Industry News

On Saturday 27^th February 2016 the European Commission published Regulation EU 2016/278 in the Official Journal of the European Union, “repealing the definitive anti-dumping duty imposed on imports of certain iron or steel fasteners originating in the People’s Republic of China, as extended to imports of certain iron or steel fasteners consigned from Malaysia, whether declared as originating in Malaysia or not”.

The Regulation outlines the rulings against the EU by the WTO Dispute Settlement Body and its Appellate Body, the latest and most critical of which was circulated on 18^th January 2016.

The Regulation then simply states: “In view of the findings (of the WTO Dispute Settlement Body) the Commission considers that in accordance with Article 1(1)(a) of the WTO enabling Regulation it is appropriate to repeal the anti-dumping duties imposed by Regulation (EC) No 91/2009, as amended by Implementing Regulation (EU) No 924/2012 and maintained by Implementing Regulation (EU) 2015/519.”

It also states clearly: “The repeal of the anti-dumping duties... shall take effect from the date of the entry into force of this Regulation... and shall not serve as a basis for the reimbursement of the duties collected prior to that date.”

The Regulation came into force the day after publication in the Official Journal, removing anti-dumping duties of up to 74.1% on 28th February 2016.

A full copy of the Regulation may be downloaded from the EU Official Journal in any of the twenty-four official languages of the EU.

The anti-dumping measures were originally brought into force in January 2009 with maximum duties set at 85%. In 2012 they were extended to cover imports from Malaysia following a circumvention investigation. Last year following an Expiry Review they were confirmed for what was expected to be a further five years.

Questions over the validity of the EU measures began almost immediately, when in July 2009 China initiated a protracted WTO Dispute Settlement process, which concluded in final rulings this January. In 2012 the EU issued a new regulation reducing the maximum duty level to 74.1% – which it claimed brought its measures into compliance with WTO rulings. China disputed this assertion and in October returned to the WTO Dispute Settlement Body (DSB) to initiate compliance proceedings. In August 2015 the Compliance Panel issued its findings, which broadly supported the Chinese position. The EU appealed, and China cross-appealed. On 12^th February 2016 the DSB adopted an Appellate Body report, which supported most of the critical rulings against the EU and reversed some others in China’s favour.

Many of the critical rulings revolved around the use and lack of transparency of the analogue country mechanism to calculate the basis for the eventual tariffs. For non-market economies the usual comparison between domestic and export pricing to evaluate dumping is deemed in EU law as inappropriate. Instead the investigation used data from a single Indian fastener producer to calculate dumping margins and determine unexpectedly high tariff levels. From the outset the European Fastener Distributors Association (EFDA) disputed the validity of this comparison method, including arguing that the Indian company had strong commercial links with one of the main protagonists of the anti-dumping complaint. EFDA also argued strongly that the investigation was incorrect in comparing the type and grade of product produced by a primarily automotive quality producer in India with the generally commercial grades produced in China.

The WTO final rulings found the EU was inconsistent with WTO rules in a number of respects relating to the analogue mechanism, including a failure to establish dumping margins on the basis of a comparison of all comparable export transactions. It was also critical of a number of areas in which the Commission failed to provide sufficient information on the characteristics of the Indian products used to determine normal values, and in failing to make adjustments for differences in taxation, raw material and energy costs.

Clearly the European Commission believed it had no legal options to continue the anti-dumping measures. Its considerations were entirely confidential and it appears not to have sought to consult with either European fastener manufacturers or importers/distributors. Termination of anti-dumping measures requires the approval of EU member states through the Trade Defence Instruments Committee on which representatives of all EU states sit. This Committee sits behind closed doors and its deliberations and decisions are not made public. It is known that a simple majority was required to support the Commission repeal proposal but a binding rejection of it would have required a qualified majority, needing sixteen member states representing at least 65% of the EU population to object.

The Committee’s final vote was cast on 24th February 2016 and the Commission was unusually quick to publish the repeal regulation dated 26th February 2016, seemingly to head off imminent and punitive Chinese retaliatory measures on EU goods. 

Both EIFI (European Industrial Fasteners Institute) and EFDA became aware of the probability the Commission was proposing a repeal and made submissions to it and to national governments vigorously objecting. The EIFI position was entirely consistent as instigator of the original complaint and supporter of the continuation of the measures. The EFDA stance was more complex. EFDA has consistently maintained its commitment to free and fair trade. It objected, not so much to the principle of trade defence measures as to the distortive effect of the excessively high-level of tariffs applied. In particular it has objected to the lack of transparency throughout, culminating in the secretive and abrupt nature of the termination of the measures. Both associations argue, correctly, that European businesses need time to adjust to the wide-ranging implications of the repeal.

The abrupt announcement inevitably generated a torrent of ‘good news’ emails from China exporters requesting European importers to place their orders now the anti-dumping tariffs have been removed.

