After Approval of New Anti-dumping Methodology, EU Reaches Landmark Deal on Modernisation of EU’s Trade Defence Instruments

On 5 December 2017, after long and difficult negotiations, the Commission, the Council of Member States’ ministers and the European Parliament reached a political agreement on the modernisation of the EU's trade defence instruments.

The most important amendments relate to the conditional removal of the lesser-duty rule (LDR); the relevance of social and environmental standards when calculating injury margins; the issue of pre-disclosure; and the closing of the maritime loophole.

The LDR currently prevents the 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. Pursuant to the negotiated agreement, the EU will abolish the LDR in narrowly defined circumstances, leading to the imposition of significantly higher anti-dumping duties. More precisely, it appears that the negotiators agreed on a waiver of the LDR in cases where there are distortions in raw material and energy prices in the exporting country under investigation.

The new rules will take social and environmental standards into account when calculating the injury margin in anti-dumping investigations, which will lead to the imposition of higher duties. For goods originating in countries with lower social and environmental standards, the cost to EU companies of complying with such standards will be included in the calculation of the injury margin. The EU governments voting on the deal agreed that the social and environmental standards should also play a role in discussions with exporters on “undertakings” that are put into place so as to avoid anti-dumping duties, and during interim reviews of already existing measures.

The negotiators agreed on the issue of pre-disclosure, putting in place an early warning mechanism to ensure that interested parties are informed of anti-dumping duties before their imposition. The aim here is to help companies adapt to the new situation in case duties are imposed. By way of a compromise, the European Parliament accepted a three-week notice period afforded to interested parties for impending measures, two weeks longer than what they had initially proposed. In exchange, the rules require the national customs authorities to register imports “whenever possible”, allowing duties to be collected retroactively in case measures are imposed. Under the current rules, such registration is optional.

This three-week notice period will be reviewed after two years. If the review confirms that the three-week notice period has led to significant stockpiling, the Commission will be obliged to propose to cut the notice period down to one week. However, if there is no stockpiling, the Commission should propose to extend the notice period to four weeks.

The negotiators agreed on how to close the maritime loophole, which allows companies operating in the maritime exclusive economic zones or the continental shelves of the EU Member States to avoid paying anti-dumping duties. It appears that the Commission will draft an implementing act that would provide for the collection of the duties on goods, such as pipes and tubes or certain steel, used in significant quantities by the companies operating in these areas.

In addition, the new rules on the modernisation of the EU's trade defence instruments will shorten the current investigation period for the imposition of duties and will make the system more transparent. Smaller companies will also get assistance from a specific help desk, to make it easier for them to trigger and participate in trade defence proceedings.

According to a statement from the European Commission, the changes to the EU's anti-dumping and anti-subsidy regulations “will make the EU's trade defence instruments more adapted to the challenges of the global economy: they'll become more effective, transparent and easier to use for companies, and in some cases will enable the EU to impose higher duties on dumped products.”

Trade Commissioner Cecilia Malmström stated that “[t]ogether with the recently-agreed changes to the anti-dumping methodology, the EU's tool box of trade defence instruments is in shape to deal with global challenges. The EU stands for open and rules-based trade, but we must ensure that others do not take advantage of our openness. We are and we will continue to stand up for companies and workers suffering from unfair competition." In similar vein, Member of the European Parliament Christofer Fjeller stated that “[t]ogether with the new anti-dumping methodology, we have delivered an up-to-date system.”

The European Commission initially proposed a review of the EU’s trade defence rules in 2013, but national governments struggled for more than three years to reach a joint position. After reaching a consensus in December 2016, the EU Member States entered into trilogue discussions with EU lawmakers and Commission officials.

The political agreement reached on 5 December 2017 will enter into force once the EU Council and the European Parliament formally give their green light. The Council is expected to discuss the agreement at its meeting of 20 December 2017, and the vote at the European Parliament’s trade committee is likely to take place on 24 January 2018. While both institutions have the right to propose amendments, the negotiators agreed on 5 December 2017 to approve the agreement without adjustments.

The agreement on the modernisation of the EU's trade defence instruments complements the recently approved rules on the introduction of the EU’s new anti-dumping methodology. These rules were approved by the Council on 4 December 2017 and are scheduled for signing in Strasbourg on 13 December 2017. The publication of the regulation in the Official Journal is expected before the end of this year.

The new EU anti-dumping methodology will be formulated in a country-neutral manner, abolishing the current distinction between market and non-market economies. Instead, the regulation 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.

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.

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.