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EU Secures Compromise Proposal on Reform of New Anti-dumping Rules: New Rules Expected to Enter into Force on 1 January 2018

On 3 October 2017, negotiators from the European Parliament and the Council of Member States’ ministers sealed a deal on the new EU methodology to combat dumping from third countries. In the latest compromise proposal, the negotiators have managed – after months of negotiations – to resolve their disagreements on previous drafts, predominantly relating to the concept of significant market distortions, the issue of the burden of proof in anti-dumping investigations and the so-called lesser duty rule.

The proposal aims at enabling the EU’s trade defence instruments to protect EU industry threatened by dumping and overcapacities (notably from mainland China), while respecting the EU's international obligations in the framework of the WTO.

While the final text of the new EU anti-dumping legislation is not thus far available, it appears that the new rules will be formulated in a country-neutral manner, abolishing the current distinction between market and non-market economies. Instead, a new methodology for calculating dumping margins for imports from third countries where significant market distortions exist will be introduced, in particular where the State has a pervasive influence on the economy.

Pursuant to the Commission’s proposal, EU investigators will be able to construct the normal value of exporting producers on the basis of costs of production and sale reflecting undistorted prices or benchmarks, including undistorted international prices and costs, in case it is determined “that it is not appropriate to use domestic prices and costs in the exporting country due to the existence of significant distortions”.

The latest compromise proposal is, in addition, likely to address the demands of socialist lawmakers by taking into account international labour and environmental standards. The new rules appear to state that the Commission, when choosing a third country for its constructed normal value, has to base its decision on the corresponding costs of production and sale in a country with a similar level of economic development as the exporting country, and that, where there is more than one such country, preference shall be given, where appropriate, to countries with an adequate level of social and environmental protection. A special declaration by the EU’s lawmakers on how to clarify the interpretation of these provisions might be attached to the final agreement.

Despite the previous proposal of the European Parliament, it appears that the international labour and environmental standards are not listed as criteria to be considered when determining whether “significant distortions” exist.

On 12 September, the European Parliament had rejected a proposed draft from the Commission, due to a disagreement on the issue of the burden of proof. The lawmakers raised concerns about shifting the burden of proving that exporters to the EU have benefited from distorted markets to EU companies, and requested guarantees that the new rules would place the initial burden of proof on the exporting producers. The Commission, in turn, warned that certain amendments suggested by the European Parliament would violate the EU’s WTO obligations.

Pursuant to this rejection, the negotiations hit a political roadblock, which was only resolved through a series of technical meetings which took place during the last weeks of September. The text of the compromise proposal has been revised and, as reported, addresses the concerns about the burden of proof without, apparently, exposing the new EU rules to challenges at the WTO. It remains unclear how this issue has precisely been addressed.

Despite the compromise proposal on the reform of the EU’s anti-dumping legislation, and the statement of the EU Commissioner for Trade Cecilia Malmström that the new rules are in full compliance with the EU's WTO obligations, the WTO consistency of the new legislation remains questionable. As a result, the new rules could be challenged by mainland China.

The reform of the EU’s anti-dumping legislation is necessary to bring EU law into line with the change in mainland China’s WTO Accession Protocol. Due to the expiry of certain provisions of the WTO Accession Protocol on 11 December 2016, Beijing insists that it should be treated as a market economy in EU anti-dumping investigations as of 12 December 2016. Mainland China challenged the EU’s current anti-dumping rules at the WTO on 12 December 2016, and will most likely continue its legal actions once the EU adopts its new anti-dumping rules.

As previously reported, the European Commission’s proposal on the EU’s new methodology to combat dumping from third countries was presented on 9 November 2016. The negotiating position of the Council was approved on 3 May 2017, and the European Parliament determined its definitive negotiating position on 5 July 2017. The trilogue talks on a final text for the EU’s new anti-dumping regulation started on 12 July 2017.

The new-anti dumping rules were welcomed by BusinessEurope, a lobby group for European businesses. BusinessEurope praised the EU institutions for reaching an agreement that would equip the EU with “robust trade defence instruments”.

The political agreement was equally welcomed by Salvatore Cicu, an Italian member of the centre-right European People’s Party. Cicu stated that the final text “has viable tools to protect European industry from dumped […] products imported from countries outside the EU in the case of the existence of significant distortions in a third country”, while “[i]t does not create any additional burdens on EU industry”. Cicu recognised that it took a long time to reach the agreement, but stated that the new method “will protect [EU citizens] in the best way from the negative consequences of globalisation”.

The new anti-dumping rules, which were agreed upon during the plenary session of the European Parliament in Strasbourg on 3 October 2017, still have to be formally approved. EU governments are expected to approve the political compromise at the next meeting of their trade ministers, which is scheduled for 10 November 2017. If passed, the new anti-dumping legislation is expected to enter into force on 1 January 2018.

The Commission has repeatedly stated that the new anti-dumping legislation will only apply to the investigations which are initiated after the legislation enters into force. The legislation will also ensure a transition period, during which all anti-dumping measures currently in place as well as all (original and review) investigations initiated before the entry into force of the new legislation will remain subject to the thus far existing anti-dumping methodology. It is only as of the date on which the first expiry review of the existing measures is initiated that the normal value will be calculated on the basis of the new rules, once the latter enter into force.

Hong Kong traders should note that, besides this new EU methodology, trilogue discussions are currently also in the midst of debating the modernisation of the EU’s trade defence instruments. While the former is aimed at bringing EU law into line with the EU’s WTO obligations, the latter is about further modernising the EU’s trade defence rules.

Content provided by Picture: HKTDC Research
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