The changes proposed are designed 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. The proposal was adopted against the backdrop of forthcoming changes in the World Trade Organisation (WTO) framework.
The Commission's proposal is to change the way dumping will be calculated in anti-dumping investigations on imports from WTO members whose economies are distorted because of continued state intervention. The legislation would become country-neutral. Apart from the new methodology for calculating dumping, the Commission also proposes transitional arrangements for already existing trade defence measures and ongoing investigations. Furthermore, the Commission proposal includes changes to the way the EU investigates subsidies provided by third country governments which give their exporting producers an unfair advantage, causing damage to manufacturers in the EU.
What are anti-dumping duties and how are they calculated?
Under WTO rules, the EU can impose anti-dumping duties on products from third countries if an investigation demonstrates that these products enter the EU at dumped prices that cause injury to the EU industry.
Under standard rules for normal market circumstances, dumping is calculated by comparing the export price of a product to the EU with the domestic prices, or costs, of the product in the exporting country.
In contrast, in some countries, because of state influence, prices and costs are artificially low. As such, they do not reflect normal market forces. Therefore, domestic prices are not used as the benchmark against which to compare export prices. Instead, WTO (and EU) anti-dumping rules currently allow the use of price data from another market economy country – a so-called 'analogue country' - as the basis for the calculation. This is referred to as the non-market economy methodology.
What changes has the Commission proposed to the methodology for calculating dumping margins, and what countries will be affected?
For WTO members, the dumping margin is normally calculated under the standard rules mentioned above. However, in certain countries that are Members of the WTO domestic prices and costs can be distorted owing to state interference. Therefore, they often do not provide a proper basis to determine the comparison with the export price. The Commission proposes changing the approach so that when such distortions exist, other benchmarks reflecting undistorted costs of production and sale will be used. Here, the Commission could use benchmarks, or corresponding costs of production and sale including in an appropriate representative country with a similar level of economic development as the exporting country. This methodology would allow the Commission to establish and measure the actual magnitude of dumping.
Have there been changes proposed concerning non-WTO members?
There are no changes proposed for non-market economy countries that are not members of the WTO. For these countries, the EU will continue using the “analogue country” methodology until these countries demonstrate that the use of this methodology is no longer necessary. Of course, whenever such countries join the WTO they would become subject to the treatment applied to WTO members, including the new methodology introduced by the legislative proposal.
What changes are proposed for the EU's anti-subsidy legislation?
Experience has shown that the actual magnitude of subsidies is not always clear when anti-subsidy investigations are launched. Exporters are often found to benefit from subsidies that could not have been known before carrying out the investigation. Yet, those subsidies clearly provide an unfair benefit, which allows exporters to sell products at prices that damage EU industry. The changes proposed would ensure that any additional subsidies found during the investigation can be properly reflected in the calculation of the anti-subsidy measure.
What type of state interference affects the reliability of prices and costs in an exporting country?
State interference occurs when a market is, to a significant extent, served by enterprises which operate under the ownership, control or guidance of the authorities of the exporting country. It could also mean that there is a state presence in firms allowing for interference in prices or costs or pursuing policy objectives. Other examples are public policies discriminating in favour of domestic suppliers, or exporters' access to financing by institutions that implement public policy objectives.
How would the Commission decide if the economy of a country is distorted?
The Commission intends to prepare and issue reports describing the specific circumstances of the market in any given country or sector, and point out if prices and costs in the exporting country are unsuitable to be compared to the export price to calculate dumping. These reports and the evidence on which they are based would become part of any anti-dumping investigation into that country or sector, and would be publicly available. EU industry could also use information from these reports when lodging a complaint or a request for review.
If the changes to the anti-dumping and anti-subsidy legislation are adopted by the European parliament and the Council, will measures that are already in place at the time of its adoption be affected? What about ongoing investigations?
The proposal introduces specific disciplines ensuring that the entry into force of the new system would be made in an orderly and transparent manner and would not create legal uncertainty for ongoing cases or unduly affect existing measures.
