to get the EU’s anti-dumping state of the economy that will make or measures out of the way of its exports to break. In anticipation of the future trade Europe. After decades of impressive opportunities, since 2013 China has also economic growth, China is now facing less developed promising perspectives. The changing (Shanghai, trends in global trade have led China to Fujian, Guangdong).face over-capacity issues, ie. China

I n t e r e s t i n g l y, C h i n a s e e s t h e needs markets to get rid of its stocks. establishment of trade blocks by the West Remarkably, China even faces a (TPP, TTIP, EU-Japan FTA, etc.) as a form of d e m o g r a p h i c p r o b l e m ( a g e i n g macro-regional protectionism (whereas population) which threatens the very Europeans see them as liberalisation of core of its (ideologically-based) social trade) that would leave China outside the policies and this has been made clear by main pitch. Consequently, Beijing is the abandon of its traditional one-child sensitive about EU’s next moves and, in policy.anticipation, has been playing the

President Xi Jinping has come to power “carrot” card, promising considerable oPresident Xi Jinping has come to power financial support for projects in the EU. only recently (2013) and needs concrete On the one hand, we’re talking about results to consolidate his leadership. His unprecedented internal anti-corruption . campaign has helped in this respect for

pilot free trade zones on its Southern and Eastern coasts

Chinese massive participation in Juncker’s investment plan

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9792

83 80

61 61 60 57 5653

48 4642 41 40 38

33 31 29 27 26 25 2522

18 17 15 13

IT FR HU CY BE GB GR PT IE AT RO SK ES CZ MT SE FI DE SI DK NL LV EE LT HR LU PL BG

% of Meps opposing granting MES to China If the five criteria are not met

China's diplomatic offensive has brought mixed results

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On the other hand, China has tried to have recently established a 16+1 forum strengthen bilateral relations with EU’s f o r y e a r l y m e e t i n g s a t Member States both in the West and intergovernmental, business and think East. President Xi Jinping has met tanks levels.successfully with David Cameron,

However, as the vote in the European inaugurating a new “golden era” in the

Parliament has shown, all this doesn’t China-UK relations. The meeting has also

mean that European political elites find resulted in a concrete deal to build new

it easier to substantially upgrade EU’s British nuclear power capacity with

commercial ties with China, given other Chinese and French resources. Angela

types of pressures coming from within Merkel has followed suit, signing a deal

the i r soc iet ies (or f rom other to sell China 130 jets manufactured by

i n t e r n a t i o n a l p l a y e r s ) t h a t Airbus. Separately, China and the

counterbalance these efforts. countries in Central and Eastern Europe

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Perception of Chinese economic power and levelof imports influence the opposition to MES

The national attitudes towards European countries surveyed. However, protectionism, rather than a negative when it comes perception of China, is a stronger driver , more French of the opposition of certain countries to (49%) and Italians (42%) see China as the granting MES to China. In fact, leading economic superpower than

Germans (39%) and Polish (25%). , French people Consequently, it seems that, when

have a way more positive perception of shaping one’s view on whether to open China (50%) than German ones (34%). the European market to China, the The fact that the signs in the Charles de perception of China as an economic Gaulle airport in Paris are also in Chinese threat weighs more than the overall is illustrative of the close ties between perception of China’s image (which also China and France. includes its track record on human

rights). Remarkably, Germans hold the most negative perception of China across the

to the perception of Chinese economic power

according to the Pew Research Center’s Global Indicator on China

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Interestingly, the risk to the importing and trading European labour market Chinese goods). In fact, the (ie. people losing jobs) as a result of granting MES to China does not seem to be directly correlated with the politicians' views. In fact, a

that I n d e e d , i m p o r t e r s ' the German and Polish associat ions such the economies would be way Foreign Trade Association more negatively affected (in have always been critical of t e r m s o f s h a r e o f anti-dumping measures and employment at risk) than are now advocating for the French one. Still, the granting Market Economy French politicians are more Status to China. On the protectionist than the o t h e r h a n d , s t e e l German and the Polish associations are urging the ones. EU to denying MES to China

a n d t h o u s a n d s o f This apparent paradox can demonstrators recently perhaps be explained if we gathered in the Schuman take into account the role Roundabout, just in front of and the influence of the the European Commission.i m p o r t e r s ( E U c i t i z e n s / c o m p a n i e s

levels of import from China to Germany (10%) and the Netherlands (14%) are far higher than the French (8%) and Italian (5%) ones.

recent research shows

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49%

42%

41%

39%

25%

92%

97%

61%

31%

15%

Germany

Poland

France

Italy

UK

Perception of China as leading

economic superpower by

population

% of MEPs opposing MES for China until criteria

are met

Degree of MEPs' opposition to grantingMarket Economy Status to China

until the fulfilment of the 5 criteria

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Member States attitudes on trade defence reform reflecttheir approach to MES for China

