Communist-ruled China, the world's manufacturing powerhouse, has requested the designation from the European Union as part of a broader campaign to win the cherished status from the World Trade Organization.
But Brussels is caught in a bind between satisfying its second biggest trade partner and taking a step that would make it more difficult for member countries to use tariffs to protect domestic businesses from Chinese producers.
A spokesman for the European Commission, the executive arm of the EU and trade negotiator for its 28 nations, said commissioners would on Wednesday hold an ‘orientation debate on the Chinese request for market economy status.’
‘It is not a moment for a formal decision. It is a moment for the commissioners to discuss the ways they approach this request and the sequence of steps that the commission will envisage to follow up,’ said the spokesman, Margaritis Schinas.
The debate comes against a backdrop of tensions between Beijing and Brussels.
The EU challenged China in March, slapping anti-dumping taxes on steel imports which followed similar trade rows on solar panels and other items.
Beijing, furiously fighting a slowing domestic economy, is pushing to win market economy status after being denied it repeatedly since joining the WTO in 2001.
Diplomats fear that a refusal by Europe would send shockwaves through EU-China relations, further deepening tensions and worrying markets.
Across the board, European manufacturing sectors insist on maintaining the status quo, a stance supported by the United States.
‘Europe simply cannot grant Market Economy Status to a country that does not merit it. Doing so would have an immensely negative impact on European industry,’ said Milan Nitzschke, a spokesman for the Brussels-based industry lobby, Aegis.
CEO's from Europe's reeling steel industry on Tuesday directly made their case in a meeting with energy commissioner, Miguel Arias Canete who will take part in the debate on Wednesday.
The Washington-based Economic Policy Institute (EPI) projects that if market economy status were to be granted, EU output could be reduced by nearly two percent of GDP per year with millions of jobs lost.
