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European Commission Puts Forward New Compromise Proposal on Anti-dumping Rules, Specifically Addressing Concerns on Burden of Proof

As the trilogue talks (negotiations between the European Commission, Parliament and Member States) on the new EU anti-dumping rules continue, the final reform of the EU’s anti-dumping legislation is advancing ever closer. However, a number of issues relating to the much debated topics of the list of “significant distortions”, the burden of proof and the special country-specific or sector-specific reports remain unresolved.

In order to facilitate the talks between the European Parliament and EU governments, it appears that the European Commission circulated a compromise proposal on 25 August 2017, tackling – amongst others – the contentious and still unresolved issue of the burden of proof when demonstrating whether or not dumping has occurred.

In the European Commission’s initial proposal on the EU’s new methodology to combat dumping from third countries, dated 9 November 2016, the issue of the burden of proof was not explicitly addressed. Instead, the Commission merely asserted that the new paragraph 6a of Article 2 of the basic anti-dumping Regulation should state that “[i]n 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 normal value shall be constructed on the basis of costs of production and sale reflecting undistorted prices or benchmarks”.

In its compromise proposal of 25 August 2017, it appears that the European Commission committed itself to determining, in anti-dumping investigations, that certain domestic costs of exporting producers are “undistorted”. By doing so, the burden of proving that dumping occurred was placed on the European Commission itself, moving the burden of proof that dumping has not occurred away from the exporting producers. Indeed, the proposal was reported to state that when the Commission “demonstrates certain domestic costs to be undistorted, in particular where exporters and producers show this conclusively … it shall use those costs”.

Lawmakers and trade experts raised concerns about this shift in the burden of proof, insisting that the new rules should place the initial burden of proof on the exporting producers and should explicitly say that domestic costs and prices are to be taken into account only when an exporting producer demonstrates that its production costs have not been distorted.

Taking into account these concerns, the European Commission then put forward a new compromise proposal on 31 August 2017. The compromise appears to propose two options regarding the burden of proof, which was discussed during the negotiating round on that same day.

First, the wording of the proposal of 25 August 2017 could be amended, in order to clarify the conditions that must be met so that the actual domestic costs and prices can be used to define dumping. Such new wording appears to say that “where it [is] determined that certain domestic costs are undistorted, in particular where exporters and producers show this conclusively … the Commission shall use such costs”.

Alternatively, the European Commission suggests removing the controversial sentence from the proposal itself, and replacing it with a similar clause in an accompanying recital. Recitals have less legal weight than the main body (the Articles) of an EU regulation, as they are treated as legal explanations rather than hard law. For such a recital, the European Commission has not yet suggested any concrete text.

It is, however, not yet clear whether the European Parliament and the EU Member States will accept a modification to the burden of proof provision. Indeed, this modification does not fully reflect the amendments voted by the International Trade Committee of the European Parliament in June 2017.

Very likely due to this, on 12 September 2017, the European Parliament and the EU Member States failed to reach a political compromise on the issue of the burden of proof. After more than three hours of talks, the negotiators remained at odds over how the European Commission and exporters from mainland China should share the burden of proof. As a result, the EU talks on the new anti-dumping rules have hit a political roadblock. The next meeting of the three negotiating teams has been scheduled during the next plenary session in Strasbourg, which will take place between 2 and 5 October.

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.

While there is consensus amongst all negotiating parties that a political agreement on the new anti-dumping rules should be secured as soon as possible to allow their entry into force this year, the European Commission had been pushing the European Parliament and all EU governments to agree on new EU dumping rules by mid-September. As it usually takes up to two months for the EU institutions to formally approve a political compromise, the deal would have to be sealed by mid-October at the very latest, for it to be adopted by the end of 2017.

The European Commission is keen on having the new anti-dumping rules in place before the WTO itself rules on mainland China’s complaint against the EU’s current dumping rules. The WTO Panel was established for this purpose on 3 April 2017 and, after a delay related to the appointment of the panelists, was composed (which is the next step) on 10 July 2017.

In the meantime, despite the expiry of certain provisions of mainland China’s WTO Accession Protocol on 11 December 2016, the European Commission initiated two anti-dumping investigations on imports originating in mainland China, in which the EU continues to automatically treat mainland China as a non-market economy. On 23 June 2017 and 11 August 2017, the EU initiated an anti-dumping investigation against – respectively – low carbon ferro-chrome and new and retreaded tyres for buses or lorries from mainland China.

If these investigations lead to the imposition of duties, mainland China may decide to challenge them at the WTO, arguing that the law on which the anti-dumping duties are based, which automatically treats mainland China as a non-market economy, is illegal. In addition, Chinese exporters could challenge the EU at the European courts in Luxemburg in order to obtain a refund of any paid up anti-dumping duties.

Content provided by Picture: HKTDC Research
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