The positions of the different European (Berlusconi), the French Les Républicains

countries on trade defence are particularly (Sarkozy) and Hungarian Fidesz (Orban)

important, as the final outcome on China is leading the protectionist front, whereas, the

also linked to the reform of the European German Christian Democratic Union

trade defence tools. One of the sticking (Merkel), the Austrian People’s Party the and

points of this reform, which is currently stuck the Swedish Moderate Party are strong

in the Council of the European Union, is the advocates of free trade.

limitation of the application of the lesser In order to break the deadlock, France and

duty rule in certain circumstances, such as Germany recently drafted a joint letter,

structural distortions or significant State’s c a l l i n g fo r a s w i f t a n d b a l a n c e d

interferences in certain sectors or insufficient modernization of trade defence. However,

levels of social and environmental standards. the reform will have to overcome the

To put it in simple terms, not applying the opposition of 14 Member States, such as the

lesser duties rules would allow the European Netherlands, Austria and the UK, which

Commission to apply higher anti-dumping formed a blocking minority in the Council

duties on imported products (a more detailed against the changes to the lesser duty rule.

explanation of the issue is available ). Not , in some of the

surprisingly, the positions of MEPs on the sceptical countries, such as Belgium and the

proposed reform mirror their positions on UK, the opposition to the change to the lesser

granting MES to China (except for the Polish duty rule has gradually softened. In the last

ones and few other cases). For example, in parliamentary vote on MES for China, as

February 2014, a great majority of Italian and much as 61% of UK’s MEPs backed denying

French MEPs votedMES for China unless the five criteria are

, whereas few of the met. The UK’s case is particularly interesting,

Danish or Swedish supported this.as in the same parliamentary term,

The strong impact that these rules, decided

by the EU, have on the national markets is

highlighted by the noticeable divisions

among the EU Parliamentarians of the EPP . However, in

(which are otherwise a very united political this case, the change in attitude mainly

family). As it is shown in our infographic, the regards the parties in the opposition (such as

EPP is constantly divided along national lines UKIP) and not the Conservative party, which is

on trade defence, with the Italian Forza Italia still loyal to its pro-free trade attitude.

hereAccording to the media

for limiting the lesser duty

rule as much as possible

only 39%

of UK’s MEPs backed the imposition of ETS

allowances on imported steel in order to

create a level playing field between domestic

and foreign production of steel

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Opposing MES for China until the fulfilment of the 5 criteria

Stronger trade d e f e n c e i n c a s e o f s i g n i f i c a n t foreign States’ interferences in l a b o u r , investment etc.

Stronger trade d e f e n c e i n c a s e o f s i g n i f i c a n t foreign States’ interferences in energy and raw materials

Payment of ETS allowances for imported steel ( c o n t r a s t i n g c a r b o n leakage)

Les Républicains (FR)

Forza Italia (IT)

Fidesz (HU)

Christian Democratic Appeal (NL)

Fine Gael (IE)

Moderate Party (SE)

Christian Democratic Union (DE)

The key votes of EPP’s memberson anti-dumping measures

Civic Platform (PL)

Austrian People’s Party (AU)

People’s Party (ES)

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By the 11th December 2016 the Commission China should still meet the five criteria

will have to decide how to deal with the expiry established by the EU for a country to be

of Article 15(a)(ii) of China’s accession to the recognized as a market economy, others claim

WTO, which currently allows WTO’s members that such a decision is legally feeble and could

to treat China as a non-market economy and be challenged by China in front of WTO’s Court.

c o n s e q u e n t l y a p p l y n o n - s t a n d a r d Additionally, a potential trade war between

methodologies to the application of duties on the two economic superpowers would hit

Chinese products. The Chinese government other industrial sectors, as well as further

claims that after that date, the EU is obliged to undermining the credibility of the WTO.

recognize the country as a market economy. If A third option would be to grant MES to China, the European Union decides to grant China a but only with the contemporary adoption of Market Economy Status, the current other mitigating measures and the upgrading antidumping measures (e.g. special tariffs) of the European Trade Defence System. This applied on Chinese products will no longer be option would allow the EU to avoid a conflict available. However, such a decision would with China, but still to protect its industry (also have a negative impact on certain Member making use of the room available in WTO’s States’ economies in terms of jobs and growth, rules). Still, there are concerns about the as it would severely hit some industrial political will of Member States to approve the sectors, such as the steel industry, which is proposed reform of the Trade Defence, as the already suffering because of Chinese proposal of the Commission (already amended competition.by the European Parliament) has been blocked

Legal experts are divided on whether or for two years in the Council because of

not the EU is obliged to grant Market disagreements between the national

Economy Status to China. governments.

Whereas some experts are

of the opinion that

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BACKGROUNDINFORMATION

For more information, contact us at

[email protected].

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| VOTEWATCH |

Doru FRANȚESCUdirector and co-founder of VoteWatch@dorufrantescu

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