Editor's Note: This article was originally published on Real Money at 8 a.m. on July 19.

Deliberations this week at the European Commission will illustrate the way that the European Union is looking to engage with China on trade, while the United States prefers a more antagonistic approach.

The European Commission is due Wednesday to discuss the controversial issue of whether or not to grant China "market economy status." But allegations that China is dumping goods -- in particular steel -- in Europe and other markets are likely to dominate the talks.

China is currently designated a "non-market economy." That means that the World Trade Organization has determined that its prices are artificially fixed or manipulated by the government. As a result, the real price of Chinese steel is calculated using "surrogate" prices indicating what it should be without state subsidies.

It was slapped with non-market-economy status as a "temporary provision" when it joined the WTO in 2001. But the designation was set for 15 years, meaning it will expire on Dec. 11 this year. China hopes the status will then expire, but that's far from a given. Market-economy status will undoubtedly be a part of the G20 meeting in China in September.

The deliberations at the European Commission come after a delegation from the European Commission, headed by its president Jean-Claude Juncker, visited China last week as part of the annual E.U.-China Summit.

Juncker talked tough on steel in particular. After meeting with Premier Li Keqiang, Juncker said Brussels and Beijing had set up a joint working group to tackle the issue. Part of its remit, he said, is to put in place "verification and monitoring mechanisms."

The European Union is moving ahead with changing China's status, according to one official. But China's huge industrial production and inefficient industry is creating a hitch.

"We are in favor of free trade," said Jyrki Katainen, the commission's vice president for jobs, growth, investment and competitiveness, at an event in Hong Kong, as the Nikkei reports. "As long as overcapacity is harming fair trade, it's very difficult to do free trade."

But the E.U. would rather engage with China than continue simply to punish it.

"Basically there are two options," said Katainen, formerly prime minister of Finland. The E.U. can "try to solve the problem or try to isolate China, and it's better to solve the problem."

The E.U. hopes that China will put some of that overcapacity to use in infrastructure projects, added Katainen, who had also been a part of the delegation to China.

China's steel output hit an all-time high last month, raising tension not only with Brussels but also with Washington. June production of 100 million tons was unprecedented, and steel exports rose 23% to the second-highest volume on record.

U.S. President Barack Obama brought a formal complaint to the WTO last week challenging China's export duties on nine key commodities, including copper, cobalt, tantalum and tin that the United States imports. The complaint says the high charges on exports to the United States allow China to provide the same raw materials to its own manufacturers at artificially lower prices.

Obama sees trade as an important part of his legacy, particularly the formation of the 12-nation Trans-Pacific Partnership. But with the TPP criticized by both candidates in the upcoming presidential election, he has also decided to talk tough on China.

The United States has already warned China that it has not done enough to deserve market-economy status, in particular on the issues of excess steel and aluminum production.

The E.U. has been much more accommodative in its dealings with China. Still, Italy, Spain and Germany have all expressed their doubts about granting market-economy status at this stage. Earlier this year, members of the European Parliament passed a non-binding agreement opposing China's market status which they hope will influence E.U. deliberations this week.

Market-economy status is important because it would restrict the punitive tariffs that nations would be able to slap on China for dumping. The country has been the biggest target of anti-dumping cases lodged with the WTO, accounting for 26% of the 3,240 cases lodged between 2001 and 2014, the most recent figures available.

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