Amid extraordinary moves to force more stringent anti-dumping duties on imported Chinese steel, the European Union (EU) is girding for what many predict to be heated rounds of debate in the coming months as the organization is set to vote on whether or not to grant China the status of a market economy in the World Trade Organization (WTO) before the year is out.

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The vote could make a difference to China, which now confronts steel dumping allegations from at least seven EU countries. 

Market economies, as the term implies, are driven by market forces such as banks, businesses and consumers. 

Non-market economies, on the other hand, are those in which government institutions can set prices for goods artificially.  This often puts them at odds with their more liberalized counterparts in free trade arrangements.

Honoring Obligations

Part of the WTO's purpose is to provide market economies the tools they need to resolve price disparities set by governments that control non-market economies.  These tools include protectionist duties like the anti-dumping tariffs recently levied by the EU against imported Chinese steel.

China is seeking recognition as a market economy in the WTO as this would help the country fight such prohibitive trade restrictions. 

"As a WTO member, China has been honoring each of its legal obligations since its accession, and must be entitled to all WTO rights," Chinese foreign ministry spokesperson Lu Kang said recently.

China joined the WTO in 2001 as a non-market economy.  Beijing argues that the WTO accord automatically grants China the status of a market economy by the end of 2016.  Europe must decide whether it agrees with that interpretation before the year ends. 

The US, as expected, has warned that granting China the status of a market economy would amount to "unilaterally disarming" trade defenses against the country.

Europe's traditional industries have meanwhile led a campaign to deny China market economy status (MES) -- an effort that has gained some attention in recent months as the European steel industry has stepped up its protests against low cost imported Chinese steel products in EU markets.

Louder Protests

The European steel association EUROFER insists that unfair competition from Chinese steel manufacturers have caused some 85,000 EU steelworkers to lose their jobs since 2010.

The continent's ceramic sector is likewise said to be hurting from the competition brought on by imported Chinese products.  Ceramie Unie, a ceramics trade union, has warned that half the sector's workers in Europe -- about 100,000 people -- risk losing their jobs if China is granted MES.

The EU's top trade official, Cecilia Malmström, earlier this week warned Minister Gao Hucheng of China's Ministry of Commerce that she is about open three more anti-dumping investigations into steel products from China.

"In the wake of a worrying trend, I urge you to take all appropriate measures to curb steel overcapacity and other causes aggravating the situation," the Financial Times quotes Malmström as saying in a letter to Gao.

China, however, is the world's second largest economy, and a significant creditor nation.  The American geopolitical intelligence firm Stratfor reports that many EU nations would like to appease China to attract future investments.  The firm suggests these interests are likely to swing votes in China's favor.

Factions within the EU have already begun to emerge ahead of the vote, with Italy leading a group that is likely to vote against recognizing China as a market economy.  The UK is expected to lead the camp that backs the change in China's trade status. 

Stratfor says the EU is likely to grant China MES in the next few months, but some analysts expect a long fight. 

"Even if the EU starts the legislative process today, it's unlikely to be ready before the 2016 deadline," Hosuk Lee-Makiyama, director at the European Center for International Political Economy, told the Financial Times recently.

TagsChina-EU relations, WTO, China Trade