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European Commission Publishes Long-awaited Proposal on Reform of EU Trade Defence Instruments

On 9 November 2016, the European Commission published its long-awaited proposal on the reform of the EU’s trade defence instruments (TDIs). By means of several amendments to the EU’s Basic Anti-Dumping Regulation, the Commission has sought to comply with its WTO obligations while aiming to adequately protect EU industries against issues of market distortion and overcapacity in third countries.

In essence, the Commission’s proposal grants the EU additional cost adjustment powers in anti-dumping investigations concerning all WTO Members, while keeping the existent analogue country methodology in place for investigations concerning non-WTO countries. Indeed, the Commission seeks to introduce a new Article 2(6)(a) for WTO Members, while amending Article 2(7) of the Basic Anti-Dumping Regulation in relation to non-WTO Members.

Article 2(6)(a) of the Basic Anti-Dumping Regulation: This proposed Article seeks to address the calculation of the normal value in anti-dumping investigations concerning WTO Members in which “market distortions” occur.

Pursuant to this proposed provision, in case of “significant distortions” in the country of origin, “the normal value shall be constructed on the basis of costs of production and sale reflecting undistorted prices or benchmarks”. Such undistorted prices and benchmarks can include international prices and costs, or costs of production and sale in an appropriate representative country with a similar level of economic development as the exporting country.

In order to provide guidance as to when “significant distortions” may be deemed to exist, draft Article 2(6)(a) contains the following non-exhaustive list of situations where reported prices or costs cannot be considered as resulting from the free interaction of market forces:

  • the market in question is to a significant extent served by enterprises which operate under the control of state authorities;
  • there is state presence in firms allowing interference with respect to prices and costs;
  • public policies or measures are discriminating in favour of domestic suppliers or are otherwise influencing free market forces; and
  • there is access to finance granted by institutions implementing public policy objectives.

Importantly, the new Article 2(6)(a) of the Basic Anti-Dumping Regulation would serve as a tool to address all instances of market distortion related to products originating in all WTO Members, irrespective of whether the country is labelled as a market-economy or not. The EU’s new methodology is thus – at least ostensibly –  country-neutral, as it does not grant market economy status to any country.

Article 2(7) of the Basic Anti-Dumping Regulation: Pursuant to this new proposed Article, the normal value in investigations concerning non-WTO Members that are listed in Annex I of Regulation 2015/755 (i.e. Azerbaijan, Belarus, North Korea, Turkmenistan and Uzbekistan) will be determined “on the basis of the price or constructed normal value in a market economy third country, or the price from such a third country to other countries, including the Union, or where those are not possible, on any other reasonable basis, including the price actually paid or payable in the Union for the like product, duly adjusted if necessary to include a reasonable profit margin”.

As a result, the Commission does not propose changes for the calculation of the normal value for non-market economy countries that are not a member of the WTO. For these countries, the EU will continue to apply the so-called analogue country methodology until it is demonstrated that the use of such methodology is no longer necessary. Formulated differently, the analogue country methodology would be reserved for non-market economy countries that are not members of the WTO.

Transitional rules for anti-dumping regulations: The Commission’s proposal introduces specific disciplines in order to ensure that the entry into force of the new system would be made in an orderly and transparent manner and would not create legal uncertainty for ongoing cases or unduly affect existing measures.

While the proposal makes clear that the new system would only apply to cases initiated upon entry into force of the amended provisions, it also makes clear that, for existing measures, the mere introduction of the new disciplines does not constitute sufficient reasons to review such measures within the meaning of Article 11(3) of the Basic Anti-Dumping Regulation.

Indeed, for anti-dumping duties imposed following a determination of the normal value based on the current formulations of Articles 2(7)(a) and 2(7)(b) of the Basic Anti-Dumping Regulation, concerned producers or exporters will not be able to request an interim review on the basis of a “significant change in circumstances” until an expiry review is initiated.

Frustration from different angles: While the Commission’s formal proposal was eagerly awaited, it only marks the starting point of the EU’s legislative process. In order for the text to effectively enter into force, it will have to be approved by both the Council of Member States’ ministers and the European Parliament. Despite the Commission’s efforts, it remains uncertain whether this will occur.

First, the proposal is conspicuously silent as regards the so-called “lesser duty rule”, an issue that previously caused a large amount of disagreement amongst the EU Member States. While the Commission previously proposed compromises in which the application of the lesser duty rule would be abolished in certain carefully-defined and narrow cases, the current proposal does not mention any such envisaged abolition.

In this regard, the presidency of the European Council sent a “compromise proposal” to the member countries dated 8 November 2016. In the proposal, after noting that the principle of the lesser duty rule is to be maintained due to the fact that it ensures that anti-dumping measures are proportional, it is stated that “[t]he Council could agree to apply AD measures on the basis of the dumping margin in the exceptional and narrowly defined case of State induced distortions on raw materials and energy.”

Second, several involved actors have already expressed their concern as to the WTO consistency of the amended legislation. Indeed, when taking into account the recent findings of the Appellate Body in EU – Biodiesel, the Commission’s proposal seems to be at odds with several provisions of the WTO Anti-Dumping Agreement.

Third, both the EU industry and mainland China have already expressed their dissatisfaction in relation to the Commission’s proposal. For the EU domestic industry, one of the obstacles is the EU’s new case-by-case assessment, which shifts the burden of proving that market distortions exist in order to apply a non-standard methodology to the European Commission and complainant industry. This is contrary to the current TDI legislation, where it is for the exporting country or industry to demonstrate that its economy or producers comply with the EU’s market economy criteria.

Mainland China stated that it welcomes its removal from the EU list of non-market economy countries in Article 2(7), as this indicates the EU’s willingness to comply with the expiry of Section 15 of China’s Accession Protocol to the WTO. Nevertheless, mainland China stressed that the Commission’s proposal remains inconsistent with both Section 15 and the relevant WTO provisions. According to mainland China – following the Commission’s proposal – the EU could continue to use its analogue country methodology in disguise by simply replacing the concept of “non-market economy” with the concept of “market distortion”.

Mainland China emphasised that it retains the right to use all necessary means to defend its legitimate rights and interests, insinuating that it would challenge the EU’s current proposal before the WTO.

Content provided by Picture: HKTDC Research
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