A Chinese worker prepares to lift steel rods at a factory in Huaibei city. [Photo/IC]

Leading European economists have urged the European Union not to go overboard on protectionist measures against China's competitive steel exports, warning that escalated anti-dumping moves may lead to retaliation from Beijing and damage the bilateral relationship.

They said both sides have already set an excellent example in solving similar disputes over solar panels and consultation has brought the relationship back on track; the method should be used to find solutions over excess steel capacity, which they say is a "global phenomena".

Europe's steelmakers are facing closure of factories or a drastic reduction in jobs, with trade unions blaming China for dumping cheaper steel products on the open market.

Since last year, the European Union has repeatedly resorted to defensive trade measures, seeking to impose punitive tariffs against China's various competitive steel products, though such products have helped reduce the cost of business in Europe amid economic stagnation.

A solution "very much depends on whether the EU is prepared to intensify negotiations with China and its companies on best practice accounting and cost measurement," said Rolf Langhammer, vice-president of the Kiel Institute for the World Economy in Germany from 1997 to 2012.

Referring to the consultations in the solar panel dispute in 2012-13, Langhammer, who is still a professor at Kiel, said there have been examples in the past in which Chinese companies constructively cooperated with the European Commission and thus prevented anti-dumping duties being imposed on their exports.

"This would be a good way to go," he said.

Langhammer insisted that bilateral relationship would strongly benefit from a clear policy of the Chinese government to abstain from any trade-distorting subsidization policies in favor of their steel plants.

Beijing rejects the allegation that China has offered incentives and subsidies to encourage steel producers to export. The Ministry of Commerce Spokesman Shen Danyang ruled it out at press conference last month. "China has not injected export subsidies for the steel companies."

Men Jing, professor at the College of Europe, also expressed her concern over Brussels' actions of imposing excessive trade protection measures against China's steel exports and its time-consuming decision-making process of granting China market economy status, which European Parliament debated on Tuesday.

"I have sensed that, if two sides could not cope with the two headaches properly, any tit-for-tat actions, which I don't expect, may bring trouble for the bilateral relationship between China and the EU, which just celebrated their 40th anniversary (of their partnership) last year," said Men.

"However, I don't think the relationships between China and the EU member states, between China and central and east Europe countries, will be affected," said Men. "Their relationships have gathered sound momentum."

Fredrik Erixon, director of the European Center for International Political Economy, a world-economy think tank in Brussels, said trade disputes were never welcome, but both sides know that they would be damaged if such disputes were allowed to spiral out of control and lead to trade wars.

"The important thing is to prevent escalating trade defense measures and to keep up the pace on concluding the bilateral investment treaty between China and the EU," said Erixon.

Langhammer said China is responding by closing steel plants but this will not decisively cure the problem. "Nor will Brussels' anti-dumping measures be of permanent help," said Langhammer.