China Likely to Seek Sanctions after Victory over the EU at WTO

For years, the European Union (EU) has imposed tariffs on Chinese-made screws, nuts, and bolts made of either iron or steel. However, on Monday, China won an appeal in a seven-year legal battle before the World Trade Organization, which found that those tariffs are illegal. Although China has never before sought sanctions from the WTO, many believe the length of this battle may cause the trade giant to make a claim for compensation. 

For years, the European Union (EU) has imposed tariffs on Chinese-made screws, nuts, and bolts made of either iron or steel. However, on Monday, China won an appeal in a seven-year legal battle before the World Trade Organization, which found that those tariffs are illegal. Although China has never before sought sanctions from the WTO, many believe the length of this battle may cause the trade giant to make a claim for compensation. 

China’s Ministry of Commerce said of the tariffs: “The measures have negative effect on exports from China around $1 billion and more than 100,000 jobs from thousands of fastener producers in China … It has resulted in huge economic losses to the Chinese industry, which has expressed strong dissatisfaction and firm opposition to the measures.”

Pursuant to the WTO ruling, the EU must now cease to enforce the offending tariffs and comply with the WTO’s ruling. Should it fail to do so, the Chinese Ministry of Commerce’s statement indicated it would take “further steps.”

According to Reuters, China’s exported fasteners to the EU peaked at over $1 billion in 2008, but averaged closer to $200 million once the EU imposed its tariffs in 2009. The WTO deemed the tariffs “punitive”. While punitive tariffs are allowed, they may only be used when a nation is “dumping” (i.e., exporting goods priced at an unfairly cheap level) as a means of preventing one nation from deliberately undercutting foreign rivals by artificially pricing lower than competitors can. 

Of course, given the temptation to call any foreign competitor a dumper, the use of anti-dumping tariffs falls under strictly applied WTO rules. In the case of the EU / China dispute, China claimed that the EU had failed to strictly observe those rules. The WTO’s arbitration panel agreed, and that decision was upheld on appeal. Although the EU said it had reduced its tariffs, China claims it has not. 

Another part of the dispute pertains to China’s valuation system. The EU says China does not have a “market economy” under WTO rules, and therefore its prices are not true market prices at face value. However, China asserts that it will be a “market economy status” from December 2016, which will require the EU to take Chinese export prices at face value. Since that is only a few months away, China believes it should be afforded that kind of respect already. Despite China’s sentiments, the EU has begun debating whether it will recognize China’s “market economy status” now or in the future.