The first ever ECA report on trade defence policy in the EU gives the Commission a clean slate in the way it handles its cases. But one most read the fine print and in between the lines : and then one cannot but be confronted with some disturbing questions. By Iana Dreyer.
The European Court of Auditors released a report on the European Union’s deployment of its trade defence policy today. Its overall assessment is positive: the “system for protecting EU businesses from dumped and subsidised imports functions well”.
This is the ECA’s first-ever report on TDI. And true to ECA’s mission, it focuses mainly on procedural aspects. It looks into whether the European Commission’s directorate-general for trade follows properly the rules, guidelines and deadlines set out in its internal procedures and the trade defence rule-book.
A read through the report, however, raises more questions than it answers.
Whoever knows DG Trade well is perfectly aware that we are dealing here with among the best civil servants in the world and among the best civil servants across the Commission. Also, ‘procedure’ is what the European Commission is good at. Not being in charge of handling money – contrary, to say, the agriculture department – DG Trade and its TDI team is faced with little risk of mishandling public funds anyway, a topic ECA has a good track record in monitoring.
In that sense ECA’s satisfecit is only predictable. It would be alarming indeed if the verdict on procedures were otherwise.
The ECA report points of course to shortcomings and areas for improvement. But its reasoning stops short of asking some very hard questions.
These hard questions can only fly in the face of someone who just tries to connect the dots between the different types of criticisms or areas for improvement identified in the report itself.
The way cases are handled
To start with: the sectors covered by the trade defence policy. The report says that among the anti-dumping and anti-subsidy measures in place in late 2018, the overwhelming majority is in the area of steel and metal products. There were 67 measures in force back then, against 21 in chemicals, 9 in bikes and 8 in glass fibre products.
Why doesn’t ECA ask why this should be the case? Is the overwhelming dominance of steel justified? It might be justified – that is not the point – but can’t this question be asked and investigated in an audit report?
Then there is the question of how cases are initiated: industries that complain first go to the Commission in an informal way, and then formally file a case if the Commission recommends to file or not.
Excerpts from the report: “The low number of withdrawals and rejections is due to a thorough – albeit informal – assistance and screening process that entails consultations taking place before a complaint is officially lodged. This process enables the parties to build a stronger case, thus making it likelier that DG Trade will launch an investigation. However, the advice given by DG Trade can discourage any party from officially lodging an application.”
Well, isn’t it the role of auditors to dig into that issue precisely? Have potential complainants been discouraged to file? We have no answer in this report.
Then there is the issue of transparency during case handling. The Commission has increased transparency in its TDI policy in recent years. But its record here remains patchy.
The report criticises the fact that, in sharing information with stakeholders – such as lawyers and consultants involved in a case – the complainants in a case may unilaterally tell the Commission what information they want to see treated as confidential and not revealed. The Commission for its part does not reveal according to what criteria it decides to treat a piece of information as confidential or not and does not react sufficiently quickly when there are complaints.
Then comes the next criticism from ECA: the Commission is not always clear in how it determines ‘injury’ of certain imports to the EU. The methodology and reasoning it uses are consistent and clearly articulated, according to the report, but given that its calculations are not made public, it is not always possible to determine whether there are mistakes or any other questionable assumptions.
The report cites an example where the Commission appears to have estimated industry profits at a higher level than the industry input it was given – presumably this will have lowered the final duty rate.
More broadly, the way it handles evidence provided by complainants in a case and stakeholders is not clear: “The internal notes do not explain how the evidence was assessed for each case, for example whether the complainant’s information was checked against other information,” the report says.
Yet shouldn’t assessing information by a party with a specific interest not be the very basics of any good practice in any investigative exercise?
The report highlights that the European Commission enjoys a lot of discretion in its trade defence policy. Any decisions must be actively opposed by a qualified majority of member states – an effort few will make.
Given the above, more troubling questions emerge: Who controls such a powerful actor as the Commission? And how can we be sure it is fair and objective and that there is no bias – for example in favour of a given industry or sub-group of companies within an industry?
Note that there are some under-used powers. ECA calls on the Commission to make use more often of its ‘ex officio’ powers to initiate trade defence without a previous industry complaint. ECA also recommends that at the same time it should spell out clear conditions and criteria to do so.
Assessing impacts and undesirable consequences, monitoring
This is not where the questions end.
The report asks whether the EU is thorough enough in assessing the ‘union interest’ when deciding on whether not to impose punitive import duties to address dumping or injurious subsidisation.
ECA remarks: “As the Union test evaluates the potential impact of trade defence measures on EU importers, users and consumers, DG Trade should assess, among other things, whether possible measures may lead to any disproportionate consequences. They could result in increased risks for competition, such as interruptions of supply chains.”
The report continues: “This could apply for example where the product that is subject to measures has two types of user: – users which are vertically integrated within a group that produces the product that is subject to measures; independent-non-integrated users which do not have access to the key component of production (the product subject to measures) within their own company group, and are thus bound to supplies from the producing industry”.
The text further notes that “independent users could then find themselves in a situation where they have difficulties sourcing their inputs, or must find new suppliers in other third countries”.
The issue has been a central matter during the discussions on the recent revision of the EU’s steel safeguard. This is more generally a recurrent theme in anti-dumping cases involving the metals industry.
It was also an issue in the e-bikes anti-dumping case, where the Commission ignored the pleas of small e-bike producers sourcing their components from China and elsewhere but produced bikes in Europe and who felt this was a ploy by the more established traditional bike industry to drive them out of business. Whether this assertion is correct or not is another matter – but what is clear that in the cases cited, the Commission’s choice was clearly in favour of the ‘big guys’ and the incumbents.
ECA writes: “As regards competition aspects, we found that DG Trade based its analyses on the information provided by parties. In certain cases we audited, we found that some of the parties’ arguments (e.g. fear of supply chain problems) were rejected without detailed justification.”
The verdict cannot be clearer.
Follow-up work
The report points to other well-established issues: the Commission does not genuinely monitor cases, how the cases are administered at customs. There is not trace of any economic and other impact assessments of its TDI measures.
The report also says the Commission under-uses some potential tools – including environmental standards – in assessing damages to the EU industry.
At the same time the report highlights – probably rightly – that there is not enough staff available for any such follow-up and analytical tasks.
Too deferential?
One can ask if the audit report is not too deferential to the Commission itself. It refuses to assess the many cases that were litigated at the ECJ in the Commission. It does not try to connect the dots between the different criticisms, and refuses to make links to ECJ cases. So what is the value-added of an audit report if it doesn’t ask some hard, forensic questions?
Because when one does connect the dots, one is confronted with a deeper question: aren’t we facing a major systemic policy distortion in favour of just a few powerful players in a few big industries with amazing lobbying firepower?
