The European Commission yesterday proposed a new method for calculating dumping on imports from countries where there are significant market distortions, or where the state has a pervasive influence on the economy.

“The purpose,” said an EC statement, “is to make sure that Europe has trade defense instruments that are able to deal with current realities—notably overcapacities—in the international trading environment.”

Left unsaid by the EC was how the proposal would impact EU trade policy toward China.

The proposal constitutes a significant change to the EU’s anti-dumping legislation. The new methodology would no longer classify countries as market economies or non-market economies. It is, in the words of the EC statement “country neutral.”

Some observers say the proposal is a de facto grant of market economy status (MES) to China.

Under current rules, in normal market circumstances dumping is calculated by comparing the export price of a product to the EU with the domestic prices or costs of the product in the exporting country. This approach will be kept and complemented by the new methodology that will be country-neutral. It will apply the same way to all WTO members and will take into account significant distortions in certain countries, due to state influence in the economy. WTO members will no longer be part of a list of countries subject to the so called “analogue country” methodology. This approach will be reserved for non-market economy countries that are not members of the WTO.

In determining distortions, several criteria will be considered, such as state policies and influence, the widespread presence of state-owned enterprises, discrimination in favour of domestic companies and the independence of the financial sector.

“This method is country neutral and does not grant market economy status to any country,” said EU Trade Commissioner Cecilia Malmström. “The proposal, once adopted by the European Parliament and the Council, will ensure that the EU’s trade defense instruments are adapted to face new challenges as well as our legal and economic realities. We also maintain an equivalent level of protection.”

But Gerd Götz, Director General of European Aluminium, a trade group, said the European Commission announced a completely new paradigm for EU trade. “The question of market economy or non-market economy could virtually disappear overnight,” he added. “A change of this magnitude creates significant uncertainty for European industries like aluminium.”

Götz objected to the EC’s discarding of its long-standing five market economy criteria. “These criteria must be the cornerstone of any new methodology,” he said. “A rules-based trade system allows all trading partners to compete freely and fairly. If we do not hold our partners accountable, the EU risks losing valuable innovation, investments and jobs.”

According to Götz, China does not meet those MES criteria. “”It fails to meet the four out of five EU criteria.” he said. “Two Chinese aluminium companies receive 57 percent of total Chinese electricity subsidies. By 2020 China will add another nine-million tons of primary aluminium capacity despite the fact that most large Chinese aluminium smelting companies do not make any profit.

“Unilaterally granting China MES before it becomes a market economy puts the EU manufacturing industry at serious risk,” he concluded. “Without effective trade defense instruments, China’s huge overcapacity will turn aluminium into the next steel.”