Summary
DOWNLOAD PDFA new trade war is looming as the EU is now embarking on its first countervailing duty (CVD) against Chinese subsidies over coated fine paper. As the EU gives a significant amount of subsidies to local production, China is not short of sectors to retaliate against – especially as the evidence in the paper case is weak: The share of Chinese exports is yet too small to inflict any injury on EU producers, and China holds less than 4% of the EU market; alleged subsidies through grants, subsidised electricity, VAT and tax rebates have little impact on the final price; and the main argument is based on an assumption that Chinese commercial banks are state owned and are thereby public bodies.
Given the risk for retaliation, CVDs are a risky and costly means to buy time for sunset industries and as CVDs alone cannot remove subsidies in the target country, they are therefore often inferior to a WTO dispute. This calls for a new policy on CVDs where the EU only addresses urgent cases of serious injury against unsubsidised sectors with high value-added and where the EU represents a significant market share. China directs most of its subsidies to strategic emerging industries, and even amongst these sectors only a handful live up to these criteria.