No more non-market economy status? Commission proposes new rules on anti-dumping and anti-subsidy

The first set of amendments is intended to deal with the implications of the termination in December 2016 of one of the provisions addressing methodologies for determining “normal value” under China’s WTO Accession Protocol.  The EU system of applying non-market economy status by listing targeted countries within the Dumping Regulation is no longer sustainable under WTO rules.  China has already requested a WTO Panel challenging the continued application by the EU of the non-market economy methodology. 

The EU is, therefore, under considerable time pressure to implement the amendments, which are more likely to be defensible under the WTO than the current approach in the Regulation.  There is also a risk to the EU’s credibility as the provision in the Accession Protocol justifying the current system expired without the EU having taken action to put an amended Regulation in place prior to the change in the WTO legal context. 

The central element in this proposal is to entirely forego non-market economy designation of countries. This will be replaced by a provision allowing the Commission use international prices or analogue country prices where the market in the exporting country is found to be subject to ‘significant distortions’, whether introduced by direct government control of producers, by discriminatory measures benefitting local producers or by access to finance influenced by public policy objectives rather than market forces. 

One legal problem for the EU is that it will need to distinguish this approach from the use of adjusted input costs, justified by distortions in the soybean market in Argentina, which was rejected as inconsistent with Article 2 of the Anti-Dumping Agreement by the WTO panel and AB in Biodiesel.

The proposal does not make clear how the evidence of ‘significant distortions’ is intended to be introduced in any investigation but presumably complainant industries will be able to bring forward such evidence.  In recognition of the problem of developing that evidence the Proposal provides for the Commission to issue a report ‘where appropriate’ on the basis of the criteria of significant distortions outlined above.  This provision is permissive and does not set out when it would be appropriate for the Commission to issue such a report. 

There is no clear indication of the legal status of such a report by the Commission, although any report is to be placed on the file in relevant investigations and interested parties may “supplement, comment or rely on the report and the evidence on which it is based.” The proposed provision also specifies that determinations in the investigation “shall take into account all of the relevant evidence on the file.” (Art. 1(c) of the proposed Regulation). In other words, any such reports and the evidence they are based on could be the basis for applying the adjusted cost methodology to the dumping calculation.

The Proposal also provides for the Commission to take into account subsidy programs identified in the course of an investigation under the Anti-Subsidy Regulation even if they were not identified in the original complaint or notice of initiation.  The Proposal would require the Commission to offer further consultations to the government concerned and to amend the notice of initiation and offer all interested parties to comment.

The second set of amendments being proposed date from 2013 with a view to updating the Regulations.  They include a number of changes to the operation of both anti-dumping and anti-subsidy Regulations.  The key changes are limitations on the application of the lesser duty rule and the facilitation of self-initiation of investigations where there is concern over possible retaliation against complainants by exporting countries.  

In cases of distorted raw material costs the Commission will not have to apply the lesser duty rule, which requires the lesser of the injury margin or the dumping margin to be applied.  The proposal also includes other significant changes to the procedures used in trade defence instrument cases, including delays of four weeks from publication of provisional findings to imposition of provisional measures and provisions for importers to be reimbursed for duties collected during an expiry review where the measures are not maintained.

Taken together, the two proposals will improve elements of the process and transparency of operation of EU trade defence instruments and it will likely resolve the WTO legal problem of application of special rules for determining “normal value” based on pre-determined lists of countries, although the WTO findings in the Biodiesel case will raise questions about the new methodology. The change to the lesser duty rule is likely to result in much higher duties in those few cases where it is applied and the continued use of a special methodology, although based on entirely different criteria, might result in continued targeting of Chinese imports with substantial duties.