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Karel De Gucht

European Commissioner for Trade

A Trade Defence System for Today's Global Economy

High Level Conference: Modernisation of Trade Defence Instruments

Brussels, 10 May 2012

Ladies and Gentlemen,

These are not easy days to be a trade commissioner arguing for open markets:

In many parts of the world, also in some of our Member States, there is a protectionist wind in the air.

That wind is fanned by the crisis and by the changing structure of the global economy, both of which have led to an increased fear of unemployment among people in Europe and around the world.

Therefore, advocating open markets must happen with a sound dose of realism.

We can, must and do address people's fears through logical argument about the benefits of trade in terms of jobs and lower prices. But we must also be able to show that the international trading system is fair. If we cannot present evidence that we are competing on a level playing field, then people will resist further liberalisation.

Trade defence instruments are very much a part of that equation. In fact they are one of the cornerstones of our efforts to ensure that our companies can compete on an even footing.

For that reason, it is essential that we have a modern and efficient trade defence system.

Which is why, Ladies and Gentlemen, we are here today.

I need not remind this audience that the last time that the European Union substantially updated its trade defence rules was 16 years ago.

The world has changed considerably since then. It's about time we looked at ways to bring ourselves up to date.

I would like to talk to you today about

what is already working well in our system,

why we need to consider change,

and the avenues that we should explore to achieve it.

A core rule of medical ethics is: "First, do no harm." It should also be the first principle of this reform. We must appreciate what is good about the European system before we look at potential improvements.

Our trade defence instruments perform an important function. If you compare the way trade is regulated within the Single Market and at international level it is easy to see why.

Fair trading practices within the Single Market are guaranteed by the European treaties – in particular the four freedoms of goods, services, capital and labour and our strong competition rules. These are backed up by 10,000 pieces of legislation which lay the framework for how companies can compete and governments can intervene on the European market.

At the international level we do have rules. The multilateral system enshrined in the World Trade Organisation is an enormous achievement. But the rules it lays down on unfair trading practices do not compare with what we have within the European Union.

That is why the concept of trade defence is built in to the WTO. The WTO agreements recognise the need for action in the face of unfair competition, whether it is companies' setting export prices at a lower level than in their home markets or governments intervening unfairly. It allows countries to react to unfair competition by temporarily raising or introducing the duties paid at the border – but only on condition that the process for deciding what is unfair competition follows some strict rules.

The broad objective of our trade defence system is to strike a balance between levelling the playing field and avoiding protectionist abuse.

We should thus only take action when we are sure that defence is justified and we make that determination on the basis of a stringent legal process. That legal process is laid down in European law and administered transparently and objectively by the Commission and the Council.

In this regard, it is important to point out that we go beyond WTO requirements. Europe is the only user of trade defence instruments in the world to systematically apply a lesser duty rule to the cases it investigates. This makes sure that the duties we impose are set at a level that stops damage to European industry but no higher. We also must apply a test of whether the measures are in the broad interest of the economy as a whole. By assessing the impact on importers and consumers of the affected products Europe is a global leader here too.

Furthermore, this view is backed up by the figures: Despite the outbreak of the deep economic crisis, we have made less, not more, use of trade defence. The average number of cases we have initiated has actually fallen by 20% compared with the period before 2008.

But benefitting from a legally sound system does not mean we can ignore the fact that the world has changed immensely since 1996.

For one thing, the world economy is considerably more integrated now than it was then. The value of world trade amounted to only 36% of global output that year. In 2010 it was almost half. In general terms this more globalised economy means that there is a greater potential for our companies to come face to face with unfair trading practices.

Another change is linked to the rise of what has been called state capitalism. It is frequently used to describe China's system but it can also be applied to Russia, Vietnam and other emerging economies.

It has two consequences for trade defence. First, it implies that a range of government policies could be used to give an unwarranted competitive advantage to a national company – from cheap finance to cheap raw materials. This kind of distortion can be difficult to prove in a legal process such as ours.

Second, it raises the issue of retaliation. This is a difficult and sensitive topic. But it is undeniable that many European companies are unwilling to come forward and make justified trade defence complaints due to fear of consequences for their business. The consequences can be serious for companies that export to or invest in the country in question. In our current system it is not clear how we ensure these companies have a fair shot.

