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European Commission Consults Stakeholders on Proposed Reforms of Anti-dumping Investigations on Products from Mainland China

On 17 March 2016, the European Commission hosted a “Trade Defence Conference”. The conference mainly dealt with the question of how to calculate the normal value in anti-dumping investigations on imports from mainland China as of 11 December 2016. From that date, Section 15(a)ii of China’s Accession Protocol to the WTO will no longer justify the use of the analogue country methodology to calculate normal value.

This methodology has, until now, allowed the EU to disregard producers’ domestic prices in the calculation of normal value for products originating in mainland China, and to use the prices of the same goods from a comparable third country, thereby leading to higher normal values and higher anti-dumping duties.

Article 2.7 of the EU’s Basic Anti-dumping Regulation explicitly lists mainland China as a non-market economy country for the purpose of calculating normal value in anti-dumping investigations. As the date provided under China’s Protocol of Accession approaches, the EU is under pressure to act.

Three options are currently being explored by the European Commission, as was explained by Trade Commissioner Cecilia Malmström, and Director for Trade Defence in DG Trade, Leopoldo Rubinacci. Under the first option, the Basic Anti-dumping Regulation will be left unchanged. The Commission itself acknowledges that this option is problematic, because mainland China will almost certainly challenge the EU on this through the WTO dispute settlement system.

The second option currently under consideration is mainland China’s removal from the list of non-market economy countries provided in the basic Regulation. The problems connected with this option relate to the fact that the EU authorities will not be able to disregard the prices for the investigated goods in mainland China in the context of anti-dumping investigations. Due to the perceived low prices in that country, several EU producers’ representatives that were taking part in the conference, expressed concerns as to whether the EU, under these circumstances, will ever find a truly positive dumping margin in case of exports from mainland China to the EU.

The third option, is the removal of mainland China from the abovementioned list, combined with the introduction of “mitigating tools”. The European Commission is currently examining a range of possible mitigating tools.

First, among the proposed mitigating tools is “cost adjustment”. This would allow the investigating authority to upwardly adjust production costs when the prices of the inputs are not reasonably reflected in the accounts of the investigated exporter. This tool is frequently used by the European Commission when calculating the price of energy as part of the whole production cost in anti-dumping investigations on imports from Russia. Several lawyers taking part in the conference pointed to the fact that this issue is currently pending before a WTO panel (in EC – Biodiesel), and that this methodology is not guaranteed to be found in line with the requirements of the WTO Anti-Dumping Agreement, to which the EU is committed.

Another proposed mitigating tool is the abolition of the so-called “lesser duty rule”. Pursuant to this rule, the European Commission currently applies anti-dumping duties only in so far as they are able to offset the injurious effects of dumping. If a lower duty compared to the margin of dumping is sufficient to restore fair conditions for trade, the European Union prefers, at this stage, not to impose an excessive burden on dumped products.

The third proposed mitigating tool is known as “grandfathering”, which involves amending existing provisions in order to safeguard the definitive anti-dumping measures already in place against imports from mainland China, at the time at which the reforms will enter into force. Under this approach, requests for interim reviews for measures concerning mainland China will not be allowed until the initiation of expiry reviews. Several lawyers at the conference criticised this approach and affirmed that it is unlikely that WTO panels and the WTO’s Appellate Body will find it consistent with the requirements of the Anti-dumping Agreement, in case of challenges.

The fourth and final suggested mitigating tool is to amend the anti-subsidy legislation in order to allow the European Commission to expand the scope of an investigation launched on a particular set of financial contributions to new subsidies discovered in the course of the investigation. Again, it is not entirely clear whether this approach would be fully consistent with WTO law.

The representatives of the European Commission clarified that they will wait for the results of a full impact assessment of all the proposed reforms before starting the legislative process and amend the Basic Anti-dumping Regulation. The economic assessment is due to be published in May 2016, but it is unclear when the Commission plans to start the legislative process that is needed in order to amend the Basic Antidumping Regulation. Rumours have circulated that the process will not be completed before 11 December 2016.

Content provided by Picture: HKTDC Research
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