The reality is far less black and white. European manufacturers and importers face a significant and potentially extremely disruptive period of uncertainty. As EIFI correctly maintains in its statement, the WTO rulings identified procedural failings on the part of the European Commission but did not question the fundamental assessments that dumping was occurring prior to 2009 or that it was causing material injury to the European manufacturing industry.

The European Commission has the power to initiate a new investigation under its own initiative. EIFI’s submission to the Commission requested this in the event of the repeal of the measures. The Commission, though, is understood to have assessed that there is no legal basis to do so, presumably because the high-level of tariffs blocked imports from China so there is no substantial historic data to demonstrate dumping or injury.

The Commission has committed to monitoring the market, although given supply lead times from Asia, it will take some time before changes in the pattern of trade become clear. The onus, therefore, sits with EIFI to lodge new complaints, potentially for both anti-dumping and anti-subsidy. The Commission apparently told member states it would be sympathetic to an early complaint but the risk of further legal challenges from China suggests it will need to be an extremely robust one. The added complication is that an early complaint will necessarily have to make the case for an imminent threat of recurrence of dumping and injury, in the absence of any historic data on imports from China. That is legitimate and to a large extent was the basis on which the Expiry Review determined in March 2015 that the anti-dumping measures should be extended for a further period. Having burned its fingers so badly on fasteners, though, it will not be surprising if the Commission demands substantively higher justification to open a new investigation.

EIFI has made clear it “remains vigilant to ensure that the EU market is not undermined by new or continuing unfair trade practices wherever they originate”. The last three words add another consideration, which is that EIFI could feasibly consider complaints that are not isolated to imports from China, but encompass other Asian fastener manufacturing sources.

For now, though, there is no way of telling if and when a new investigation might be initiated. Once an investigation is announced the timescales become a little clearer. According to the EU ‘basic’ anti-dumping regulation, provisional duties may be applied no earlier than sixty days from the date of initiation of an investigation and no later than nine months from that date. It is, however, almost unprecedented for provisional duties to be applied rapidly – it is far more typical for provisional duties to be applied towards the end of the nine-month window. Again, under close scrutiny, it is improbable the Commission would do anything other than work through the investigatory process thoroughly.

The Commission has up to 15 months to confirm definitive duties. It can also decide that these should be backdated to ninety days prior to the application of provisional duties – but not earlier than the initiation date. To do this it will need to instruct national customs authorities to specifically record (register) imports from China.

The WTO rulings make it improbable any new investigation would result in tariffs as high as those recently repealed. The additional complication is that the EU has by December to decide whether or not to grant China market economy status, a right China maintains is assured by its accession protocol to WTO membership. That decision could easily overshadow and influence the outcome of a fastener investigation.

Nevertheless, the serious risk remains that new duties will be applied at some point and that they could still outweigh the cost differential between China and other Asian fastener sources.

Importers, then, face an assessment – more accurately given the lack of transparency, a gamble – between the cost benefits of placing orders on China and the risk of new tariffs being imposed, on an unknown date and at an unknown level. The landscape of Chinese manufacturing has clearly changed since 2008. More prudent importers will want to audit current capabilities of factories they may well have known well eight years ago. Strategic, high volume importers also have supply agreements in place with other source countries and, no doubt, suppliers keen to convince key customers not to rush to China. More tactical purchasers, though, are already switching sources. If cost advantages are deployed to win share then markets are likely to feel a disruptive impact – particularly, if has been suggested, already manufactured product destined to be transshipped to avoid duties is now shipped direct to Europe.

There is little question fastener costs from China remain lower than other sources, although initial assessments suggest the exact differential varies substantially depending on the product type. Market and government failures to eradicate overcapacity have meant Chinese steel prices have plummeted over the last year or so. In recent days, though, Chinese steel prices have rebounded on the back of government commitments to re-energise the domestic market. Whether that enthusiasm will sustain remains to be seen.

If EU imports from China ramp up to anywhere near pre-2009 levels there is a clear and major threat to the viability of European manufacturing. It is also inevitable that the deflationary effect of raw material costs will be exacerbated as fastener suppliers come under pressure from OEM purchasers to pass on perceived cost advantages. The fragmented and highly competitive nature of the fastener industry makes it highly improbable distributors will retain cost advantages as margin.

Fastener stockholders also have an immediate challenge – the existing level and value of inventory they hold, which risks being devalued as a result of the abruptness of the Commission’s decision. Manufacturers and stockholders alike need time to make adjustments to market changes, let alone a major artificial distortion.

As our Asian News pages report the sudden repeal has also staggered the Taiwanese fastener industry, the major beneficiary of the seven years of high duties on its mainland competitor’s products. If nothing else this should make next month’s Kaohsiung fastener exhibition an extraordinary event.

There is far more to come on this story. We will as always monitor events closely, and as in the case of this repeal, use www.fastenerandfixing.com to ensure readers know what is happening quickly, followed by in depth analysis in our next print issue.