Third, with the rise of many developing countries, the developed world has been losing some market share in world exports and has lost jobs in labour-intensive sectors. The companies and trade unions facing tougher competition will attempt to obtain protection and help, including through the use of trade defence. The debate during the elections in France, for example, showed that a part of public opinion demands more protectionism. We must continue to make sure that trade defence does not fall into that trap. We should thus remain rigorous when assessing unfairness and granting temporary relief.

Ladies and Gentlemen,

Major changes have occurred in the last fifteen years. Given their scope, in an ideal world, we would address them all through a grand bargain at the WTO. But with the lack of momentum in the Doha Round, that is unlikely to be possible very soon. That is why we have launched this modernisation exercise.

I would like to say at this point that I am fully aware of how the last effort to reform trade defence ended. I know this is an issue that stirs passion and divides opinion.

But I also believe that it is possible to move forward, if we learn the right lessons from what went wrong before.

For this reason I want to underline that what I am seeking is a modernisation. That means concentrating on down-to-earth, day-to-day, matter-of-fact issues - not on an ideologically driven agenda. Our approach is to respond to the real needs of both industry and traders and to the European economy as a whole.

As I said at that the outset, I believe that trade defence is vital to ensure a level playing field. It sets minds at ease about the open markets that are critical for economic growth. But I also want to make absolutely sure that there is no abuse of the system. I have no interest in supporting those who seek rent as opposed to legitimate profit.

There is a fine line between these two aims. To craft a solid policy we will have to walk carefully along it.

And we will look to you, the stakeholders, to help us keep our balance. As our goal is to address the practical problems of real businesses, we are turning to you for direction.

At the beginning of April we launched a public consultation to hear your answers to seven core questions:

First, what can we do to enhance the transparency and predictability of the system? For example, could we inform interested parties better about our proposals for provisional duties? Or could we bring in some more predictability for traders whose goods are already on their way to Europe when provisional duty proposals are made?

Second, how can we address threats of retaliation? One idea is that if companies are afraid of retaliation, the Commission can step in and launch cases on its own initiative. Under such an ex officio procedure no government could blame a European company for the launch of the case. The flipside of course, is that we would need tough rules to oblige reticent companies to cooperate with us.

Third, what can we do to improve effectiveness and enforcement? Should we increase the consequences of, fraud, circumvention or subsidisation by not applying the lesser duty rule in those cases?

Fourth, what can we do to encourage more companies to cooperate with us? We could perhaps modify the deadlines for industrial consumers of affected products. We could make refund procedures simpler. Or we could improve our helpdesk for small and medium sized companies.

Fifth, can we improve reviews of anti-dumping or anti-subsidy measures already in place? Is there a way, for example, to reduce the costs to exporters of expiry reviews that fail?

Sixth, should we not be concerned about the fact that some anti-dumping duties last for 10 or even 15 years? Many of these examples may be justified by long term structural features of the markets involved. But there might also be a tendency for forces to build up that seek to perpetuate measures, once duties have been introduced: After all, anti-dumping or countervailing duties are typically multiples of the normal tariff. So I believe that we should think about ways to make sure that the levels of the duties are still appropriate after such a long time.

Finally, in an age of complex supply chains should we re-focus our approach to the Union interest test? I know this is a controversial area and so I approach it cautiously. But it is a fact that a lot of our imports are inputs for manufacturing that takes place here and that a significant share of the value of the finished goods we import has its origin in Europe: we all know the difference between Made in China and Made by China. So I think that we should stay vigilant about these value chains when conducting the Union interest test. Hence, we should consider whether there is scope for some improvement, for example in terms of our method and the transparency thereof.

Ladies and gentlemen,

These then are the questions. We are looking to you the stakeholders to provide us with the answers, today and over the next few weeks.

As you put your thoughts together, I would invite you to remember that our goal is to move forward in a balanced way.

But I wish to make progress. A trade defence system that is well oiled and fully adapted to today's economic conditions would serve us all. Let us identify together the necessary elements for successful modernisation of the EU's instruments.

I count on your precious cooperation in this important exercise.

Thank you very much for your attention.

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