Steely resolve

China trade spat risks blowing out of proportion

In politics, symbolism is all. The escalating row over China's status in trade disputes is a case in point. Both the People's Republic and its foreign partners are attaching too much importance to the debate.

Beijing thinks it should be awarded "market economy status" as a seal of approval for the reforms it has made over the last few decades. Many European lawmakers think doing so would destroy jobs by opening the floodgates to cheap Chinese steel. In reality, neither side is right.

Despite the grand title, this is actually a technical argument over trade rules. Market economy status matters when it comes to deciding whether a country is "dumping" - exporting goods at below cost price. Nations deemed to be market economies can resist anti-dumping measures if they can show that domestic prices are no higher than the price at which goods are sold overseas. This makes it harder for trade partners to claim they are selling abroad at unfair prices.

China is pushing Western countries to give it the designation. But, a global glut of cheap Chinese steel has galvanised political opposition. It is the main reason that the European Parliament on May 12 voted overwhelmingly to reject China's claim to market economy status. Though the vote is non-binding, it raises the stakes for the European Commission, which will decide whether China deserves to have its status upgraded.

Given the easy credit, free land and subsidised energy many Chinese state-owned companies enjoy it is hard to argue they are operating in a market economy. Besides, China has made little progress in reforming state-owned enterprises in recent years, despite promises to do so.

However, the political row overstates the importance of the matter. A mere 1.4 per cent of bilateral trade between China and the European Union (EU) is affected by the provision. And, even if the EU were to grant China market economy status, the bloc could still tighten its guidelines on antidumping procedures to protect its domestic industry.

Heightened rhetoric from China and its trading partners is obscuring how little this provision really matters. The danger is that the symbolic debate will do serious damage to wider trade relations.