Georg Berrisch of Baker Botts explores the future impact of the EU anti-dumping and anti-subsidy law and policy, which is expected to be adopted by the end of 2013.
"A rather controversial element of the modernisation package is the response to retaliation threats. China, in particular, is known for retaliating against companies who support EU anti-dumping investigation."
One does not need a crystal ball to predict that the next two to three years will bring about some interesting developments in EU anti-dumping and anti-subsidy law and policy. Commission, Council and parliament have finally reached a political compromise on the Omnibus I package, which is now expected to be adopted by the end of 2013. This will result in fundamental changes as regards the decision-making in EU anti-dumping investigations and the balance of powers between the Commission and the member states. Moreover, trade commissioner De Gucht is keen to conclude his modernisation initiative before the term of the current Commission expires in May 2014. While his initiation is modest compared to the failed attempt by ex-commissioner Peter Mandelson several years ago, his proposals, if adopted, could have some profound effect on the operation of the EU anti-dumping instrument. And finally, there is the elephant in the room: the looming expiry of the special rules regarding the calculation of normal value in investigations relating to imports from China.
The Commission will adopt definitive anti-dumping measures
It has been an oddity of EU anti-dumping investigations that the Commission conducted the investigation but the Council adopted the definitive duties. And it is a well-known secret that often political considerations rather than the findings of the investigation influenced the decision of certain member states, in particular those who are opposed to the very idea of anti-dumping duties. The Lisbon Treaty marked the beginning of the end of this oddity by introducing the notion of implementing acts and providing that these shall be adopted by the Commission safe in “duly specified” cases. After some resistance, the Council eventually accepted that regulations imposing anti-dumping duties were not a duly specified case. This resulted, in February 2011, in the adoption of Regulation 182/2011, laying down the procedures for the adoption of implementing acts by the Commission. It provided, among others, the procedure for the adoption of regulations imposing definitive anti-dumping and countervailing duties by the Commission. However, Regulation 182/2011 did not mark the end but rather the beginning of the power struggle between the institutions, because Commission, Council and Parliament then had to agree in the Omnibus I negotiations on the necessary changes to the Basic Anti-dumping Regulation, as well as several other trade instruments. They reached a political compromise in the summer of 2013 and, had it not been for the solar panel investigation, would probably immediately have put into place the new rules. Now, these rules are expected to apply as of early 2014.
The new rules will affect the balance of powers between the Commission and the member states and, at first sight, seem to strengthen the position of the Commission. To begin with, the Commission, and not the Council, decides on the imposition of definitive duties. Moreover, while today a simple majority of member states in the Council suffices to block a Commission proposal, under the new rules, opposition by a simple majority will result only in the referral of the matter to the appeals procedure, where a qualified majority is needed to prevent the Commission from adopting definitive duties.
At first sight, this looks like good news for European producers seeking the imposition of duties. It also seems to limit the influence of those member states that are principally opposed to the adoption of anti-dumping duties and the ability of third countries to lobby member states to block the imposition of duties. But the case may be more complicated than this. The appeal procedure provides for the right of each member state to suggest amendments to the measures and requires the chair of the anti-dumping committee to seek a solution that commands the widest possible support within the committee. Thus, the possibility of individual member states to shape regulation imposing definitive anti-dumping duties have arguably increased, and this may tempt member states to initially oppose a Commission proposal in order to submit the matter to the appeal procedure, where they can flex their muscles and try a horse trade with the Commission and other member states. Therefore, the new rules may result in the process becoming more political, rather than less.
Moreover, the discussions during the appeal procedure must respect the procedural rights of the parties to the investigation and ensure that a final decision is taken within the strict time limit of 15 months. This is not going to be easy. According to the case law, any material change to a Commission proposal after the definitive disclosure requires additional disclosure and an opportunity for interested parties to make their views known. In order for this not to become a mere formality without any practical value, the Commission must find a way to introduce the views of the parties into the appeal procedure. It is not clear how this will work in practice.
In any event, the Commission must improve its game and accelerate its investigations and decision making in order to reduce the risk that it runs out of time at the end of investigations. Not an easy task in times of reduced budgets. This also will have ramifications for private parties, because the Commission is likely to be less generous when deciding on requests to extent deadlines.
In 2006/2007, the then trade commissioner Peter Mandelson presented a Green Paper on the reform of the EU’s trade defence instruments. His initiative failed because its was over ambitions and, more importantly, one-sided in favour of exporters. Commissioner De Gucht’s proposal for a modernisation of the EU trade defence instruments is modest and arguably balanced. But it is not uncontroversial, and one has to see which elements will eventually be adopted.
