The European Union’s Court of Justice today ruled in a long-running antidumping case that Chinese companies with the government as minority stakeholders cannot “automatically” be judged to be under significant state control with respect to prices, costs and inputs. The ruling could have a far-reaching impact on trade relations between China and the EU.
The case began in 1998 with the imposition of a 29.9% antidumping duty on the importation of glyphosate from China into the EU. Glyphosate is the herbicide best known under the trade name Roundup from Monsanto Corp. (NYSE: MON). The Chinese firm involved in the dispute argued that it should be granted “market economy treatment” because its decisions on pricing, costs and inputs were made in response to market signals on supply and demand, and were not subject to significant state interference.
In 2004, the EU adopted a regulation that extended the antidumping measures to include the Chinese exporter of glyphosate, which challenged the new regulation and won a decision from the EU’s General Court in 2009. The EU appealed that decision, and today’s ruling denied the appeal.
Beyond today’s ruling, many Chinese companies could now challenge the EU’s contention that they are selling goods at unfairly low prices. It is no longer sufficient for the EU simply to say that a Chinese firm is not playing by market economy rules just because the Chinese government holds a stake in the firm.
One immediate issue that could be affected involves mobile device makers Huawei Technologies and ZTE. Huawei denies any direct government ownership, but ZTE has conceded that the government is the company’s largest stakeholder.
Another sector where Chinese firms may take advantage of today’s ruling is solar panels. The Chinese government maintains a stake — and sometimes a majority stake — in most of the country’s large solar panel makers. Given the bankruptcies of several European solar makers recently, this could be a hot spot in Chinese-EU relations.
European companies, for the most part, are a bit shy about challenging Chinese competitors for fear of retaliation. Getting shut out of the world’s largest market does not usually make shareholders happy.
The Court of Justice ruling is available here.