We Are Taking Wait-and-See Approach to 'Market' Question: German Envoy

(Beijing) – Many people around the world are wondering whether the European Union will grant China market economy status (MES), as a provision of China's WTO agreement that allowed anti-dumping duties is set to expire at the end of the year.

So far, European leaders are split over the issue, with a highly anticipated European Commission's meeting in Brussels on January 13 unable to reach a conclusion on the matter.

In an interview with Caixin, the German ambassador to China, Michael Clauss, said that "Germany has not yet taken a position."

With the largest economy in Europe, Germany has the largest voting share in the council of the EU, the main decision-making body of the bloc, along with the European Parliament.

While Beijing interprets the WTO agreement as granting China MES status automatically at the end of 2016, critics wonder just how much of a "market economy" China really has, pointing to statist measures such as the heavy-handed stock market intervention last summer.

One of the primary opponents of MES have been Europe's heavy industries, such as steel, textile and solar panel producers, who say unfairly priced Chinese goods force them to cut jobs.

When German Chancellor Angela Merkel met Premier Li Keqiang during her visit to China in October, she was reported as saying she was "in principle positive" towards granting China MES.

Clauss recapitulated the German Chancellor's position, saying, "Her message was two-fold: First, we will wait for the commission's proposal... Second, we feel that China has to do more [to be granted MES]."

Asked about the possible consequences for Germany, Clauss said the issue is not about volume of trade but the competitiveness of firms. "German companies are undoubtedly among the most competitive in the world market," he said.

The following are excerpts of Caixin's interview with the ambassador.

Caixin: There's a lot of discussion over whether China should be granted market economy status (MES). What's Germany's perspective?

Michael Clauss: The issue of granting China MES is a competence of the European Union. Where does Germany come in? The decision-making process has three steps: The European Commission will present a proposal on whether to grant the status. Then the (European) Council, consisting of the 28 member states, would have to take the decision. The commission proposal requires a so-called qualified majority in the council, meaning at least 16 member states representing at least 65 percent of the EU's population. Finally, the decision needs to be endorsed by a majority of the European Parliament, which has a track record of very lively and contentious debates, including on free trade issues.

Germany has not yet taken a position. When Chancellor Merkel was in Beijing last October, the issue was raised in her meetings with the Chinese leadership. Her message was two-fold: First, we will wait for the commission's proposal because we do not want to prejudice it. Second, we feel that China has to do more concerning accession to the WTO's General Procurement Agreement. She did not say less, and she did not say more than that.

Do you think there will be a lot of disagreement among EU members?

There are already difficult discussions in some member states, especially those with less competitive industries. Traditional industries, such as steel, solar and chemical products, are lobbying against granting China MES. There also seems to be opposition in trade union circles.

Obviously, Germany's position will be quite important in this matter. Votes in the council are weighted according to the size of the member state, so Germany – which is also the largest European economy – has the biggest voting share.

What are the things China needs to do to be granted MES?

There are two schools of thought. The Chinese argument is that MES would be granted automatically because according to the Chinese interpretation that is what was agreed in China's accession to the WTO in 2001. The other argument is that there are five criteria for a market economy to be met and – according to experts – China still has some way to go in terms of reform in order to fulfill all of them.

Some experts argue that for some high-end manufacturers, it's not a bad thing that China gets MES, because it would mean much cheaper raw or half-raw materials for them. What is your view?

Whether granting China MES is seen as threatening or not will differ from country to country, from sector to sector, from company to company, depending on their competitiveness and confidence.

There are companies that fear, rightly or wrongly, an increase in dumping from Chinese companies, as the Chinese economy now seems to be in a downturn and seems to be suffering from overcapacities in sectors such as steel and shipbuilding. At this stage, without MES, anti-dumping measures as a defense measure against China can be based on reference prices in any market economy. Once the MES has been granted the reference prices in anti-dumping investigations will have to be based on prices inside China. So bringing legal cases against alleged Chinese dumping – and thus taking defensive anti-dumping measures – would be much more difficult.

For the sectors like steel and solar, do you think this would be a challenge to the local job market?

It is difficult to say. Some experts present scenarios where in Southern Europe there might be tens of thousands of jobs lost. For me, it is impossible to judge how serious these analyses are.

Some analysts also say if China gets MES, among all the EU countries, Germany might be affected the most because of its close relationship with China. What is your take?

The issue is not about the volume of trade with China, it is about how competitive one's companies are. German companies are undoubtedly among the most competitive in the world market.

Is it true that the EU gets a lot of pressure from the United States on this topic?

Personally I am not aware of any U.S. pressure on the issue.

Some experts say that we should take the U.S. and the EU separately on this issue because based on AIIB and SDR, it seems the U.S. and the EU have different views. What do you think?

I am not aware that the U.S. has taken a position on whether to grant China market economy status. They have more time to decide than we Europeans. The EU would have to bring various rules and regulations in line to grant China the market economy status, which would take a year to accomplish.

Of course, U.S. and European companies are competitors in China, but we also share certain interests on issues like market access, a level playing field for foreign companies or improvement of intellectual property rights protection.