One of the sectors concerned is the European magnesia industry. Granting China Market Economy Status (MES) starting December 2016 would threaten the competitiveness and survival of many European companies, especially SMEs, undermine the effectiveness of the EU’s trade defence system and expose the EU magnesite/magnesia sector to potentially unlimited Chinese dumping.
- China currently violates the five EU market economy status criteria;
- China’s currently existing overcapacity when exported to Europe would suffocate the European magnesite/magnesia industry;
- Granting market economy status to China would lead to the loss of several thousand jobs, most of them in regions already facing serious economic and social issues (Spain, Slovakia, Greece and the northeast part of the Netherlands);
- Granting market economy status to China will lead to a decrease in the research and development investments in the European operations;
- Production in China is not compliant with the EU sustainable development value chain requirements (energy and climate change, environmental standards and the social license);
- If China was considered a market economy status, any anti-dumping measures would have to be recalculated to the disadvantage of the European industry;
- The anti-subsidy instrument has never been effective in the face of the distortions of the Chinese economy.
1. China violates the five EU Market Economy Status criteria
The Chinese government’s 2013 Consolidation Plan stands proof of the direct policy intervention in magnesia and refractories. There is a clear collusion and price coordination between producers -- in the case of refractories, this policy is actually written down in the Articles of Association of China Refractories Industry [ACRI]. The industry obtained loans which means Chinese producers can claim ‘reduced’ financial costs and gain an unfair competitive advantage.
In the Chinese electricity value chain, end‐users buy electricity from one of the two state‐owned grid companies, which each hold a regional monopoly over both transmission and distribution. The retail tariff is regulated by the state government.
The Chinese container-shipping industry is government owned.
2. China’s overcapacity exported to Europe would suffocate the magnesite/magnesia industry
The Chinese dead-burned magnesia (DBM) capacity is 11 million mt/year, 2.2 times the actual production in China, while the electro-fused magnesia (EFM) capacity is 3.6 million mt/year, 2.1 times the actual production in China.
Currently, the Chinese capacity surplus of DBM of 6 million mt/year for DBM is 12.5 times the EU production of natural dead burned magnesia. The export of such large quantities to Europe will therefore have a great impact on the European industry.
If China was granted market economy status, Chinese steel could replace 10-15% of the EU steel production and, as a consequence, would make a similar percentage of the EU refractories production obsolete.
3. Granting market economy status to China would lead to the loss of several thousand jobs
Euromines estimates that the EU magnesia industry offers about 6500 well-paid direct jobs in the EU. Including indirect employment, the overall estimate reaches around 20.000 jobs found in most cases in countries and regions already facing serious economic and social issues (Spain, Slovakia, Greece and the northeast part of the Netherlands).
China being treated as a market economy would lead to the shut-down of several companies, the loss of a couple thousand jobs and a severe negative impact on the development of these regions.
4. Granting market economy status to China will lead to a decrease in the research and development investments
European producers are spending considerable effort and capital in developing state-of-the-art technologies. Such investments lead to higher quality products. Magnesia is often used in ‘green’ or ‘clean-tech’ applications, either in environmental protection and restoration or in energy reduction processes.
At the same time the development of future magnesia applications is also discussed, such as carbon-negative and environmentally friendly cements, ‘Eco-concrete' floor panels, Mg-ion batteries, instead of lithium, photovoltaic/thermal systems with magnesia-water nano-fluids flowing over silicon solar cells, recent fluid advances for the completion phase of deep-water projects.
The above-mentioned investments lead to an increase in the overall product costs which are considerably higher than the ones reported by the Chinese magnesite/magnesia sector lacking such projects. Implicitly, the overall quality of the products brought to Europe will decrease if low cost but also low quality products will enter the European market and replace the current ones.
5. Production in China in not compliant with the EU sustainable development value chain
According to the Nature Climate Change Journal, products from China are causing a substantial cost to the environment due to their higher carbon dioxide emissions as compared to similar products produced in other countries, including Europe. The researchers noted that the several products being exported by Chinese high level carbon producing industries, including steel mills, mineral processors and petrochemical plants may also contribute to huge carbon emissions from the country.
Quite the opposite, the EU and the EFTA countries are subject to severe environmental regulations, including, for example an ETS system for greenhouse gas emissions.
6.The anti-dumping measures would have to be recalculated to the disadvantage of the European industry
The magnesia value chain would be severely weakened by eventually necessary new anti-dumping measures, recalculated on the basis of cost of production, rather than ‘normal value’.
China has repeatedly practiced dumping in dead-burned magnesia, in refractories, in steel and in caustic calcined magnesia and has consequently been the country mostly targeted in anti-dumping investigations regarding these products. Should China obtain MES and thus be able to base a price comparison on costs and selling prices inside China -- dumping in dead-burned magnesia, in refractories, in steel and in caustic calcined magnesia will be intensified while anti-dumping investigations will be severely weakened.
In the two Council Regulations [EC] of 2005, imposing a definitive Anti-dumping duty [on imports of CCM and of DBM respectively] originating in China, the EC had established, that ‘…since the People’s Republic of China is an economy in transition, normal value had to be based on information obtained in an appropriate third-country market economy in accordance with Article 2(7) of the basic Regulation.’
Unlike DBM, there is no downstream control of the CCM value chain by EU CCM producers, not even partially. Hence, at prices such as the above, EU CCM producers will not be able to sustain any production of animal feed and fertiliser.
7. The anti-subsidy instrument has never been effective in the face of the distortions of the Chinese economy
Given the distortions of the Chinese economy, the challenges of countervailing imports from China make it unrealistic to think that anti-subsidy measures could be effective to address dumped imports. This is borne out in the level of measures resulting from EU anti-subsidy investigations of imports from China where almost half of the investigations have been closed without the imposition of measures, and the average rate of anti-subsidy duty has been 6.4%. Duty rates around 6% or less are clearly inadequate to deal with Chinese distortions, as they are absorbed by Chinese exporters who do not have to worry about the effect of low pricing on profitability.