Commission President Jean-Claude Juncker said Europe was eager to do business with China | Zhang Peng/LightRocket via Getty Images EU shifts against lower trade barriers with China National capitals maneuver as European Commission considers impact of looser controls on Beijing.

PARIS — Europe's trade skeptics are gaining the upper hand in an intense war of influence over whether China should be granted greater access to world markets, according to sources involved in the talks.

The European Commission will have to take a position on China's request for market economy status when it comes up for review at the World Trade Organization in December, and that promises to be a tricky balancing act between two camps in the EU. One faction led by Britain supports freer trade with China, while another headed by France says that granting Beijing full membership in the trade club could have disastrous consequences for the bloc's economy.

It's a long-running standoff that reflects Europe's wider, north-south split on trade. But as the deadline looms for deciding on China's market economy status growing skepticism toward free trade in Europe and beyond is pushing the Commission to adopt a cautious, if not openly hostile, attitude toward Beijing's bid.

Further complicating matters for Britain is its possible exit from the European Union. Just as the continent's protectionist forces are gaining ground, the U.K. appears distracted and to be losing leverage in the fight. "In a way, it's as if Britain had already left Europe," said an official involved in talks who asked not to be named due to the non-public nature of diplomatic discussions.

Juncker warned that the European Union "could not be defenseless" against market distortions.

Earlier this year, France and other skeptical nations successfully lobbied the Commission to rewrite a report on the potential impact of granting China market economy status, a document that will largely define the bloc's position ahead of the WTO decision. Its publication, first planned for early 2016, has been delayed until July because some countries complained that the original version was too favorable to Beijing, according to sources close to the talks.

"Finally, something seems to be moving" in the EU stalemate, said an Italian government official. Italy is a member of the so-called "anti-dumping coalition," which also includes Spain and other countries that believe market economy status would give China carte blanche to flood the EU with cheap goods.

A country is considered to have market economy status when its investment and production are based on rules of supply and demand, and not due to centralized decisions or government subsidies to a particular sector.

Giving that designation to China would make it virtually impossible for the EU itself to impose counter-measures against Beijing for trade practices seen as unfair, especially when it comes to considering whether Chinese products have been sold below market prices, or “dumped” into the European market. The U.S. has been vocally opposed to granting China market economy rights and, in the last month, slapped import duties of more than 500 percent on certain types of Chinese steel.

At the G7 summit in Japan last week, Commission President Jean-Claude Juncker said Europe was eager to do business with China. But, reflecting worries about Chinese dumping that flared in the wake of troubles in Britain's steel sector brought on by the availability of cheaper Chinese steel, he also warned that the European Union "could not be defenseless" against market distortions.

'Yes, but...'/'No, but...'

The content of the Commission's paper is secret. But Brussels-based trade experts said there was little chance of the Commission coming out clearly in favor of a straight "yes" or "no" on the market economy status question.

Instead they expect the EU's executive body to aim for a more nuanced position by asking China to agree to allow anti-dumping measures to continue to defend a number of European industries in exchange for a partial “yes” to market economy status. For example, steel and ceramics — the two industries most vulnerable to the free access of Chinese goods — would likely lead a list of exceptions that the EU could demand.

Despite Juncker's tough talk at the G7, Europe is wary of souring relations with a crucial trading partner and vast potential market for European products. Chinese investments in the EU are also a key consideration, making up €5-€10 billion out of the €315 billion in public and private funds in Juncker’s investment plan for Europe.

"The answers were always so vague that we decided to escalate the level of pressure” — Alessia Mosca, Italian MEP

“That is a variable that can’t be ignored,” said a national diplomat working closely on the China issue.

The European Parliament has also weighed in on the debate on whether the trade designation for China would help or harm Europe’s economy, with an overwhelming majority supporting a resolution urging the Commission to reject it.

Alessia Mosca, an Italian MEP who focuses on China issues in the Parliament's center-left Socialists & Democrats group, said members of the assembly had started worrying about the impact on jobs and industry of granting Beijing market economy status about a year ago — and not trusting whether the Commission would ask the right questions.

“We started inquiring into the work of the Commission,” Mosca said. “But the answers were always so vague that we decided to escalate the level of pressure.”

Their efforts culminated in a vote May 11 against granting China the status automatically. While the vote had no direct legal impact, it sent a clear message to the Commission that opposition to the move was strong across the European political spectrum.

The vote also was seen as a "wake-up call" for the free-trade forces, according to Carlo Lombardi, head of the Federacciai Brussels, an industry lobby representing Italian firms.

Lombardi said a steel industry crisis in Britain had helped to build support for the vote. Indian steelmaker Tata announced plans last March to shutter its British steel operations and potentially lay off as many as 15,000 employees. British Prime Minister David Cameron has had to balance a defense of his government's position against imposing higher tariffs on Chinese steel with tough talk about protecting British jobs, even as his diplomats continue to push for MES for China.

Council battle

While the Commission weighs input from member countries, a battle for influence is also raging at the Council over what instruments Europe can use to defend itself in the event that China does obtain market status at the WTO.

The countries pushing for freer trade have long resisted attempts to raise the tariffs that Europe can impose on Chinese imports.

But with Britain distracted by its internal debate on Brexit, several sources said London was looking increasingly isolated on the European stage, while the anti-dumping coalition was gaining momentum in its efforts to equip the bloc with more aggressive, fast-acting measures against dumping.

Added another source from among the China trade skeptics: "What strikes us is that the British aren't coherent ... You can't cry over the demise of your domestic steel industry and at the same time argue for free trade with China at the Commission — it doesn't make sense.”

The European Parliament’s vote shows the political climate is shifting.

After German and French economy ministers sent a letter to the Commission calling for quicker implementation of defensive trade measures — such as tariff increases and "balanced modernization” of the so-called lesser-duty rule, which requires the EU to restrict its anti-dumping fines to a level lower than the actual damage might be — Belgium and Austria are sliding toward the skeptical camp, said sources close to the talks.

If both countries make the jump, a reform of trade defense measures is more likely, handing a victory to the European nations and industries demanding a more assertive stance against Chinese dumping and its effort to gain market economy status.

Slovakia's upcoming presidency of the European Council could also boost the get-tough approach towards China. The steel industry is the biggest private sector employer in the country. "Slovakia understands the importance of anti-dumping regulation," said a lobbyist who asked not to be named.

The European Parliament’s vote shows the political climate is shifting.

“A lot of countries have realized that the current instruments the EU has are just not sufficient against Chinese dumping and the Council and Commission can’t ignore them any longer,” said Daniel Caspary, the coordinator from the center right European People's Party in the Trade Committee.