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Reform of EU Trade Defence Instruments to be Discussed in Three-way Institutional Talks

It is reported that the new rules concerning the EU’s trade defence instruments are to be negotiated in so-called trilogues between the European Parliament, the European Commission and the Council of the EU starting from mid-March 2017. The trilogues will aim to hammer out a final package to update EU rules on trade defence measures, which are of particular importance in relation to low-priced imports from mainland China.

The original proposal to modernise the EU’s trade defence instruments was presented by the Commission in April 2013. It has been stalled since then due to diverging views between more pro-trade oriented and more protectionist EU Member States in the Council. The proposal has recently gained momentum with the expiry of certain provisions of mainland China’s WTO Accession Protocol and the question of whether the country should now be treated as a market economy.

In order to adapt the EU legislation to this new situation, the Commission proposed a package of changes to the Basic Anti-Dumping and the Basic Anti-Subsidy Regulations on 9 November 2016. While the core of the recent proposal is a change to the methodology for calculating dumping, the 2013 proposal focuses on improving transparency and accelerating the speed of EU trade defence investigations. Both proposals are now being discussed by the Council and the European Parliament.

One of the key elements to be discussed in the course of the trilogues is the proposed partial abolition of the so-called lesser duty rule (LDR). This rule requires that duties imposed by the EU cannot be higher than what is necessary to prevent or offset the injury suffered by the EU industry even if the actual dumping margin would allow for the imposition of higher duties. This practice is not required by the WTO rules and is not followed by many of the EU’s trading partners such as the US.

In the past, the UK and other northern European countries were opposed to the reform of the LDR arguing that cheaper intermediate goods often benefit European companies that use them for manufacturing other products. Southern European countries led by Italy see the removal of the LDR as a way to slap higher duties on imports coming from mainland China.

The upcoming discussions will focus on the circumstances in which the LDR should not be applied. The negotiating position of the Council provides for a deviation from the LDR in case of raw material distortions where the “distorted” raw material makes up 7% or more of a dumped good and the sum of all the distorted raw materials in the dumped product exceeds 27%. At the same time, the Parliament has called for higher duties to be applied in cases of social and environmental dumping.

While the reform would change the way the EU trade defence instruments operate with regard to all countries, the trilogue meetings should be seen in light of the relations between the EU and mainland China. Hong Kong traders will recall that in December 2016, following the expiry of certain provisions of its WTO Accession Protocol, mainland China initiated a WTO dispute challenging the current EU trade defence legislation. The fact that the EU is in the process of enacting new anti-dumping legislation was clearly not sufficient for mainland China to refrain from launching this challenge. Indeed, the language used in its WTO complaint suggests that mainland China is not satisfied with the proposed reforms and that the EU should expect other WTO challenges against the revised EU law and practices, should the changes be adopted.

Traders should also keep in mind the ongoing negotiations of the bilateral investment treaty between the EU and mainland China. While Chinese investment into the EU amounted to almost €40 billion in 2016, EU investment into China fell to a 10-year low of less than €8 billion. The investment agreement is aimed to ensure better market access for European investors, greater transparency and a level playing field.

The negotiations for the agreement were launched in November 2013 and the last round of negotiations took place in September 2016. In a recent speech, the EU Trade Commissioner Cecilia Malmström expressed her hope for a “new impulse” in negotiations this year. She also added that while the EU welcomes mainland China’s declarations to develop free trade and investment, it remains concerned over the deteriorating situation on human rights and the freedom of expression and association in that country.

Content provided by Picture: HKTDC Research
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