The following article written by Joshua Chaffin appeared in the Financial Times on June 12, 2009 and can be accessed here.

The European Union and the US are preparing to take China to the World Trade Organisation over allegations that Beijing grants raw materials to domestic manufacturers at below-market prices, according to people familiar with the matter.

The European Commission was expected to present its findings to member states at a meeting on Friday, these people said, and would consult with China later this month. If the parties could not resolve the dispute, then the EU and US would press ahead with a WTO complaint.

The dispute is another indication of the rising trade tensions between the parties as the economic crisis grinds on. In recent months, the EU has filed anti-dumping complaints against China over products ranging from footwear to steel fasteners.

The Chinese government, in turn, has argued that those complaints amount to a form of protectionism.

The European Commission declined to comment on the matter on Thursday, but acknowledged that China’s treatment of raw materials had been a longstanding source of tension.

At the heart of the dispute is Beijing’s application of quotas and taxes on exports of raw materials such as phosphorous, coke and tungsten. Both policies drive down relative prices for those materials on the domestic market, which critics say gives Chinese manufacturers an unfair advantage over foreign competitors which have to buy raw materials on world markets.

The dispute over raw materials is particularly important, say trade officials, because it affects such a broad range of finished products – from ironing boards to aircraft, detergent and candles, to name a few.

In April, the EU imposed temporary duties on Chinese exports of aluminium foil and seamless steel pipe, claiming that they benefited from unfairly subsidised raw materials.

China agreed to reduce export taxes and quotas for raw materials when it joined the WTO in 2001.

The EU and China have gone to great lengths in recent months to restate their commitment to free trade – most recently at a summit meeting last month in Prague attended by José Manuel Barroso, European Commission president, and Wen Jibao, the Chinese premier.

China ranks as the EU’s second most important trading partner, after the US. From 2000 to 2008, EU exports to China more than tripled to €78bn ($110bn, £67bn). Yet the EU’s trade deficit with China has ballooned over the same period from €49bn to €169bn.

Some Brussels trade lawyers are expecting a spike in trade complaints over the coming months as ailing European manufactures take action against perceived offences they might have tolerated in better economic times.

 

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