Britain thwarts EU hopes of tougher trade stance on China

Jean-Claude Juncker wants EU to switch to higher, US-level tariffs.

The U.K. has raised the stakes in its first major fight with the EU’s biggest countries since the Brexit referendum by rejecting pleas for tougher trade defenses against China.

Britain’s defiant position on Thursday is a direct challenge to European Commission President Jean-Claude Juncker, who has called for the 28-nation bloc to build consensus on a harder line against Chinese dumping at Friday’s session of a leaders’ summit in Brussels. He is demanding that EU countries start hitting Chinese steel mills with the sort of ultra-high tariffs used by the U.S.

Juncker’s push is supported by powerful EU countries such as France, Germany, Italy and Poland, who argue that Beijing is using state subsidies to pump up industrial overcapacity and destroy tens of thousands of jobs in Europe.

But Britain, widely seen as China’s closest ally within the EU, is leading a small group of countries, including the Netherlands, Sweden, Finland and Estonia, in a blocking minority against reforms that would allow higher tariffs.

In a sign that Britain sees the Chinese question as a potential bargaining chip in its forthcoming Brexit negotiations, a Number 10 source said that Britain would not be giving ground at this week’s European Council.

“It is a longstanding U.K. position to resist changes to [the dumping methodology] because we think the way it has worked to date has enabled us to deliver reform. We continue to take the same approach.”

The British defend the status quo on the EU approach to tariffs, which normally work out far lower than those in America. In the U.S., steel tariffs attempt to make up the total difference between the price of dumped steel and the cost of production — meaning duties above 250 percent are not uncommon.

Europe, by contrast, uses a methodology called the “lesser duty rule,” which only imposes the far lower tariff levels required to protect EU producers from harm, frequently around 20 percent. Supporters of this model argue that ultra-high duties actually harm European manufacturers higher up the value chain, who benefit from cheaper imports.

The Number 10 source called for a “balanced” approach and argued that the lesser duty rule had already “significantly” reduced the volume of Chinese steel dumped into Europe.

“We would need to be convinced of what the benefits would be. The way it works at the moment allows you to make sure that as well as seeking to address the impact of dumping on producers you are also able to balance that against consumers within Europe and the costs to them,” the source said.

The British approach is, however, deeply frustrating to the European Commission, which is trying to push through a proposal on overhauling the EU’s anti-dumping methodology early next month.

Its proposal is to waive the lesser duty rule only in cases where Brussels can prove extreme overcapacity in a dumping company. The Commission on Wednesday described its own anti-dumping methodology as “no longer fit for purpose.”

The pressure is mounting for a speedy resolution to the dispute because China is declaring that it will be a “market economy” from December 11, under the terms of its accession to the World Trade Organization. That designation will make it far more difficult to pursue anti-dumping cases against China, unless the EU can craft a new methodology.