One objective of the modernisation proposal is increased transparency. Specifically, the Commission intends to provide disclosure prior to the imposition of provisional duties and advance notice to the public two weeks prior to the imposition of provisional duties; and to publish guidelines on four elements of the investigation (calculation of the injury margin; choice of analogue country; Union interest test; and duration of measures and expiry reviews). These are all good initiatives but much more could be done on this front. For example, there are several other aspects of the investigation on which guidelines would be helpful, such as determination of the product concerned; dumping margin calculations, including adjustments; determination of injury and causation; treatment of confidential information and requirements to produce non-confidential versions. The access to file practice also requires urgent improvement.
A rather controversial element of the modernisation package is the response to retaliation threats. China, in particular, is known for retaliating against companies who support EU anti-dumping investigation. Thus, companies with business interests in China risk significant disadvantages if they support an EU anti-dumping complaint. The Commission proposed a three-pronged response: initiate investigations by the Commission without a (formal) complaint from the EU industry; impose an obligation on EU producers to cooperate in anti-dumping and countervailing duty investigations; and keep confidential the names of the companies who provided information to the Commission.
Threat of retaliation is a real problem for EU industries and jeopardises the effectiveness of the EU trade defence instruments. However, imposing an obligation on EU producers to cooperate, which would be a real game changer and it is questionable whether this is the right response. How shall the obligation to cooperate be enforced? The Commission’s proposal is silent on this question. Also, this obligation will not prevent threats of retaliation. China can still use retaliation threats to persuade EU producers to openly oppose the imposition of duties. It would therefore appear that a better solution to the retaliation problem would be a robust enforcement of China’s obligations under the WTO, through a strategic and frequent use of dispute settlement procedures, and to openly expose China’s retaliation tactics as unacceptable in the international community.
This leads to the next controversial element of the modernisation proposal: not to apply the lesser duty rule in cases of country-wide subsidisation and structural raw material distortions. The lesser duty rule provides that duties shall not be imposed in the full amount of the dumping or subsidy margin, as would be permissible under the WTO rules, if a lesser amount is sufficient to remove the injury caused to the Union industry. This rule is one of the hallmarks of EU anti-dumping and countervailing duty investigations. It strikes a fine balance between the interests of the EU producers, on the one hand, and importers, users, and consumers, on the other. Its underlying idea is that the purpose of anti-dumping and countervailing duties is to protect the domestic industry against dumped or subsidised imports but not to penalise the exporter or the exporting country.
It is true that country-wide subsidisation and structural raw material distortions are particularly harmful and should be discouraged. But this should not be done by imposing duties that go beyond what is necessary to remove the injurious effects of the dumped or subsidised imports. Using the dumping and countervailing duty instruments to achieve objectives other than protecting the EU industry from the injurious effects of dumped or subsidised imports risks opening a Pandora’s box. In addition, the term “structural raw material distortions” is very imprecise. What is a raw material? What is a structural distortion?
The elephant in the room: market economy status for China
China’s accession protocol to the WTO provided for special rules regarding the calculation of normal value. These rules were to expire 15 years after accession, ie, in December 2016. For a long time, everybody thought that this would mean market economy status for China, but, a couple of years ago, some argued that, based on a literal reading of the protocol, this is anything but clear. And they seem to have a point. This is not the time and place to enter into the technical legal details of the debate, which in any event is more political than legal (although China would certainly bring a WTO case if the EU or US would not treat it as a market economy country after December 2016). However, it seems safe to predict that the debate will heat up in the coming years. Indeed, state intervention in China is still omnipresent and, if anything, has increased in recent years. Hence, China is, arguably, far away from being a true market economy. In addition, discussions must take place on how to deal with the market distortions in the context of anti-dumping investigations in case China will obtain market economy status. The solution is not obvious and may depend on whether the Court of Justice will confirm the recent judgments on dual pricing practices in relation to fertiliser imports from Russia – and on how the WTO Appellate Body rules on the issue, should Russia bring a case, as it said it would.
One more thing
Finally, there will be a new Commission in 2014 and, most likely, a new Commissioner for Trade. His or her policy priorities will have a strong impact on how the Commission is going to apply the anti-dumping and anti-subsidy instruments. Commissioner De Gucht’s credit was that, with very few exceptions, he withstood political pressure and applied the instruments based on the merits of the investigations. In particular, he made it clear to China that he would not back off when faced with retaliation threats. Will his successor do the same? And if not, what policy will he or she pursue? Interesting times ahead.