Delegation of the European Union to China

The EU's new trade defence rules and first country report

Bruxelles, 20/12/2017 - 05:28, UNIQUE ID: 171221_2

Questions and Answers

Today, the EU implemented important changes to its anti-dumping and anti-subsidy legislation and the European Commission published a report on state induced distortions existing in China.

The main change to the anti-dumping legislation is the new way of calculating the dumping margin in anti-dumping investigations on imports from World Trade Organisation (WTO) members whose prices and costs are distorted because of state intervention. The changes apply to all countries that are part of the WTO.

Before applying the new methodology, it will be necessary to show that significant distortions exist in the economy of the exporting country as a result of state interference. To do this the Commission will examine all the evidence presented in the course of an investigation, including by the EU industry. In this context, the Commission may also prepare reports describing the economies of certain countries or sectors. Following today's report on China, other country and/or sector reports will follow.

What is the new methodology for calculating dumping margins?

For WTO members, the standard way of calculating the dumping margin is by comparing the domestic prices in the exporting country and export prices for the product under investigation. This will not change under the amended legislation.

However, domestic prices and costs can be distorted owing to state interference in the economy. In this case, they do not provide a proper basis to determine the comparison with the export price. The new dumping methodology will be used when it is not appropriate to use domestic prices or costs due to significant distortions resulting from state intervention. In such instances other benchmarks reflecting undistorted costs of production and sale will be used. These could include benchmarks, or corresponding costs of production and sale in an appropriate representative country with a similar level of economic development as the exporting country.

This new methodology will allow the Commission to establish the actual magnitude of dumping where distortions exist.

What countries will be affected?

There is no list of countries to which the new methodology applies – it will be used in dumping cases concerning WTO member countries if significant distortions are found in the exporting country concerned which impact on prices and costs.

What are the significant distortions which the amended regulation will allow to tackle ?

These are distortions which occur when reported prices or costs, including the costs of raw materials and energy, are not the result of free market forces as they are affected by substantial government intervention.

What state interference affects the prices and costs in an exporting country?

State interference can occur, for instance, when a market contains a large number of firms operating under the ownership, control or guidance of the authorities of the exporting country.

It could also occur where there is a state presence in firms allowing for interference in prices or costs or pursuing policy objectives.

Other examples are public policies discriminating in favour of domestic suppliers, or exporters' access to financing pursuing public policy objectives.

How would the Commission decide if the economy of a country is distorted?

The Commission will examine whether distortions exist in each and every case based on its own merits. To that effect, the Commission may rely on any information regarding distortions brought by industry or indeed which comes to light in the context of an investigation. In addition, the Commission may prepare and issue reports describing the specific circumstances of the market in any given country or sector. Any information which supports a finding that distortions exist in an exporting country, justifying the use of the alternative methodology, will be part of the evidence on file in the anti-dumping investigation concerned.

What is the purpose of the reports prepared by the Commission?

These reports are one of the means of describing distortions in a given country/sector.

The reports, along with any other information regarding distortions, would become part of any anti-dumping investigation into that country or sector, and would be publicly available. The EU industry could also use information from these reports when lodging a complaint or a request for review.

They contain technical assessments, which will be placed on the case file in every investigation. They would therefore form a piece of evidence and be open to challenge by parties concerned by an investigation.

Any reports will be updated regularly to reflect any changes to the level of state interference in the economy.

If the changes to the legislation are country neutral, why was China selected for the first country report?

The fact that the Commission has chosen China as a first country on which to prepare a report merely reflects the fact that investigations and measures against China account for the largest proportion of the EU's anti-dumping investigations and trade defence measures.

When will the next reports follow and which countries will they concern?

Other reports will be prepared and countries will be selected on the basis of the same criteria as used in the selection of China. That is their relative importance in the EU's anti-dumping activity, as well as indications that there may be distortions related to government interventions in the economy. On that basis the next country report will concern Russia.

What does the report on China contain?

The report is a fact-based source of information to be used only in the context of anti-dumping investigations.

The report is divided in three parts. The first section is a macro-economic description of the Chinese economy, the second section discusses the main production factors used in all manufacturing processes (e.g. labour, energy) while the third section deals with certain sectors of the Chinese economy including steel and ceramics.

Does the report on China represent the Commission's opinion on the political and social system in China?

The report is a technical document, a so-called Commission Staff Working document, which will be used only in the context of trade defence investigations. It does not express any political views, preferences or judgements and is purely descriptive.

The information contained in the report is drawn from a number of sources. Primary among them is the official information provided by various Ministries and official organisations in China, for example, the relevant five year plans of decision of the State Council. Other information contained in the report comes from international organisations such as the IMF and OECD.

Does the existence of the report on China mean the new methodology will be automatically used in anti-dumping cases concerning that country?

The application of the alternative methodology is not automatic for any country.

The first report on China simply reflects the fact that this is the country on which the majority of the EU's trade defence activity occurs. Whether the new methodology will be applied in any given case will depend on the specifics of the case at hand.

How will the reports be updated and transparency ensured?

The frequency with which the reports would be updated depends on a number of factors, in particular the economic developments in a third country for which a report exists.

The reports will be made available to the EU industry which will be able to rely on them for using out of country benchmarks when filing applications. Given that the reports will become part of the file on any ongoing proceedings, parties will be in a position to comment on the information contained therein in the context of investigations.

For the purposes of replacing costs how will the appropriate representative third countries be selected?

The selection will be made so as to respect the requirement of a similar level of economic development.

The data from the third country have to be readily available. Therefore, they need to be public, recent and specific to the inputs under investigation.

In this context the Commission would be taking into account the level of social and environmental protection in cases where more than one appropriate third country would be available.

How exactly will poor social and environmental standards be taken into account in the new methodology?

Social and environmental standards can play a role under the new methodology. Notably, where the Commission has a choice between a number of appropriate representative countries with a similar level of economic development as the exporting country under investigation, the level of social and environmental protection in the representative source country will be taken into account in the selection.

Under the new methodology can costs in the exporting country be used to calculate dumping?

Domestic costs in the exporting country are used where they are undistorted by state interference. The legislation ensures that there is no ambiguity: distorted costs will not be used in the new methodology. This is one of the primary objectives of the new legislation – that dumping calculations address the situations where costs are distorted.

Do the changes apply to all cases, even ongoing ones?

The new methodology will only apply to cases initiated as of today. Any ongoing anti-dumping investigations will remain governed by the existing rules.

In reviews of existing trade defence measures in place, the new methodology will only be applied as from the time of the next scheduled expiry review of those measures. In addition, the legislation makes clear that without other changes in circumstances, existing measures should not be reviewed just because a new calculation methodology is adopted.

How can EU industry familiarise itself with the new rules?

The EU industry has been closely following the developments in relation to the new anti-dumping methodology throughout the legislative process. Nevertheless, the Commission services are ready to help any potential complainants to understand how the new system will work in practice and the implications for drafting complaints. In this context the tradedefence services have also updated the 'Guide to complainants'. In addition, any industry seeking further information is invited to contact the Complaints office at the following address:

What are the changes in the EU's anti-subsidy legislation?

Experience has shown that the actual magnitude of subsidies is not always clear when anti-subsidy investigations are launched. Exporters are often found to benefit from subsidies that could not have been known before carrying out the investigation. Yet, those subsidies clearly provide an unfair benefit, which allows exporters to sell products at prices that damage EU industry. Up to now only those subsidies alledged in the request for action are normally investigated. The changes will now allow for additional subsidies found during the investigation to be properly reflected in the calculation of the anti-subsidy measure.

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