The study, commissioned by a group of European industry organisations, has found that the decision to grant market economy status to China would put between 1.7 and 3.5 million EU jobs at risk.
The report comes after the European Commission's legal service announced in July that, "it would be unwise not to grant market-economy treatment to China."
China has been lobbying to automatically qualify for market economy status within the World Trade Organisation (WTO) by 2016, according to the terms of its WTO accession agreement signed in 2001.
When China joined the WTO in 2001, the US and the EU argued it should not be considered a market economy, as its domestic prices were set by government policies, not supply and demand.
Recognising China as a market economy would, according to the new report, make it more difficult for the EU "to impose tariffs on dumped goods allowing Chinese companies to undercut domestic production by flooding the EU with cheap goods."
The report has prompted leading industry figures to call for China to be denied market economy status (MES).
A spokesman for Eurofer, the European Steel Association, told the Parliament Magazine that, "the European steel sector supports the call to deny China MES, at least until such time as the country meets the technical criteria imposed by the EU. Presently, China does not meet the MES criteria."
When asked whether the EU was doing enough to protect the manufacturing sector, the Eurofer spokesman added, "the anti-dumping duties that the Commission is able to impose on dumped products are the only things standing between unfairly traded Chinese steel and the loss of swathes of the existing European steel industry jobs."
A spokesman for AEGIS Europe, an alliance of 30 manufacturing industry associations, reiterated these criticisms. Reacting to the report the spokesman said, "China is not a market economy and cannot be recognised by EU policymakers as such."
The increased number of imports that would occur if China were afforded MES would reduce EU output by between €114.1bn and €228bn per year.
The move could also place jobs in already vulnerable industries at greater risk.
The manufacturing industry would be hit particularly hard, with the automobile parts, steel, glass and aluminium sectors the worst affected. The report estimates that job losses in these key industries could push EU-wide unemployment up by a whole per cent.
According to the report up to 639,000 jobs could be lost in Germany; 416,000 in Italy and 387,000 in the UK, if China is awarded market economy status.
Reinhard Bütikofer, a German MEP and vice-chair of the EU Parliament delegation to China, has urged caution when assessing the results of the report, calling instead for a transparent debate on China’s economic status.
He said, "Let us not jump to conclusions. First and foremost we need a transparent public conversation on this topic."
However, he did say that he did not believe China should be granted market economy status until it met the necessary criteria. He added, "the legal services of the Commission and the Parliament seem to be of the opinion that the market economy status has to be granted automatically. I do not agree with that point of view. Market economy status should be granted, if and only if the pertinent criteria have been met."
When questioned on the report’s estimate that Germany would lose up to 650,000 jobs, he again highlighted the need for a more open debate, saying, "let us not get too overexcited on the basis of one report. All sides must put the facts on the table."
The decision to grant market economy status to China is likely to split Europe. EU countries such as Sweden, the Netherlands and Belgium tend to be more pro-China. Southern Europe usually adopts a tougher stance. Germany's attitude is likely to prove decisive. Germany-China trade currently supports up to a million jobs across the EU though they have been critical of China in the past.
The Commission have said that no decision has been made yet and did not confirm a date when the decision would be taken.