In the WTO, its 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 tariff or an anti-subsidy tariff (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.
Anti-Dumping Measures against Unfair Trade
Dumping occurs when identical goods are offered on the export market at a lower price than on the domestic market. The price charged in the domestic market is known as the normal value. According to Article VI, if the domestic price cannot be determined, dumping occurs if the price of the product is lower than the price of a similar product offered on a third market (analogue country method). According to international rules, dumping also occurs if the price is below the manufacturing cost plus reasonable selling costs and profits. Another way of determining dumping is to use the price comparison or production factor method, in which the individual cost components incurred in producing a good are calculated and combined. The difference between the standard price and the dumping price is referred to as the dumping margin.
However, the determination of dumping alone is not sufficient to justify the imposition of an anti-dumping duty. Rather, it must have caused or threatened to cause serious harm to competing manufacturers in the importing country. WTO rules allow the affected country to impose a tariff on the product in question in order to restore fair competition. This anti-dumping duty may not be higher than the dumping margin.
Reform Efforts in the EU
In July 2018, the EU completed the reform of its trade defence instruments. This also updated the anti-dumping procedure. The EU’s basic anti-dumping regulation has been in force since 1995 and was repeatedly amended since then. 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).
Reason for the reform was that in mid-December 2016 a crucial treaty article in China’s Protocol of Accession to the WTO expired. It stipulated that Chinese producers had to prove that the prices of their products had been established under conditions of fair competition. Without this evidence, for 15 years dumping could be established on the basis of the analogue country method. To be WTO-compliant, EU members agreed on a new methodology to determine the standard price. This method removes the distinction between market economies and non-market economies. The current production factor method will be applied to all WTO members in the event of suspected infringements. For non-WTO members, however, the analogue country method still applies.
Modernisation of Trade Defence Instruments
The modernisation of trade defence instruments had already been initiated by the EU Commission in April 2013. 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 (EP), and the Council. This agreement was formally approved by INTA, the EP 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.
Agreement on Reform of Trade Defence Instruments
- The distinction between market economies and non-market economies has been abolished. This also terminates the related standard price calculation based on the analogue country methodology. Instead, unfair competition is calculated on the basis of the production factor method. An exception continues to apply to non-WTO countries. Here, for the purpose of establishing the standard price, similar products in comparable markets will continue to be considered as the reference price.
- Environmental protection and workplace safety requirements have been taken into account in the reform process. In order to determine the standard price, the costs incurred by EU producers in complying with local standards are also included.
- Costs arising from necessary investments in the business infrastructure or in-house research and development will also be included in the standard price calculation.
- The application of the Lesser Duty Rule has been modified. For goods entering the EU, whose prices reflect artificially low input prices for raw materials or energy, the full extent of the dumping margin is taken into account.
- There is now a period of three weeks between the announcement and the implementation of anti-dumping measures. Modern value chains depend on the availability of inputs exactly when they are needed (just-in-time production). Anti-dumping tariffs can make imports of the concerned goods more expensive, which is why upstream industries have to adjust their production plans. This takes time.
- The Commission now has an obligation to report its own assessments of market distortions to the public in order to help companies demonstrate conditions of unfair competition.
- Anti-dumping proceedings will be reduced from 15 to 14 months. The adoption of provisional measures will be reduced from nine to eight months.
- In the future, the EU wants to negotiate higher prices directly with exporters from non-EU countries for goods imported and dumped into the EU if their production violates the standards of the International Labour Organization or multilateral environmental agreements. Until now, the Commission had reserved the right to reject such commitments on grounds of the general Union interests.
- Trade unions have the possibility of initiating joint investigations with industry associations and are admitted as litigants.
- A help desk is established to provide support for small and medium-sized businesses.
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.
In order to guarantee fair 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.