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New Deadlock in EU Trade Defence Reform

As the EU’s legislative process for trade defence reform moves into the hands of the European Parliament, a new impasse has arisen. The vote of the European Parliament’s Committee on Industry, Research and Energy – held on 30 May 2017 – demonstrates the European Parliament’s persistence to tighten the EU’s anti-dumping rules, and its disapproval of the political compromise previously reached between EU governments.

It especially appears that the European Parliament and national experts are refusing to compromise on three key areas, namely, the lesser duty rule (LDR), the concept of “significant market distortions”, and the issue of pre-disclosure of provisional duties.

The debate on the removal of the LDR in EU trade defence investigations has, since 2013, been the main obstacle for trade defence modernisation. The LDR currently prevents the European Commission from imposing anti-dumping duties above the calculated level of injury caused to domestic companies, even if the calculated margin of dumping may be higher. The removal of the LDR could thus lead to the imposition of significantly higher anti-dumping duties, an approach that is followed by, amongst others, the US.

Following the European Commission’s own silence on the issue of the LDR in its proposal that was circulated in November 2016, this burning topic has nonetheless been heavily debated amongst EU Member States. While liberal nations are objecting to the abolishment of the LDR by arguing that higher tariffs would impede trade, more conservative European governments are claiming that higher tariffs are necessary to protect the EU industry against an increasing flow of dumped products originating in mainland China.

On 13 December 2016, EU Member States managed to reach a relatively liberal compromise, agreeing that the LDR would only be abolished in certain narrowly defined circumstances, namely in cases where a “distorted” raw material individually represents 7% or more of the cost of production of a dumped good and the sum of all distorted raw materials exceeds 27% of the total cost of production of the product concerned.

However, five months into the negotiations between EU governments and lawmakers, the LDR has once again emerged as the main obstacle to an agreement. European parliamentarians are of the opinion that the European Commission should drop the LDR, as this rule “unjustly reduces the anti-dumping duties at a level below the dumping margin.” Parliamentarians disagree with the compromise reached among the EU Member States, arguing that there is no logic behind the thresholds put forward by national experts and asking for more information before resuming talks on this issue.

Under the European Parliament’s current position, the LDR should only be applied for exports originating in one of the world’s poorest nations, e.g., Angola, Haiti, Mali or Nepal. On the other hand, the EU Member States are not ready to modify their hard-won compromise on this issue.

The second obstacle to an agreement relates to the concept of significant “market distortions” that could allow the European Commission to disregard a country’s domestic costs and prices in favour of international costs and prices in the course of anti-dumping investigations.

While the EU Member States, in May 2017, established a non-exhaustive list of examples from which the European Commission could identify such market distortions, the European Parliament now calls for a more precise definition of such distortions.

The initial list has included elements such as state policies and influence; the widespread presence of state-owned enterprises; discrimination in favour of domestic companies; and the inadequate enforcement of bankruptcy, corporate or property laws. Under the current parliamentary position, the elements revealing a lack of independence of the financial sector and the failure to comply with international social and environmental standards having an impact on the cost of production, should be included.

The third obstacle to an agreement appears to be the issue of “pre-disclosure”. The EU Member States agreed, in December 2016, to introduce a clause obliging the European Commission to grant a guaranteed notice period of four weeks to interested parties before being able to impose provisional duties.

European parliamentarians are strongly opposed to the “pre-disclosure” clause, arguing that such a rule would give big and well-connected companies an advantage over smaller importers, because the former would be able to find out about the duties before their smaller competitors and stock up on the affected products before the duties are effectively imposed.

Hong Kong traders should note that a fourth round of talks between the EU Member States and the European Parliament is scheduled for the third week of June, with the objective of seeing through the EU’s long-standing efforts to overhaul its trade defence instruments. However, the European Parliament has already indicated that unless Member States are willing to be flexible, no progress can be made.

The new EU anti-dumping methodology can only become law once a compromise is found and approved between the European Parliament and the EU Member States.

Content provided by Picture: HKTDC Research
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