By Viktoria Dendrinou 

BRUSSELS--Representatives from Europe's struggling steel industry will take to the streets of Brussels on Monday in an attempt to stop the European Union from granting market-economy status to China later this year, a move that would make it harder for European companies to protect themselves from cheap Chinese exports.

The protest by workers and employers follows a stark warning from some of the EU's largest governments that the bloc's steel sector faces a significant and impending risk of collapse. It is also likely to fuel a debate over Europe's response to claims that China is selling steel at below-market prices at a time when the steel industry world-wide is reeling from overcapacity.

The dissent underscores the opposition the 28-country bloc could face in formally designating China as a market economy, a move that will fundamentally change its relationship with its second-largest trading partner.

If the EU recognizes China as a market economy, it would make it more difficult for Europe to impose tariffs on Chinese goods.

Beijing claims that a 2001 agreement allowing it to join the World Trade Organization means it should receive market-economy status by December 2016.

However, European industries say Beijing uses government subsidies to boost exports and undercut overseas competition. They say China's economy is still controlled by the state and governments must take that into consideration when weighing up whether or not to award it market status.

"If China were to be granted market economy status by the EU, this would further undermine the effectiveness of the EU's trade-defense instruments," Axel Eggert, Director General of European steel association Eurofer, which is helping to organize the march, said Friday.

Monday's protest comes as Europe's steel industry suffers from overcapacity that has led to thousands of job losses in recent months.

Steel imports from China, the world's largest steel producer, to the EU have more than doubled over the past two years while the bloc's demand languishes below levels seen before the 2008 financial crisis. EU steel prices have fallen roughly 40% over the past two years.

"In Europe we have a massive import crisis that has been caused by the Chinese. That's why the EU should be using its trade-protection instruments against the dumped Chinese steel imports in a way that has the quickest impact," said Hans Jürgen Kerkhoff, the president of the German steel association. The association expects some 1,500 German steelworkers to participate in Monday's protest.

The organizers expect around 5,000 people from 17 countries to attend Monday's march.

In a sign of growing concern about the steel sector, earlier this month ministers from seven EU governments, including France, Germany and the U.K., sent a letter to the European Commission, the EU's executive arm, urging it to step up its action to protect the region's industry from unfair trade.

"The European Commission is very aware of the situation of the steel sector," said Lucia Caudet, the commission's spokeswoman for industry, but added that industry's challenges go beyond trade issues. "What we see is a complete change in the industrial landscape, driven by digitization and the need for energy efficiency."

Ms. Caudet said the commission is applying the instruments at its disposal to ensure a level-playing field.

In recent weeks, the bloc has taken more measures to protect steelmakers from unfair trade, opening three investigations into allegations of unfair trade practices by Chinese manufacturers and slapping tariffs on two types of steel imports from China.

The EU has 37 trade defense measures in place on imports of steel products--16 of which concern China directly.

In the U.S., Commerce Secretary Penny Pritzker told The Wall Street Journal last month that her department is weighing more antidumping cases than at any time in 15 years. She said two-thirds were steel cases "a vast majority of which involve China."

On the issue of market economy, the commission is looking at three options: granting China the coveted status; not granting it and keeping anti-dumping measures in place; or pursuing a third way--that would designate China a market economy while introducing some mitigating measures.

Officials say the commission prefers the third option, but industries warn that mitigating measures will do little to offset the resulting economic damage that would affect manufacturing sectors.

A study for the commission estimates that if China is treated as a market economy, the long-term job losses in the EU, without mitigating measures, would range between 63,600 and 211,000. A study for Aegis Europe, a group of some 30 European industries, puts the figure at as many as 1.7 to 3.5 million at-risk EU jobs.

Still, supporters say granting China market economy status could open the door for Beijing to inject more money into Europe's stagnant economy, a move that would boost infrastructure investment and jobs.

Any proposal to designate China a market economy must also be approved by the European Parliament and EU governments, which are divided on the benefits of trade with Beijing. Nations from Europe's south, such as Italy, support a tougher stance while the others such as the U.K. and Nordic countries are more likely to support the proposal.

For now the commission says it is assessing the economic consequences before taking a view, and will officially revisit the issue in the summer.

Write to Viktoria Dendrinou at viktoria.dendrinou@wsj.com

(END) Dow Jones Newswires

February 14, 2016 07:09 ET (12:09 GMT)