European Parliament Formally Endorses New EU Anti-dumping and Anti-subsidy Rules, Paving the Way for Their Entry into Force Within This Year

On 15 November 2017, the European Parliament formally approved the EU’s new legislation on the amendment of the existing rules on dumped and subsidised imports from third countries, such as mainland China. The new law was backed by 554 votes to 48, with 80 abstentions. These numbers demonstrate strong support for the new measures, across the board – from the mainstream political groups to the leftist and environmentalist groups – with the only opposition coming from far-right EU sceptics.

As stated by EU Trade Commissioner Cecilia Malmström, the new legislation “will ensure that European industry remains well-equipped to deal with the unfair competition”. The European Parliament, in a press release published after the vote, stated that the aim of the law is “to step up protection for EU jobs and businesses against unfairly cheap imports from third countries that interfere heavily in the economy”. The Parliament also emphasised that “there will be no additional burden of proof on EU companies in anti‑dumping cases, on top of the current procedure” and that “small and medium-sized enterprises will get help to deal with procedures”.

The relatively swift approvals process is fuelled by the EU’s intention to have an agreement on the new EU rules in place, before the first meeting of the WTO panel in the ongoing dispute between mainland China and the EU. On 12 December 2016, mainland China challenged the EU’s old dumping regime at the WTO. The WTO panel was composed on 10 July 2017 and the first meeting of the panel is scheduled for 6 and 7 December 2017.

The new EU rules will be formulated in a country-neutral manner, abolishing the current distinction between market and non-market economies. Instead, the law introduces a new methodology for establishing normal value in case of “significant distortions” in the market of the exporting country, which render the use of domestic prices and costs in that country “inappropriate”. In such a scenario, the normal value “shall be constructed exclusively on the basis of costs of production and sale reflecting undistorted prices or benchmarks”. Factors that are considered when determining whether significant distortions exist include state ownership on the market of the exporting country, state presence in companies allowing for interference in prices or costs, and bankruptcy legislation in the exporting country.

In addition, it has been reported that EU trade officials will, pursuant to the new rules, be authorised to take into account international labour and environmental standards when deciding on anti-dumping measures.

Due to the fact that the new rules are drafted in a country-neutral manner, EU officials claim that the new methodology is meant to apply to all of the EU’s trading partners and does not discriminate against mainland China. In practice, however, mainland China is expected to be most affected by the new legal regime.

In addition, it appears that the Commission is – for the time being – only planning to prepare a report on the market distortions in mainland China. This report is expected to be available to the EU industry on the day of the entry into force of the new EU anti-dumping rules. Except for the report on mainland China, there are apparently no other country reports in the pipeline.

As stated by a spokesperson of mainland China’s Ministry of Commerce on 16 November 2017, “the new EU anti-dumping investigation method lacks a basis under WTO regulations”. It is thus expected that mainland China will soon challenge the new EU legislation at the WTO. Indeed, mainland China is convinced that the new EU rules are in violation of several of the EU’s obligations under WTO law.

Hong Kong traders should be aware that the new anti-dumping legislation will only apply to investigations which are initiated after the EU 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.

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. On 3 October 2017, during the plenary session of the European Parliament in Strasbourg, the new anti-dumping rules were informally agreed upon by the negotiators of the European Parliament and the Council.

Following the European Parliament's approval of 15 November 2017, the trade ministers of the 28 EU Member States are expected to formally approve the new anti-dumping rules at their meeting scheduled for 4 December 2017. The law is expected to be published in the Official Journal of the EU on 16 December 2017, and will enter into force one day later.

Hong Kong traders may recall that, besides this new EU methodology, trilogue negotiations (between the European Parliament, Commission and Council) have been taking place with a view to the modernisation of the EU’s trade defence instruments since 21 March 2017. These modernisation negotiations are intended to raise tariffs on dumped or subsidised imports from countries that do not interfere extensively in the economy, and are strongly focussed on the removal of the so-called lesser-duty rule. Due to the remaining disagreement between the EU institutions, it is unlikely that an agreement on the modernisation of the EU’s trade defence instruments will be reached before the end of 2017.