EU to Modify Anti-dumping Rules to Allow Artificial Price for All Cases of “Distortive” Pricing for China and Other Countries

The EU’s executive arm released on Wednesday its highly-anticipated proposal for revising its anti-dumping and anti-subsidy rules, setting the stage for an upcoming discussion with lawmakers and the Council in a bid to reach an agreed outcome swiftly.

The EU trade chief particularly referred to the issue of overcapacity in the steel sector, citing China as a prime example. China is by far the world’s largest producer of steel, massively outpacing other steel-exporting countries.

Beijing has argued that the issue of overcapacity and falling steel prices is a problem that is global in nature, and leaders of major exporting economies have agreed in other forums that it will thus require a global solution.

A related factsheet from the European Commission similarly suggests that overcapacity, along with other changes in the international trade landscape over the last several years, makes it absolutely paramount for the bloc to have the most updated toolkit available for dealing with allegedly unfair trading practices.

Tackling distortions

As previously announced in July, the proposal would take the bloc away from using lists of “non-market economies” and “market economies” when conducting its trade remedy investigations.

Currently, EU investigative authorities separate countries into lists depending on whether they meet a set of “market economy” criteria. Should they be classified as a non-market economy, then the authorities use what is known as an “analogue” method, where they determine a good’s “normal value” by using a “price or constructed value” from a market economy country.

The proposed new system would instead focus on cases where “distortions” arise in domestic prices or costs, such as when government intervention is involved.

The EU’s executive arm then lists a series of factors that would play into this assessment. These include, for instance, whether the relevant market is largely made up of state-owned or controlled businesses; situations where the state is in a position to “interfere with respect to prices or costs”; and policies that give domestic producers an unfair advantage relative to their foreign counterparts.

Under this “distortions” scenario,” the EU Commission is proposing that the normal value then be developed “on the basis of costs of production and sale reflecting undistorted prices and benchmarks,” such as by using data from another “appropriate representative country with a similar level of economic development as the exporting country.”

The proposal would also have the EU’s executive arm release public reports on market conditions in different countries and sectors, in order to then determine whether these “distortions” are affecting prices and costs to the extent that they would not be suitable benchmarks for determining normal value.

“The proposal we are now putting forward moves the EU closer to the trade defence systems of other major trading partners around the world, including the United States,” said Malmström on Wednesday.

Existing investigations, subsidy rules

The proposal would have existing trade remedy probes be governed under current EU anti-dumping rules, rather than using the proposed new system. As for trade remedy measures already in place, these would also continue under the old rules unless there was a clear reason to revisit them, such as when “factual circumstances” of exporters change.

The document also confirms earlier plans to revise anti-subsidy rules, specifically to address cases where the actual extent of unfair state aid to exporters is only identified once an investigation is already underway.

Should this occur, the Commission is suggesting having “consultations” with the relevant country involved, with the subsidy information to factor into determining final duties.

December deadline

The push to revise the EU’s anti-dumping rules comes ahead of a December 2016 deadline included in China’s terms for joining the World Trade Organization.

Under the original terms, importing WTO members have two ways of calculating duties in trade remedy investigations involving Chinese producers/exporters – one involving domestic prices in the Asian economy, the other allowing for countries to “deviate” from using such prices.

Which of these options applies depends on whether Chinese producers can prove that market conditions exist in their industry. However, the WTO “accession” terms also include a clause that foresees terminating the option of using surrogate prices within 15 years of China becoming a member of the Geneva-based organisation, though how to read this relative to the rest of the accession terms has been the subject of debate in trade circles.