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Anti-dumping Reform: EU Governments Strive for Compromise, but Disagreements Persist

On 21 April 2017, Italy reportedly opposed the European Council compromise on the EU’s future anti-dumping rules. Italy’s government stated that it was “firmly opposed” to a Council compromise put forward by the current holder of the EU Presidency (Malta), which would change the way the EU calculates anti-dumping duties against mainland China.

At the same time, EU lawmakers are trying to make it easier for the bloc to impose higher duties on dumped imports. A new legislative proposal by the European Parliament largely focuses on addressing how mainland China is treated in trade defence probes, with a view to changing the rules.

The EU continues to struggle to reach a compromise on the reform of its anti-dumping legislation. Since the expiry of certain provisions of mainland China’s WTO Accession Protocol on 11 December 2016, Beijing insists that it should be treated as a market economy in EU anti-dumping investigations. While many EU officials deny that mainland China acts as a market economy, the EU does acknowledge that its anti-dumping methodology should be modified in order to reflect the change in mainland China’s WTO Accession Protocol.

EU governments are currently searching for a middle ground in order to provide sufficient protection to European companies against dumped imports from mainland China.

A first remaining issue of contention in the talks amongst EU governments is the burden of proof on EU companies under the new anti-dumping legislation. EU governments fear that the European Commission’s proposal, which requires European manufacturers complaining about dumping to prove that their foreign competitors have benefited from market distortions in order to trigger an EU anti-dumping investigation, is too cumbersome.

The current draft rules state that the burden of proof lies on EU companies, but that country-specific “assessment reports” written by the European Commission can help them out. The vague and ambiguous concept of the reports has, however, led to concerns. It is unclear, for example, what the content of such reports would be, which sectors they would include, and how frequently they would be updated. In addition, trade lawyers have expressed their doubts as to whether the reports would be legally sound.

On 7 April 2017, the Maltese presidency submitted a compromise proposal to change the language regarding the assessment reports. While the European Commission, in its proposal, had written that the Commission could “[w]hen appropriate […] issue a report describing the specific situation concerning [market distortions] in a certain country or certain sector”, the proposed amended text states that “[w]hen the Commission has well-founded indications of the possible existence of significant distortions […] it shall, when appropriate, produce or update a report describing the market circumstances […] in a certain country or certain sector”. It is not yet clear whether this language is explicit enough to placate the concerns of all EU governments.

EU governments want the European Commission to complete and adopt its country reports on market distortions before the new EU anti-dumping legislation enters into force, and the European Parliament has proposed to monitor the drafting of the reports. While such reports are meant to exist for all countries, it is assumed that the country report for mainland China will be drafted first.

A second remaining issue of contention relates to the scope of “market distortion”. Under the European Commission’s proposal, investigators would be able to construct the normal value of exporting producers on the basis of costs of production and sales reflecting undistorted prices or benchmarks in case it is determined “that it is not appropriate to use domestic prices and costs in the exporting country due to the existence of significant distortions”.

While the European Commission primarily links the concept of market distortion to costs of raw materials and government intervention, the European Parliament intends to clarify and broaden this concept, linking it also to other production factors. By broadening the concept of market distortions, it would be easier for EU investigators to rely on the constructed normal value and, thus, to impose higher duties on dumped importers.

The European Parliament’s draft states, for example, that market distortions could include “the lack of a transparent and effective functioning company law, and a bankruptcy regime that prevents the exercise of property law”, wage rates which are “not the result of free bargaining between labour and management”, and the absence of a transparent set of laws which could cause “discriminatory effects with regard to joint ventures and other foreign investment”.

The European Parliament’s proposal also states that the European Commission should be able to examine any other circumstance it considers appropriate to evaluate the existence of market distortions, and that the EU’s new methodology should automatically be used if investigators find market distortions in the economy as a whole or in an investigated sector, except if specific companies are able to demonstrate that their costs are not distorted.

An agreement amongst EU governments is thus not yet achieved. Subsequent to Malta’s latest compromise of 20 April 2017, Italy stated that it “firmly opposed” the Council compromise on a new method to calculate anti-dumping duties for non-market economies. As stated by Italy’s Minister for Economic Development, the Maltese proposal “is weak and difficult to implement and risks leaving European industry defenseless against misconduct”. If joined by a sufficient number of like-minded countries, Italy’s opposition risks blocking the approval of the Maltese proposal, upsetting the Council’s aim of reaching a compromise before the 19th EU-China summit in early summer.

Italy’s protectionist view is supported by nine countries, including Spain, Lithuania and Romania, while traditionally liberal countries such as Sweden, Denmark and the Netherlands are of the opinion that sufficient concessions have already been made.

As previously reported, the EU has desperately been striving to reform its trade defence instruments (TDIs) since 2013. A crucial step was taken on 9 November 2016, when the European Commission published its long-awaited proposal for such reform. The proposal sought to adequately protect the EU industry against market distortions and overcapacity in third countries, while ensuring compliance with the EU’s WTO obligations. Subsequently, national trade experts have been trying to find a common position to take to negotiations with the European Parliament, as the latter as well as the Council must agree on the TDI reform text before it can become law.

The European Parliament's Committee on International Trade (INTA) is currently in the process of drafting its position on the European Commission’s proposal, and plans to publish its proposed amendments in early May 2017. EU governments hope to find a common position on the EU’s new methodology for calculating anti-dumping duties by the meeting of the EU trade ministers on 11 May 2017.

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