It makes clear that the new system would only apply to cases initiated upon entry into force of the amended provisions. Any given ongoing anti-dumping investigation at the time of entry into force would remain governed by the current disciplines.
The proposal also addresses the fact that existing measures should not be reviewed just because a new calculation methodology is adopted.
When will the changes become effective?
The proposal adopted by the Commission will follow the ordinary legislative procedure. Any change to the EU's anti-dumping and anti-subsidy legislation will only become effective once the European Parliament and the Council have adopted the proposal.
Does this new Commission proposal replace the Modernisation package adopted in 2013 which is currently before the Council?
This is a separate proposal and does not replace the proposal on the Modernisation of Trade Defence Instruments (TDIs) which was adopted by the Commission in April 2013. That proposal is different in scope, as it deals with improving certain aspects of the current trade defence system of the EU. It does not cover any changes to the methodology for calculating dumping, or any of the other changes proposed today. The 2013 proposal would help greatly to streamline and expedite procedures and to impose higher duties in certain circumstances. The current EU legislation caps the levels of anti-dumping duties, hampering the Commission's efforts to address the challenges facing industries - such as the steel sector - which are suffering as a result of huge increases in import volume of dumped products. This is due to the systematic application of the so called Lesser Duty Rule (LDR).
The proposal presented in 2013 provides TDIs with better transparency, faster procedures, more effective enforcement and proposes changes to the application of the LDR in certain well-defined circumstances.
The European Parliament adopted its report in the first reading. Member States are strongly encouraged to move this file swiftly forward in the Council. The Commission will continue its efforts to support the deliberations, as shown for example in the Steel Communication of the Commission in March 2016.
In that Communication the Commission advanced additional ideas on how to shorten trade defence investigations by two months and on how to change the present methodology for calculating the target profit.
What countries will be affected by the changes?
Intended changes would concern all WTO members whose economies or certain sectors of the economy are distorted by state intervention.
Why are these changes being proposed now?
The changes are a response to the fact that, while the global trading environment has changed over the last 20 years, the EU's trade defence instruments have not been adapted to the new trading reality.
Unfair trading practices have in some instances been exacerbated by distortions in exporting countries as a result of non-market economy practices and state intervention. The massive overcapacity in certain sectors caused by such interventionist policies give rise to increased dumping and subsidised products, which in turn damages EU industry.
These developments, coupled with the fact that the WTO framework is also changing, prompted the Commission to re-examine the anti-dumping and anti-subsidy instruments to ensure that the EU's ability to tackle unfair trade remains effective.
Does this mean that market economy status will not be granted to China?
These changes will not lead to any country being granted Market Economy Status. The proposal is about improving the EU's anti-dumping and anti-subsidy instruments to take into account the changes in the global trading environment, as well as changes in the legal framework of the WTO, while maintaining an equivalent level of protection.
Does this proposal also address the issue of overcapacity?
The overcapacities in today's trading environment, especially in steel, demonstrate that the EU needs, more than ever, solid, effective and up-to-date trade defence instruments. If the EU does nothing, countries like China are given no incentive to reform or reduce overcapacities.
Trade defence measures help to address this issue. The EU has 39 measures in place and 14 investigations on steel products ongoing. The Commission has also adopted surveillance of steel imports. However, there is a need to ensure a real reduction of overcapacities.
Work is under way both in the multilateral and bilateral negotiation settings. At the G20 Summit meeting on 4-5 September, the G20 Leaders called for the establishment of a Global Forum on steel excess capacity to be facilitated by the OECD and with active participation of the G20 members and interested OECD members. Its objective is to increase information sharing and cooperation. The Forum establishment is currently under discussion. Furthermore, as a result of the Summit 13 July in Beijing, the EU and China agreed to set up a common bilateral platform on steel where overcapacity reduction could be discussed and we are in the process of defining dates for when the first meeting of the bilateral platform to take place.
Given the overcapacities, there is a need to introduce new anti-dumping methodology that allows the EU to keep defending its industries effectively from unfair practices also in the future. For that to happen, this legal proposal is needed.
For more information
Press Release: Commission proposes changes to the EU's anti-dumping and anti-subsidy legislation