Effective and WTO Compatible: Anti-Dumping Measures of the EU
WTO members commit themselves not to raise tariffs once they have been reduced and bound (WTO members fix their tariffs in so-called schedules). This ensures legal certainty in international trade. However, the WTO rules on trade in goods, the General Agreement on Trade and Tariffs (GATT), also permit exceptions.
Article VI of the GATT and the Agreement on Implementation of Article VI allow WTO members to impose a tariff – an anti-dumping or an anti-subsidy tariff (the latter is also known as a countervailing duty) – on dumped and subsidised products in order to establish fair conditions of competition. Prerequisite is that the measures are in line with WTO rules. Anti-dumping measures belong to the so-called trade defence instruments.
In order to guarantee fair international competition, German and European industry is dependent on effective and balanced trade defence instruments that ensure fair and equal conditions of competition worldwide for manufacturers and importers based in the EU.
Anti-Dumping Measures against Unfair Trade
Dumping occurs when like products are sold on the export market at a lower price than on the domestic market (price dumping). This also applies if the goods are sold at a price below their full costs on the domestic market (cost dumping), provided that the full costs plus a reasonable profit margin are higher than the price on the export market.
The price normally paid by independent customers in the exporting producer’s domestic market is also referred to as normal value. When, for example, the price in the domestic market cannot be determined due to a lack of local sales, or where the information on the full cost of production is unreliable or incomplete because of local market distortions, the price must be established or constructed accordingly. Only then can it be determined whether the product sold on the export market is cheaper than the normal value as established or constructed and thus dumping can be found. The WTO provides for two methods for this purpose: Either the export prices to another third country or the full costs (with a reasonable profit margin) in the country of production are used. The difference between the normal price and the dumping price is called the dumping margin.
However, the determination of dumping alone is not sufficient to justify the imposition of an anti-dumping duty. Rather, it must also be positively concluded that this dumping has caused material injury to producers in the importing country. WTO rules allow the importing country to impose a protective duty on the product in question in order to restore fair market conditions. This anti-dumping duty cannot be higher than the dumping margin.
Reform Efforts in the EU
The EU’s basic anti-dumping regulation has been in force since 1995 and has been continuously improved in the subsequent years. In early 2013, the EU Commission initiated a further modernisation of its trade defence instruments. In 2016, the regulation with its numerous amendments was merged into a vertical codification process – partly to ensure clarity in the forthcoming reforms. The actual renewal of the trade defence instruments was then approached by the European Parliament, the European Council, and the Commission in two steps: a methodological step (determination of the normal price as the basis for anti-dumping proceedings) and a modernization step (implementation of anti-dumping proceedings). However, for a long time no agreement could be reached in the Council (especially on the Lesser Duty Rule). It was not until February 2017 that the trilogue procedure was opened and in December 2017 an agreement was finally reached between the Commission, the European Parliament, and the Council. This agreement was formally approved by Parliament’s Committee on International Trade , at its meeting in January 2018. This paved the way for the final conclusion of the modernisation amendment in July 2018.
The reform was prompted by the expiration of a key article in China’s WTO accession protocol in mid-December 2016. According to this article, Chinese producers had to prove that the prices of their products were achieved under market economy conditions. In the absence of such evidence, the importing countries did not have to use the domestic prices of the exporting country in AD investigations. Instead, they could base their analysis and calculation of the AD margin on cost structures in other export markets – the so-called analogue country methodology. In order to avoid criticism of treating China as a country without market economy structures, the EU members agreed on a more differentiated methodology for determining the actual domestic price in China. The current production factor method (construction of full costs by substitution/addition of individual cost components) will be applied to all WTO members in the event of suspected infringements. For non-WTO members, however, the analogue country method still applies. Additionally, several other adjustments were introduced.
In December 2016, China lodged a complaint against the EU at the WTO under the provisions of the AD regulation concerning the determination of normal value for non-market economy countries in anti-dumping proceedings. A panel was convened in July 2017. After the panel report was finalized in May 2019, China requested the suspension of the proceeding. This request was granted in June 2019. On 15 June 2020, in accordance with WTO rules, the panel’s powers expired. The dispute is therefore considered to be settled, as the panel was not requested to resume its work. This development provides legal certainty for the EU, considering that the AD regulation should be in conformity with WTO rules. The final panel report will, however, not be published.
German Industry’s Position
- The last reform of the anti-dumping instrument was of great importance for German industry. Overall, the instrument is considered to be effective in principle.
- German industry is facing numerous third-country suppliers seeking to gain significant market shares through dumped and/or subsidized low prices. Anti-dumping and countervailing measures are therefore the central instrument for the industries affected to protect themselves against unfair market behaviour.
- A detailed analysis of its effectiveness should be carried out before any further reform of the AD toolkit including consultations with the manufacturing, processing, exporting, and importing industries. So far, many sectors of the German economy lack relevant experience.
- The European Commission’s introduction of the mandatory reporting requirement in the case of China was just and in order. Nevertheless, the burden of proof remains very high in individual cases. The EU should publish further reports on market distortions.
- Parallel anti-dumping and anti-subsidy proceedings are a welcome development. In principle, however, it remains difficult to provide the necessary evidence regarding subsidies. A key objective should therefore be to create more transparency about subsidies in third countries in the future.
- The reduction in the length of AD procedures is positive for most economic operators. Despite the SME Helpdesk, many small businesses in particular are still reluctant to initiate AD procedures due to the high administrative burden, so a further streamlining and optimization of procedures would be welcomed. The Commission must ensure that applicants and interested parties alike continue to be given sufficient time to represent their interests and to prepare for any duties that may be imposed.
- Trade defense measures should be subject to review prior to their expiry at the request of any Union producer or, if necessary, ex officio, and should be extended if warranted by the continued existence of global market distortions.
- An extension of the anti-dumping instrument to services should be examined without prejudice to the outcome.
- It would be desirable to examine whether environmental and social costs can also be taken into account in the determination of normal value, also with respect to WTO conformity.
Common Safeguard Clauses for Future EU Free Trade Agreements
In mid-March 2019, a horizontal EU regulation came into force to harmonise the application of safeguard measures in EU’s free trade agreements. Such provisions are intended in the agreements with Japan, Singapore, and Vietnam and are to be incorporated into all free trade agreements still to be negotiated. The draft regulation was compiled exclusively from existing agreements.