29 June 2018
Reform of the EU’s Anti-dumping and Anti-subsidy Legislation Enters into Force
On 7 June 2018, Regulation 2018/825 was published in the Official Journal, bringing about significant amendments to the EU’s anti-dumping and anti-subsidy legislation. The amendments came into force on 8 June 2018. The main changes include the possibility of waiving the so-called “lesser duty rule”, changes to the calculation of injury, shortened investigation periods, and a three-week pre-disclosure period of provisional duty levels.
The changes follow another recent reform, by means of Regulation 2017/2321, which came into effect on 20 December 2017. That reform gave the Commission the ability to rely on international benchmarks or prices in an analogue third party country when calculating normal value (the domestic sales prices of exporters) if “significant distortions” are deemed to exist in the exporting country.
Waiver of the Lesser duty rule: In contrast to other jurisdictions, the EU has hitherto prevented anti-dumping or countervailing duties from being set at a higher level than what would be necessary to remove the injury caused to its domestic industry. The new legislation introduces a partial waiver to this rule, which could see duties for certain products double or triple. For anti-dumping duties, the Commission may waive the lesser duty rule if the product concerned is affected by “distortions on raw materials”. These consist of: “dual pricing schemes, export taxes, export surtax, export quota, export prohibition, fiscal tax on exports, licensing requirements, minimum export price, [and] value added tax (VAT) refund reduction or withdrawal” among others. In order to be taken into account, a single raw material, including energy, for which a distortion is found must account for at least 17% of the cost of production of the product being investigated. To calculate the percentage, prices of the product in representative international markets will be used.
However, before deciding to apply the waiver and thereby not limit the anti-dumping duties to the injury margin, the Commission must “clearly conclude” that it is in the Union interest to do so, and “examine all pertinent information such as the levels of spare capacity in the exporting country, competition for raw materials, and the effect on supply chains of Union companies.” In addition, the Commission can waive the lesser duty rule for companies considered to be non-cooperating.
As for anti-subsidy investigations, countervailing duties will only be capped by the level of injury if the Commission is able to “clearly conclude that it is not in the Union’s interest” to impose higher duties equalling the level of subsidisation. There is no specific guidance on what Union interest considerations should encompass, although they are likely to be, e.g., a consideration of the interests of consumers and user industries.
Calculation of the injury margin: There are also changes being introduced concerning the calculation of the level of injury caused to the Union industry. The Commission calculates injury either on the basis of a comparison between the export price of exporting producers and sales prices of comparable Union producers (referred to as an “undercutting” analysis), or on the basis of a “target price”, representing Union production costs plus a reasonable profit (“underselling” analysis). When employing the latter approach, the new rules mandate that the target price includes the cost incurred by Union producers due to their adherence to environmental agreements and a set of International Labour Organisation (ILO) Conventions to which the EU is a party, including any future costs expected to be incurred during the time the measures are in place. Furthermore, the target profit margin should not be lower than 6%. It should take account of: the profitability of the goods before the increase in imports, the full costs of investments, research and development, and the level of profitability expected under “normal conditions of competition”.
Three-week pre-disclosure period before implementation of provisional duties: Another provision of the new reform is a pre-disclosure obligation prior to provisional duties, intended to benefit EU importers and increase transparency. At least three weeks before the imposition of provisional duties, the Commission is required to disclose a summary of the proposed duties and details of how they were calculated, if such disclosure is requested by interested parties within a time limit set out in the notice of initiation. Interested parties then have three working days to comment on the accuracy of the calculations.
In addition, if imports have not been registered and the Commission finds that there has been a further substantial rise of imports during the pre-disclosure period, any injury caused thereby shall be reflected in the injury margin calculated for definitive duties. Yet, according to the new rules, registration appears to be the default option during the pre-disclosure period, unless the Commission has “sufficient evidence” that the requirements for retroactive application of duties are not met. The law thereby appears to shift the burden of proof from the complainants to the exporting producers to furnish sufficient evidence, although it is submitted that the ultimate duty to assess the available evidence clearly remains with the Commission.
Shorter investigations and time to comment: The total time an investigation may take before definitive duties are imposed has been shortened from 15 to 14 months. Provisional duties shall “normally” be imposed within seven months, but in any event no later than eight months after the opening of the investigation. Furthermore, comments on the provisional duties must now be received within 15 days instead of 25 days. The greater time constraints on investigations will allow duties to be implemented more quickly and may make it more difficult to obtain extensions to finalise exporter questionnaires and other submissions.
Registration: This is no longer only possible following a request by the complainant but can also be undertaken by the Commission on its own initiative. Whereas the complainant’s request must contain “sufficient evidence to justify such action”, the amended law does not subject the Commission’s own decision-making process to the same requirement. This would mean that the Commission would not have to show that there is a history of dumping or a further substantial increase in imports of the product concerned, although the Commission would be expected to continue to do so in line with current practice.
Circumvention investigations: Whenever a circumvention investigation is opened, registration of the product concerned will henceforth be automatic. In addition, companies can be exempted from circumvention duties even if they are related to an exporting producer that is subject to duties, as long as the company seeking the exemption proves it is not engaging in circumvention.
No interest on repayment and remission of duties collected during expiry reviews: If an expiry review concludes that the proceedings should be terminated, it will no longer be possible to receive accrued interests when requesting a repayment or remission of anti-dumping or countervailing duties collected during the period of the review.
In sum, the new provisions that are expected to have a major impact on Chinese mainland sellers include the shortening of investigations, and, if raw material distortions can be proven, the causing of a dramatic jump in duty rates for products previously capped by low injury margins. Even where distortions are not found, and the lesser duty rule still applies, the new rules for the calculation of injury will contribute to higher initial injury margins and thus higher average duties. That said, the final duties cannot exceed the dumping or subsidy margin (in accordance with WTO rules).
The new rules brought about by Regulation 2018/825 apply to all investigations initiated after 8 June 2018. They thus do not cover new interim and expiry reviews which are part of proceedings that were initiated prior to that date.