On 12th December China notified the WTO Secretariat that it had requested consultations with the United States and the European Union regarding special calculation methodologies used in anti-dumping proceedings. A request for consultation is the first step in the WTO dispute settlement process.
Further details of China’s request will be published by the WTO in a few days but it clearly relates to the expectation that it would be accorded market economy status as a matter of right from 11th December 2016. This expectation is based on China’s interpretation of Article 15 of its WTO Accession Protocol decided on 10th November 2001. The protocol permitted WTO members investigating alleged dumping “to use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product.” (Article 15 a (ii)). However, Article 15 goes onto state: “In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession.” (Article 15 d)
For China the key objective is to prevent the EU continuing to use so-called analogue or surrogate country comparisons to determine the normal value, which is used to calculate anti-dumping duty levels. As demonstrated in the 2009 EU anti-dumping regulation on iron and steel fasteners originating in China, this methodology substantially increases the level of duties that may be eventually applied.
The United States, the EU and Japan have all, so far, retained rules that treat China as a non-market economy, saying they are necessary to protect domestic industries from injury caused by the import of low cost Chinese products.
The US Department of Commerce said it remained concerned about "serious imbalances in China's state-directed economy, such as widespread production overcapacity, including in the steel and aluminum industries, and significant state ownership in many industries and sectors." It went on to say: "China has not made the reforms necessary to operate on market principles."
Last week President-elect Donald Trump made nominations for his global trade team, which clearly demonstrate his intentions to translate into reality his outspoken public commitments on curtailing Chinese import. Wilbur Ross, a billionaire steel investor, was nominated as commerce secretary. If approved he would be joined by a former CEO of the Nucor Steel Corporation and three experienced steel trade lawyers. All have a track record of campaigning for aggressive trade defence measures on steel products.
On the 9th and 10th December the European Commission announced new anti-dumping investigations on certain corrosion resistant steel from China and on certain cast iron products from China and India. It also announced an expiry review on existing duties on Chinese steel seamless pipes and tubes1. The new investigations state that the analogue country mechanism will be used in relation to China. The Chinese Ministry of Commerce responded that it attached a high degree of attention and concern to the cases and blamed the EU's steel problems on its own weak economic growth. The European Commission said the announcements had to be made to comply with deadlines defined in the anti-dumping basic regulation – the Commission has 45 days from the date an anti-dumping complaint is lodged to decide whether to initiate an investigation. The pipes and tubes duties are due to expire on 20th December.
EU Trade Commissioner Cecilia Malmström is reported as saying last week: "We are not declaring China a market economy, but we are reforming the system so as to make it country-neutral." In response to the Chinese request for consultations the Commission said: “We regret that China is launching this dispute now despite the fact that the Commission has already made a proposal to amend the legislation in question.” The changes to EU trade defence methodology proposed by the European Commission in November have not yet been adopted into law as they still need approval from the EU Council and European Parliament. This means the existing basic anti-dumping regulation continues to prevail, including the clear distinction between methodologies to be applied to market and non-market economies.
On 10th December, Shen Danyang, China's commerce ministry spokesman, was reported as saying: "China will take steps to defend its rights if WTO members continue this old practice of anti-dumping regulation against Chinese products after the expiration date." On 12th December he stated: "According to Article 15 of the Protocol on China's accession to the WTO, it's the obligation of WTO members to stop using the surrogate country approach against China's exports as scheduled. This is clear and out of question. And it has nothing to do with so-called "market economy status."
Assuming that the USA, EU and Japan decline to enter consultations with China in the sixty days allocated for this or that that they are unproductive, the next stage of the WTO dispute settlement process is for a panel to be established and its terms of reference defined. This may take up to fifty days. Normally it can then take up to six months for the first panel report to be issued to the parties involved – although there is provision for this to be shortened to three months, if the issue is urgent. It can take up to nine months from when the panel is established for the report to be formally submitted to the WTO Dispute Settlement Body and a further sixty days for the DSB to adopt it. Thereafter there is the potential for all of the parties to lodge appeals.
It is too early to speculate on what actions the EU will now take or on whether the WTO dispute settlement process runs its full course and what its final determination may be. However, by commencing the WTO process, China appears to have increased pressure on the EU to define its trade defence methodology in the knowledge that, if it does not do so, any anti-dumping investigations that are now initiated will effectively be hostage to the WTO DSB final determination.
1. European Commission notices 2016/C 459/11, 2016/C 461/06, 2016/C 461/07
Will joined Fastener + Fixing Magazine in 2007 and over the last 15 years has experienced every facet of the fastener sector - interviewing key figures within the industry and visiting leading companies and exhibitions around the globe.
Will manages the content strategy across all platforms and is the guardian for the high editorial standards that the Magazine is renowned.
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