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EU Council of Member States Approves New Legal Framework for Trade Defence Measures

On 16 April 2018, the Council of Member States’ ministers approved the so called “modernisation package” of the EU’s trade defence rules. This followed a political agreement reached together with the European Parliament and the Commission in December last year.

The most important amendments relate to the conditional removal of the lesser-duty rule (LDR); the relevance of social and environmental standards when calculating injury margins; the issue of pre-disclosure; and the closing of the maritime loophole.

The modernisation was first proposed by the Commission in 2013, but met resistance in the Council among Member States opposed to greater protectionism. The Council’s approval paves the way for the final adoption by the European Parliament, expected in the next few weeks.

The LDR currently prevents the Commission from imposing anti-dumping or anti-subsidy duties above the calculated level of injury caused to domestic companies, even if the calculated margin of dumping or subsidisation may be higher.

Under the new framework, if considered to be in the EU’s interest, the LDR will be waived for anti-dumping measures where raw material distortions, including energy, account individually for more than 17% of the cost of production. Such higher duties will also include a target profit set at a minimum of 6%.

Under current legislation, the target profit is set at a “reasonable” level in line with the industry standard, typically at or above 5%. For anti-subsidy investigations, the LDR will be fully abolished.

In addition, the new rules will take social and environmental standards into account when calculating the injury margin, which will also lead to an overall increase in duties. The idea is that the cost to EU companies of complying with such standards will be reflected in the level of duties imposed. Furthermore, social and environmental standards will also be accounted for when the Commission negotiates exporter “undertakings”. Undertakings are agreements under which exporters typically agree to sell above a certain target price instead of having to pay duties.

Of particular practical importance to Hong Kong exporters is a new early warning mechanism intended to ensure that interested parties are informed of anti-dumping and anti-subsidy duties three weeks before their imposition. The aim is to help companies adapt to the new situation in case duties are imposed. By way of compromise, the European Parliament accepted a three-week notice period afforded to interested parties for impending measures, two weeks longer than the period they had initially proposed. On the other hand, the Commission is directed to register imports whenever possible during the notice period. If there is no registration and a substantial rise in imports occurs during the period, this increase should be reflected in a higher imposed injury margin.

The three week notice period will be reviewed after two years. If the review confirms that the three week notice period has led to significant stockpiling, the Commission will be obliged to propose a cut to the notice period to one week. However, if there is no stockpiling, the Commission should propose to extend the notice period to four weeks.

Other important changes for exporters to the EU include a shortening of the deadline for imposing provisional measures from the current nine months to “normally 7 months but not later than 8 months”, with definitive duties imposed within 14 months, down from 15 months. As a consequence, extensions to reply to questionnaires and flexibility during verifications may be further reviewed.

Furthermore, importers in the EU will be able to request reimbursement of duties collected during an expiry review, if the measures are subsequently repealed as a result of the review.

The package will also close the maritime loophole, which allows companies operating in the maritime exclusive economic zones or the continental shelves of the EU Member States to avoid paying anti-dumping or anti-subsidy duties. This will be done through a future implementing act drafted by the Commission, which will provide for the collection of the duties on goods, such as pipes and tubes or certain steel, used in significant quantities by the companies operating in these areas.

In addition, smaller companies will also get assistance from a specific help desk, to make it easier for them to initiate and participate in trade defence proceedings. Trade unions will also be able to join proceedings as interested parties and file complaints together with the EU industry.

The Council's position was adopted by a qualified majority. Ireland abstained while Sweden and the UK voted against. The European Parliament is now expected to vote in plenary on the final text of the regulation, thereby completing the legislative procedure at its second reading. The new changes are expected to come into force before the summer.

Emil Karanikolov, the minister responsible for trade matters and of Bulgarian origin, stated that “the adoption of these new trade defence instruments is particularly timely. In the face of protectionist pressures and growing threats to the values and principles of the rules-based trading system, it is all the more important for the EU to have the right tools, whilst at the same time supporting free and fair trade”. Bulgaria currently holds the Council presidency.

The modernisation of the EU's trade defence instruments complements the recently approved Regulation on the introduction of the EU’s new anti-dumping methodology, which came into force on 21 December 2017.

The new EU anti-dumping methodology is formulated in a country-neutral manner, abolishing the current distinction between market and non-market economies. Instead, the Regulation introduces a new methodology for establishing normal value in case of “significant distortions” in the market of the exporting country which render the use of domestic prices and costs in that country “inappropriate”. In such a scenario, the normal value “shall be constructed exclusively on the basis of costs of production and sale reflecting undistorted prices or benchmarks”. Factors that are considered when determining whether significant distortions exist include state ownership on the market of the exporting country, state presence in companies allowing for interference in prices or costs, and bankruptcy legislation in the exporting country.

Due to the fact that the new rules are drafted in a country-neutral manner, EU officials claim that the new methodology is meant to apply to all of the EU’s trading partners and does not discriminate against mainland China. In practice, however, mainland China is expected to be most affected by the new legal regime.

Content provided by Picture: HKTDC Research
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