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WTO Appellate Body Rules Against EU in Trade Dispute over Anti-Dumping Measures Imposed on Fasteners from Mainland China

The Appellate Body of the World Trade Organization has recently issued a compliance report in the dispute between the EU and mainland China relating to the anti-dumping measures imposed by the EU on imports of certain iron or steel fasteners from mainland China. This dispute was the first WTO case brought by mainland China against the EU and has ended in a resounding victory for mainland China.

Hong Kong traders may recall that mainland China initiated the original dispute in 2009, claiming that the anti-dumping duties imposed by the EU were inconsistent with the rules laid down in the WTO Anti-Dumping Agreement. It also challenged a provision of the EU Basic Anti-Dumping Regulation dealing with the so-called individual treatment test for exporters from non-market economy (NME) countries wishing to obtain an individual duty rate.

In 2012, the Appellate Body found that the EU measures imposed on fasteners were inconsistent with a number of provisions of the Anti-Dumping Agreement. In particular, the Appellate Body faulted the EU for having failed to disclose to the Chinese producers information regarding products from an analogue country used for determining their normal value. The Appellate Body also found that the EU’s definition of domestic industry was inconsistent with the standard set out in the Anti-Dumping Agreement. Finally, the Appellate Body held that the challenged provision of the EU Basic Anti-Dumping Regulation was inconsistent as such with the Anti-Dumping Agreement.
 
The EU had been given until 12 October 2012 to put its measures into compliance. While the EU amended its Basic Anti-Dumping Regulation and modified its anti-dumping duties on fasteners following a review investigation, mainland China considered that the measures taken by the EU were insufficient to bring the EU into conformity with its obligations under the Anti-Dumping Agreement. As a consequence, in October 2013, mainland China initiated so-called compliance proceedings, claiming that the revised EU anti-dumping measures have failed to implement the Appellate Body’s ruling and were inconsistent with several provisions of the Anti-Dumping Agreement.

In August 2015, the compliance panel sided with mainland China and held that the EU failed to comply with the original ruling. Then, in its report of 18 January 2016 (discussed here), the Appellate Body upheld all of the compliance panel’s findings of violation and confirmed that the revised EU measures are inconsistent with a number of provisions of the Anti-Dumping Agreement.

In addition, the Appellate Body reversed several of the panel’s initial findings which were in favour of the EU position. Essentially, the Appellate Body found that the EU breached a number of fundamental obligations relating to transparency, fair comparison, adjustments for differences in taxation and costs, definition of the domestic industry and the injury determination.

This ruling is significant as it confirms that the approach taken by the EU in anti-dumping investigations against mainland China is fundamentally non-transparent and biased. Notably, the Appellate Body reaffirmed that there are no grounds for treating exporters from mainland China any different from exporters from other countries, except with respect to the determination of normal value. The Appellate Body confirmed the EU’s obligation, namely, to put Chinese producers on an equal footing with producers in an ordinary investigation in terms of access to information.

The Appellate Body also confirmed that the investigating authority (here, the European Commission) is equally required to make adjustments for differences affecting price comparability in cases involving the use of the analogue country methodology as in any other anti-dumping investigation.

As a consequence of the Appellate Body’s ruling, the EU will now have to withdraw the anti-dumping measures on fasteners if it wants to avoid the imposition of retaliatory measures by the Chinese authorities on its own exports (i.e., any exports, and not just the product at issue). Indeed, if the EU fails to act, mainland China could  legitimately request an authorisation to suspend certain concessions towards the EU in an amount equal to the trade it has lost as a consequence of the EU’s continuous non-compliance. It is estimated that the anti-dumping duties on fasteners, varying from between 22.9% and 74.1%, had cost the mainland Chinese fasteners industry around $1 billion. It follows that if the EU does not withdraw its measures, mainland China could impose additional tariffs on selected EU products to the tune of up to $1 billion. This would make Fasteners a landmark dispute since it would be the very first time mainland China would be authorized to retaliate at the WTO.

The Appellate Body’s findings also require that the EU modify the way it carries out its anti-dumping investigations against imports from mainland China as well as other countries considered by the EU as NMEs. The findings will therefore also have an impact on future investigations.

Hong Kong traders with interests in mainland China should be informed that the European Commission is currently preparing to repeal the anti-dumping duties in order to comply with the WTO ruling and to avoid retaliation from mainland China. It is reported that while Italy and Germany may strongly oppose the repeal of the measures, they will be unable to block this, unless, that is to say, at least 18 of the EU’s 28 Member States decide to reject the Commission’s proposal to repeal. Predictably, the EU fasteners industry also objects to the measures being repealed and insists that the EU should not take any actions before mainland China makes its request for retaliation.

Interestingly for traders, the Appellate Body decision may also have an impact on the outcome of the ongoing appeal proceedings before the European Court of Justice initiated by two Chinese exporters of fasteners against the EU anti-dumping measures. Their complaint has been rejected at first instance by the EU General Court and is now awaiting the final ruling of the Court of Justice.

Finally, it should be noted that the latest decision comes at a very welcome moment: just as the EU is considering the continuing application of special rules, regarding market economy status, in anti-dumping investigations against mainland China after the expiry of certain provisions of its WTO Accession Protocol in December 2016.

Content provided by Picture: HKTDC Research
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