The EU’s proposal to change its antidumping legislation to prepare for a removal of China of its list of non market economies is being greeted with scepticism on both sides of the argument.
The article was updated to include new comments.
The EU has tabled its legislative proposal aimed at adapting its laws to the need to make good on China’s 2001 WTO accession protocol that stipulated it can no longer be treated as a non market economy in antidumping cases. The deadline for doing so is on 11 December 2016, in a few weeks. The proposal was expected to be controversial, and turns out to be so, as both opponents and proponents of granting China market economy treatment are sceptical.
The EU is trying make this move a part of a broader package of measures to reform the EU’s trade defence instruments. Among them is a controversial proposal to eliminate a so-called ‘lesser-duty rule’ – so as to allow for higher punitive duties than applied so far. But it has failed to reach consensus on this today.
The move proposed today aims at changing an article in the EU’s 2009 ‘basic regulation’ on antidumping on determining the ‘normal value’ of a product. The first change is to remove the non market economy countries currently enshrined in the regulation that are members of the WTO from the regulation. This not only includes China, but also countries like Vietnam, Mongolia or Kyrgyzstan. Non WTO members would still be treated as non market economies. This means a country like Belarus (a frequent target of EU antidumping proceedings) would still be treated as a non market economy and the so-called analogue country methodology now deemed illegal under WTO rules for China continue to apply to the former Soviet country.
The proposal also proposes changes to the way the ‘normal value’ of a product is determined. Under the new rules “normal value would … be constructed on the basis of costs of production and sale reflecting undistorted prices or benchmarks. For this purpose, the sources that may be used would include undistorted international prices, costs, or benchmarks, or corresponding costs of production and sale in an appropriate representative country with a similar level of economic development as the exporting country”, the Commission explains.
The Commission intends to issue detailed reports on the market situation on the ground. “For the sake of transparency and efficiency, the Commission services intend to issue public reports describing the specific situation concerning the market circumstances in any given country or sector”, the proposal reads. “Of importance, the EU industry would be in a position to rely on and refer to the information contained in these reports when alleging in a complaint or a request for review that the domestic prices and costs in the exporting country are unsuitable to determine the normal value”, the Commission adds.
The criteria the EU will use to determine whether prices are ‘normal’ are the following: “the market in question is to a significant extent served by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country; state presence in firms allowing the state to interfere with respect to prices or costs; public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces; and access to finance granted by institutions implementing public policy objectives”, the Commission explains.
These new rules would only apply to new cases, not ongoing antidumping investigations.
Scepticism on both sides of the argument
The release of the proposal was greeted with protests from industry representatives and labour unions in Brussels. The spokesman of Aegis, a leading industry alliance campaigning against moving away from the current status quo on China deplores that “the new EU approach introduces the novel concept of ‘significant distortions’ and completely abandons the all-important link to the EU’s five long-standing Market Economy criteria”. This “substantially weakens the basis for EU Anti-Dumping measures” so Milan Nitzschke.
“The Commission has also chosen to shift the burden of proof in Anti-Dumping cases involving WTO member Non-Market Economies to the EU, creating a greater workload and additional insecurity for European companies”, Nitzschke deplores.
A group of Italian and French (in particular) MEPs campaigning against removing China from the non market economy list said “the Commission gave in to China”. Their leader, French socialist MEP Emmanuel Maurel said that “China is still far away from fulfilling the five criteria defining a market economy”.
The only ones who are relatively happy are the retailers and importers. The Foreign Trade Association who represents companies in this sector said: “we advocated that in place of the analogue country system, the Commission could use a method similar to that in investigations conducted against Russia [which is what the new methodology does]. The new proposal closely follows this suggestion”.
Stuart Newman, Legal Adviser at the FTA said he believes the new proposal would likely be WTO-proof as piece of legislation, but the proof of the pudding will be in the implementation: ““as such” I think the proposal will work but “as applied” the Commission will have to be very careful”, Newman reckons.
WTO legality is something Christopher Fjellner, Swedish centre-right MEP, and rapporteur on trade defence instruments, is particularly concerned about. Fjellner sees a risk that the new proposed method is contrary to WTO principles in particular as similar methodologies were slapped down by the world trade body’s appellate body early October on duties applied to Argentinean biodiesel.
“Now the Commission must show that the proposal is WTO proof, in light of recent WTO case law. We all know the scope for using third country prices is very limited following the ruling on EU biodiesel duties against Argentine. It serves no purpose replacing one illegal method with another”, Fjellner said.
Uncertain outlook
Whether the new proposal will be adopted by the European Parliament is very uncertain. If the parallel TDI reform does not make a breakthrough, the chances for this are smaller.
Edwin Vermulst, Partner at VVGB said: “I doubt that the EU has given up on the lesser duty rule, but the ‘MES’ proposal is clearly more urgent because of the 11 December deadline. I think the member states will be a bigger hurdle for adoption of today’s proposal than the European Parliament. The proposal does not constitute any major change in the Commission’s current analogue country approach in practice, I fear, and therefore I would think that the EP will not have much to complain about, but the liberal member states will not be happy.
The EU is expected to miss the formal 11 December 2016 deadline for enacting the change in its law. Yet the authorities hope to escape a possible legal challenge by China in the WTO by showing it has moved on the matter ahead of the deadline.
