EU seeks to sharpen trade defence weaponry
25 January 2017
This report featured in the January issue of Fastener + Fixing Magazine and the information it contains was, to the best of our ability, correct at the time of publication.
On 24 January Commissioner Cecilia Malmström addressed a Breugel lunch talk, where she reiterated EU plans to introduce new ‘country neutral’ anti dumping methodology. She said: “Yet China is far from being a market economy; over-capacity in China remains a serious concern, particularly for steel.
So we have proposed a new approach to anti-dumping: one that would be country-neutral, and look at the economic reality in each country, when there are distortions like state intervention in the economy, massive subsidies and cost and prices not set by market forces. Being a market economy isn't about whether or not you're on a list in an Annex: but whether there is a level playing field and transparency; and whether governments are operators, rather than just regulators.” Look out for updates here as they develop.
During November and December the European Union sought to progress changes to its trade defence methodology, aimed at sharpening the weapons it can deploy against alleged unfair trade practices, particularly on the part of China.
At the time of this report no changes have actually been implemented and proposals are likely to be subject to further modification by EU institutions.
Nevertheless, the direction signalled has major potential implications for European fastener manufacturers and importers.
On 9th November the Commission issued a proposal amending Regulations 2016/1036 and 2016/1037: The so-called basic anti-dumping and anti-subsidy regulations.
The Commission’s objective was “to update the trade defence instruments to deal with the current realities, such as significant market distortions,
which exist in the economies of some of our trading partners”.
It proposed changing how dumping was calculated on imports from WTO members “whose economies are distorted because of continued state intervention”. Significantly,
the legislation would become country-neutral. It would also include transitional arrangements for existing trade defence measures and ongoing investigations.
The proposal also included changes to the investigation of “subsidies provided by third country governments, which gave exporting producers an unfair
advantage, causing damage to EU manufacturers”.
The proposal attempts to side step the politically charged decision whether or not to accord China Market Economy Status (MES). Under current EU rules,
accepting China as a market economy robs the Commission of the key ‘analogue country’ mechanism, which uses comparative data from a third country to
calculate duty levels. As the 2008 fastener anti-dumping regulation demonstrated this methodology substantially increases the level of duties that
may be applied.
The Commission proposed that the new methodology should apply to all WTO member countries. Reports would be published identifying product sectors in specific
countries where it was assessed that costs of production and pricing were influenced by state intervention. EU manufacturers would be able to use these
reports to support anti-dumping and subsidy complaints – making it easier and less costly to present a persuasive case for an investigation.
Although the proposals do not specify which countries/sectors, Chinese steel products are obviously a prime EU concern, and the prior surveillance measures
demonstrate that includes fasteners. Where the Commission determines that production costs and prices were distorted through government intervention,
it plans to use “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”.
While not clear how the methodology would work it appears to provide the Commission a more flexible but basically similar mechanism to analogue country
comparison. While the normal value established would depend on the source for comparative data, the Commission expects it to result in tariff levels
comparable with those applied using the current methodology. While China is clearly the primary target the proposal would allow the same methodology
to be applied to any WTO country in which significant government subsidy was deemed to occur, regardless of whether it had previously been accorded
market economy status.
The Commission also confirmed plans to update anti-subsidy rules so that it can investigate subsidies it discovers while conducting an anti-subsidy investigation
– eliminating an anomaly in the current basic anti-subsidy law that precludes this.
On 14th December the EU Council announced an agreed negotiating position on the modernisation of Trade Defence Instruments (TDIs). The Commission proposed
wide-ranging changes to TDIs in 2013. These were radically amended by the European Parliament to strengthen protection of EU industries. Ultimately
the process ground to a halt, stymied by the inability of the three EU institutions to reach a consensus. Announcing the new Council position, Peter
Žiga, the Slovakian minister then in charge of trade and president of the Council, called the decision “a major breakthrough” and said it was a “crucial
step towards a solid solution that would help EU producers cope with unfair competition and practices”.
The proposed regulation includes:
- A four week notice period of the imposition of provisional duties to provide increased ‘transparency and predictability’ (so-called pre disclosure).
- Authority for the Commission to initiate investigations without an official request from industry when a threat of retaliation is deemed to exist.
- A shorter investigation period.
- The right for importers to be reimbursed duties collected during an expiry review in the event the review decides against continuing the trade defence
measures.
- The potential to apply higher duties in cases where there are raw material distortions and these raw materials, including energy, account for more than
27% of the cost of production in total and more than 7% taken individually. This would allow the non-application of the Lesser Duty Rule (LDR) whereby
duties must not be higher than necessary to prevent injury. The imposition of higher duties would be based on a target profit and also be subject to
a Union interest test.
While the Commission is already working to shorten the period by which provisional duties are applied, the potential elimination of the LDR would be the
most significant change, substantially increasing the level of duties applied. It is certainly the most ardently sought by EU industries, particularly
in the steel sector. However, EUROFER – the EU steel producers’ association – reacted immediately to condemn the position as inadequate. “The new provision
on the LDR is neither efficient or robust, nor effective or balanced, nor is it adequate to address situations in which market conditions do not prevail.”
The Council’s position goes to the European Parliament, where MEPs can be expected to propose amendments, which based on track record, could well be aimed
at substantially strengthening the ability of the EU to apply more protective duties. Christofer Fjellner, the rapporteur for the Parliament’s international
trade committee during the 2013 TDI modernisation proposals, highlighted the risk of a renewed impasse. He called for a rapid resolution saying: “We
cannot afford another stalemate, turning the reform into a Sleeping Beauty.” It remains to be seen whether his parliamentary colleagues will heed the
warning and focus on changes to the law, which the Council and Commission will also support.
