UPDATE 1-EU lawmakers push to widen trade defence against China

(Updates with latest summit draft conclusions)

BRUSSELS/LUXEMBOURG, June 20 (Reuters) - EU lawmakers proposed toughening new rules to guard against cheap Chinese imports on Tuesday in a vote exposing a shift to a more guarded stance towards free trade in Europe.

The European Parliament's international trade committee voted overwhelmingly in favour of a text that would give the EU greater scope to impose duties on products coming from countries where the state interferes with the economy.

The parliament's proposal will force it into negotiations with the 28 member states, which last month agreed more restricted rules for dumping cases.

Trade is set to be one of the key issues at a summit of EU leaders in Brussels on Thursday and Friday with France, Germany and Italy pushing for the power to screen foreign investments.

The EU has championed free trade as a counterweight to a more protectionist stance of U.S. President Donald Trump, but its emphasis is now as much on "fair" as "free" trade.

Draft conclusions for the summit stress that trade must be reciprocal and would have leaders ask the European Commission to take further trade defence measures and to examine ways to screen investments in strategic sectors.

An EU-China summit this month was overshadowed by divisions on trade, with the EU still wrestling over Beijing's demand that it be treated as a "market economy" 15 years after it joined the World Trade Organization.

For now, China is treated as a special case in which dumping is established if the export prices of a given product are lower than those of a third country, such as the United States.

The European Commission, now backed by the EU's 28 member states, believes that must change and that all WTO members, including China, should be treated the same, with dumping only found if export prices are below domestic prices.

However, while not naming China, the plan includes an exception for "significant market distortions" that would clear the way for hefty anti-dumping duties.

EU lawmakers argue that "significant" needs to be broadly defined, setting out a long list covering state interference. They said investigators should look into compliance with international labour, fiscal and environmental standards.

Their text also seeks to address a problem identified by critics that the new rules would shift the burden of proof, meaning EU producers would have to show distortions rather than Chinese or foreign companies their absence.

European steel association Eurofer, which has brought a large number of complaints about Chinese steel, welcomed the committee's proposals, saying they better defined what distortions were and did not place additional burdens on industry. (Editing by Richard Balmforth)