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EU Parliamentarians Criticise Commission for Postponing Reform of EU Trade Defence Instruments, as China MES Deadline Nears

On 4 October 2016, Bernd Lange, Chair of the European Parliament’s International Trade Committee (INTA), sent a letter to European Commissioner for Trade, Cecilia Malmström, urging the Commission to come forward with a proposal on the reform of the EU’s trade defence instruments “as soon as possible”.

Hong Kong traders will be aware that pressure has been increasingly mounting on the Commission to reform its trade defence instruments, prior to the WTO deadline for the granting of market economy status (MES) to mainland China.

Under Section 15(a)(ii) of the Accession Protocol of mainland China to the WTO, all WTO members (including the EU) will be required to apply general rules to imports from mainland China after 11 December 2016. This means that the EU will have to refer to Chinese prices and costs when determining the normal value of an imported product. For the EU, this change implies an end to its “analogue country” methodology, whereby the normal value is established based on domestic prices or costs in a third-market economy country.
 
EU industries – in particular the steel sector – have expressed serious concerns over the EU switching to this new methodology. They fear they will suffer from alleged unfair trading practices by Chinese producers if the EU can no longer protect them through the application of the “analogue country” methodology. Therefore, European industry officials have been a strong proponent of a swift reform of the EU’s trade defence instruments.

Echoing the views of union industries, Lange, in his letter to Trade Commissioner Malmström, expressed this concern over the EU’s proposed reform of its trade defence instruments. He noted that the Commission would have to develop a new proposal (without the “analogue” methodology) that would ensure that EU trade defence instruments continue to protect its domestic industries and adequately deal with the current realities in the international trading environment.

Equally, however, he stressed that these reforms would have to enter into force after 11 December 2016. Should this not be the case, EU legislation may no longer fully comply with the relevant WTO rules or would fail to protect Union industries.

The legislative initiative for such reforms belongs to the European Commission, with the European Parliament and the Council of Member States’ ministers having the final word. For this reason, Lange emphasised that the Commission would have to deliver its proposal as soon as possible because “any change in the legislation will take its time by the co-legislators.”

Lange went so far as to say that “at this stage we have reached a point where it is likely that the co-legislators do not anymore have sufficient time available for concluding a legislative procedure before the expiry of [Section 15(a)(ii) of mainland China’s Accession Protocol to the WTO].”

Lange concluded his letter by requesting that the Commission clarify whether it intends to take the necessary steps to amend this legislation and, if so, urged the Commission to come forward with its proposal as soon as possible, in compliance with the Parliament’s position as expressed in its resolution of 12 May 2016. This resolution expressed the Parliament’s clear opposition to granting MES to mainland China and stressed the imminent need for a general reform of the EU’s trade defence instruments. This stance was further confirmed by a subsequent resolution of 5 July 2016.

The European Commission, however, has proven to be less decisive. Despite previously announced deadlines and considered options, the Commission is currently still debating the issue of the treatment of mainland China in future anti-dumping investigations.

On 20 July 2016, Trade Commissioner Malmström released a statement asserting that the Commission had agreed to proposed changes to EU anti-dumping legislation through the introduction of a new anti-dumping methodology to track market distortions linked to state intervention in third countries. According to Malmström, the Commission will propose to remove the list of non-market economy countries, which includes mainland China, and apply its rules in a country-neutral manner to all trading partners. It appears that under the new proposal, EU trade officials would be allowed to compare export prices with international prices, rather than domestic prices where there is evidence of market distortions.

Despite pressure from the European Parliament and Union industries, Malmström’s statement has not yet led to an official proposal from the Commission. Nevertheless, Jean-Claude Juncker, President of the European Commission, had stated on 4 September 2016 that the new trade defence proposals could be expected as early as October 2016.

For the moment, the European Commission continues to apply its “analogue country” methodology to imports from mainland China. On 6 October 2016, the European Commission imposed provisional anti-dumping duties on imports of two Chinese steel products, hot-rolled flat steel and heavy steel plates, ranging between 13.2% - 22.6% and 65.1%-73.7% respectively. In both cases, the Commission determined the normal value on the basis of the prices (or of the constructed normal value) in an appropriate third market economy, i.e. the “analogue country”.

The granting of MES to mainland China would undoubtedly make it considerably harder for the EU to protect EU industry in a similar fashion.

Content provided by Picture: HKTDC Research
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