Examining Europe's new trade defense rules

Legislation | 29 December 2017

Businesses should make an effort to learn all they can about the new EU trade defense rules, which will greatly enhance the union's approach to dealing with dumped and subsidized imports from countries found guilty of state-induced market distortions.

In recent months, the European Union has emerged as one of the world's foremost champions of free, globalized trade, introducing a series of new trade agreements and making public commitments to opposing the recent rise of protectionism.

However, the EU is keen to balance these free trade policies with robust mechanisms to tackle any examples of market distortion caused by state interference, which is why new European trade defense legislation was brought into force on December 20th 2017.

The purpose of these rules is to address the overcapacities caused by state-induced distortions and crack down on unfair business practices, while still maintaining the EU's international obligations under the legal framework of the World Trade Organization (WTO). With the new system now in effect, it is important for businesses to make themselves aware of the changes, and take account of how this legal shift might affect their operations.

The background

This new method for calculating dumping on imports from countries where there are significant market distortions was first proposed in November 2016, with the European Parliament and Council signing off on the European Commission plans in October 2017.

Coming as part of European Commission president Jean-Claude Juncker's A Europe That Protects security agenda, the revised legislation sets out a revamped approach for calculating whether dumping has occurred in imports into the EU from countries where the state is believed to have distorted the expected market conditions.

This new, more rigorous method is designed to help European workers and companies avoid being negatively impacted by other nations breaking WTO rules, and to act as a broader defense of the principle of open, fair and rules-based trade.

How the new system works

Currently, dumping is calculated by comparing export fees with domestic prices, or costs in the exporting country. Where state-manipulated distortions are found, the European Commission disregards them when calculating domestic value, instead using other benchmarks reflecting unadulterated costs of production and sale.

The new methodology, which applies to all WTO members, alters this approach to account for the fact that domestic prices can themselves be distorted, meaning they do not provide a proper basis to determine the comparison with the export price. In such instances, other benchmarks reflecting undistorted costs will be used, including price comparisons with appropriate representative countries with a similar level of economic development as the exporting country. Social and environmental standards will also be considered when selecting the appropriate representative third country for the purpose of replacing costs, making it easier to establish the actual magnitude of dumping.

Additionally, this new approach will strengthen EU anti-subsidy legislation so that, in future cases, any new subsidies revealed in the course of an investigation can be examined and included in the final duties imposed.

Before applying the new method, the EU will work to prove any economic distortions that exist are a result of state interference, which will involve an examination of evidence provided by a variety of stakeholders, including EU businesses.

Reports are also set to be prepared to profile the economies of certain countries or sectors in this context, with the first such report being published alongside the new legislation, focusing on China - selected because the bulk of the EU's anti-dumping efforts pertain to imports from the Asian nation. The next report will target Russia, with further investigations to be carried out based on the probability of state-instigated economic distortions and their relative importance in the EU's anti-dumping activity.

A strong statement

President Juncker has expressed confidence that these changes will help the EU to "keep pace and deal more effectively with the ever changing realities of the international trading environment", while ensuring that the union's commitment to free trade is not being unduly exploited.

European commissioner for trade Cecilia Malmstrom added: "This is an important time in our trade defense policy. It signals the EU's commitment to strong and effective trade defense instruments.

"The EU is open for business, but we must also protect our industry from unfair competition from imports, particularly from countries whose economies are significantly distorted owing to state interference. The publication of country reports will help us to put the new methodology into practice; it will also give the EU industry a basis on which to make its case concerning countries where distortions exist."