The European Commission’s legal service has recommended that China be granted “market economy status” under EU trade law in a move likely to inflame relations with the United States and European industry, which have been lobbying against it.

Commissioners discussed the legal opinion — which had not been shared with most of them until this week but was seen by POLITICO — at their meeting Wednesday. The Commission must decide based on the opinion whether they are obliged to offer the status to China.

Speaking to reporters after the meeting, Commission First Vice President Frans Timmermans said discussion on the matter would continue in the coming months because President Jean-Claude Juncker “very clearly concluded that this issue has to be looked at from all important angles given the subject’s importance for international trade but also for the EU’s economy.”

That EU lawyers’ advice, first offered to Commission director-general for trade Jean-Luc Demarty on May 11, 2015, sets the scene for a showdown among trade diplomats, the Commission’s lawyers, parliamentarians, EU national governments, and allies such as the U.S. EU Trade Commissioner Cecilia Malmström is stuck in the middle.

The subject of the legal opinion and Wednesday’s discussion is whether China, which joined the World Trade Organization under special conditions in 2001, needs to meet five objective criteria set out in EU law to be reclassified as a market economy, or whether it is simply entitled to it as of December 2016 because of its WTO accession.

The benefit of reclassification to market economy status is that China would no longer be subject to third-party data and monitoring when it comes to considering whether its products have been sold below market prices, or “dumped” into the EU market.

As a market economy, China would be able to provide its own data about domestic prices, to fend-off the imposition of extra charges in cases where it is “exporting a product to the EU at prices lower than the normal value of the product on its own domestic market.” “Anti-dumping” duties were applied in December 2013 to Chinese solar panels.

Sources in the European Commission, Parliament, national governments and EU-based industry expressed concerns to POLITICO about the lack of transparency in discussions on the issue.

The criticism focuses on why the Commission has been unwilling to commit to an “impact assessment” of the possible move to grant China the status. Impact assessments have been promoted by Juncker and Timmermans as a key element of “better regulation” at EU level.

The European Parliament’s research service, in a December 2015 note, said, “In general, the EU would benefit from a more elaborated assessment than has yet been undertaken.”

Timmermans said Wednesday that “If there are measures to be taken in relation to this issue then of course these measures will have to be assessed for impact. Those are the rules.”

Members of the European Parliament — which has been a thorn in the side of trade diplomats for several years, vetoing the Anti-Counterfeiting Trade Agreement (ACTA) and disrupting plans for a Transatlantic Trade and Investment Partnership (TTIP) — are among the most vocal on the China issue.

Gianni Pittella, leader of nearly 200 Socialist MEPs in the assembly, said his group “is convinced that automatically granting market economy status to China would be premature … We call on the European Commission to proceed with a full and formal impact assessment before taking any decision.”

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Emmanuel Maurel, a french Socialist, was even harsher. He said that “light-hearted granting of MES would make the EU the world’s village idiot.”

The concerns cross the left-right political divide, with David Borrelli of Italy’s right-wing and Euroskeptic Five Star movement, tweeting Tuesday that “we need increased transparency from the Commission.”

Among EU national governments, Lilianne Ploumen, the Dutch trade minister, will be responsible for shepherding discussions on the issue between now and July 2016. Ploumen told POLITICO “it is a real debate” and said “we need that debate sooner rather than later. We need to find out where everyone [EU national governments and the European Parliament] stands.”

Strong legal opinion 

Lawyers for both the European Commission and Parliament have prepared detailed legal advice, from as early as May 2015.

In their opinion, Commission lawyers have expressed the clear view that WTO law is binding on the EU and therefore “the Commission is under an obligation … to delete China” from Article 2(7)(b) of Council Regulation (EC) No 1225/2009, which deals with anti-dumping complaints against non-EU countries. The lawyers state flatly in their opinion that “arguments to the contrary are not well-founded.”

The EU Parliament legal service takes a more nuanced position. Parliament lawyers write that MES is “not defined in WTO law,” that “the precise scope and nature of obligations arising under pertinent WTO law in this area is still disputed,” and that anti-dumping measures could be maintained after 2016 “if it can be shown that market economy conditions still do not prevail in the relevant industry.”

The lawyers say decisions should be taken not only on interpretations of China’s 2001 WTO accession but on the “basis of an objective assessment of economic conditions in China.”

The China debate

China has kept out of the fray this week, but Chinese ambassador to the EU Yang Yanyi will make her first public move on January 27, appearing in Parliament for an “open discussion” about the issue with MEPs.

In the meantime, the European manufacturing industries most likely to be affected by any change in China’s status are preparing for a long fight. Thirty manufacturing industries are allied under the banner of AEGIS Europe and have already come together to commission and promote studies outlining possible job losses.

One source who asked to remain anonymous told POLITICO that industry feels cut out of the Commission process because there is “no study, no green paper, no impact assessment that we can examine. It is career bureaucrats … who will never know unemployment, playing with people’s jobs.”