EU Leaders Pledge to Strike Deal on Trade Defence Instruments By Year's End

27 October 2016

Leaders at last week’s European Council called for reaching an “urgent and balanced agreement” by year’s end on their position regarding a long-stalled proposal for the bloc to modify its trade defence instruments.

“In order to safeguard European jobs, ensure fair competition in open markets, and preserve free trade, it is of crucial importance that the EU’s trade defence instruments are effective in the face of global challenges,” said EU national leaders following the 20-21 October meeting in Brussels, Belgium.

Trade ranked high on the agenda at the Brussels gathering, with leaders from the EU’s 28 member states tackling a host of trade-related issues, including the state of play of various negotiations with foreign partners. The 28-nation bloc has also been working on creating a more compelling narrative for trade’s potential to boost jobs, spark growth, and improve quality of life.

Part of that narrative involves demonstrating their continued resolve and ability to address allegedly unfair trading practices by other countries, particularly in an environment where major domestic sectors such as steel are struggling in light of low global prices and significant overcapacity.

Given this context, European Commission officials pressed openly for leaders to move forward on approving updates to the bloc’s “trade defence instruments,” which the EU’s executive arm had proposed in April 2013.

These trade defence instruments involve how the EU handles its investigations into allegations of unfair subsidies or dumping – the latter being the practice of selling goods abroad at prices below their normal value – by foreign producers.

“Some EU industries have lost thousands of jobs. We cannot stay idle,” said European Commission President Jean-Claude Juncker shortly prior to the Council meet. “It’s now high time for member states to make the necessary decisions and equip the Commission with instruments fit to deal with the current realities of the international trading environment.”

Commission: Updated toolkit essential for competitiveness

The EU’s executive arm circulated a new communication on the subject on 18 October, in which it tied the approval of the 2013 proposal to the difficulties facing its domestic steel industry and similar sectors.

Entitled “Towards a robust trade policy for the EU in the interest of jobs and growth,” the document warns against the dangers of using outdated trade remedy procedures, suggesting that doing so could exacerbate the struggles that some of the bloc’s industries are facing.

“We have reached the limit of what is feasible under the existing EU trade defence legislation to rein in external overcapacities and dumping,” the communication says.

While the April 2013 proposal encompasses a series of changes to EU trade remedies, the communication circulated last week focuses particularly on the suggested changes to the so-called “lesser duty rule,” which has reportedly been one of the main points of contention among EU leaders.

Under the current version of the lesser duty rule, the EU’s executive arm usually imposes anti-dumping duties that are set only at the level of “injury” that a domestic industry has allegedly suffered as the result of unfair trade practices, instead of setting these duties to match the “dumping margin,” which is essentially the difference between a good’s “normal value” at home versus its export price abroad. The latter value can be much higher.

In 2013, the European Commission suggested deviating from this rule “in cases of circumvention, or where structural raw material distortions have been found to exist, and subsidisation,” according to the draft legislative proposal tabled at the time.

The UK has reportedly been one of the member states opposing changes to the lesser duty rule, warning that should the EU impose higher anti-dumping duties on raw materials, which can be imported into the bloc to produce other final goods, this could actually make the production of these latter products more costly.

The new communication from last week refers to its attempts to answer such fears. “The Commission has proposed possible compromises in which the lesser duty rule would be adapted in some specific and carefully-defined cases where there are massive overcapacities and/or raw material distortions,” the document says.

Furthermore, the EU’s executive arm has warned that its current practices do not match those of other major players – meaning that countries could increasingly “dump” unfairly cheap goods on the European market in order to avoid higher anti-dumping duties elsewhere.

The proposed changes have drawn the support from some key industry groups, including steel.

“We are not asking for duties on the scale of the US. Instead, we call for EU measures to be a better reflection of this calculated dumping level, so as to more decisively defend sectors such as ours from aggressive unfair trading practices by third countries,” said Axel Egger, Director General of EUROFER, an industry group representing EU steel producers.

New proposal on its way

In its communication, the European Commission also gave a preview of their upcoming legislative proposal that would aim to change the way its anti-dumping investigations address “market” and “non-market” economies.

The EU institution already gave some initial details in July as to how they envision this new system working, explaining that they would remove the distinction between different types of economies and focus instead on distortions that arise in countries or sectors that result from state interventions. (See Bridges Weekly, 14 July 2016)

China has largely been the focus of this debate, in light of the December expiry of certain terms within its WTO accession protocol – specifically the section that allows for importing countries to use non-Chinese prices and costs in their investigations, unless Chinese producers can demonstrate that market economy conditions exist in their industry.

While there has been some debate over how to read this section of China’s WTO accession commitments, the European Commission has held the view that it must make changes to its own anti-dumping rules to avoid being caught in a legal quandary after this December.

“The Commission will propose a new anti-dumping methodology to capture market distortions linked to state intervention in third countries that mask the true extent of dumping practices,” said the communication.

The document then outlined what criteria would be used in order to determine whether such a distortion exists – such as financial sector independence, or a pronounced number of state-run companies – along with how dumping-related calculations would be handled in those cases. The EU’s executive arm also wants to be able to address subsidies that are revealed during an investigation itself, arguing that transparency by many other countries is sorely lacking.

In last week’s communication, the Commission noted that similar provisions in the WTO accession protocols for Vietnam and Tajikistan would also require updating the EU’s trade defence tools.

“The EU cannot remain defenceless against massive subsidies, government interference, lack of transparency, and non-independent financial sector providing unfair advantages to exporters in some countries,” says the communication.

It also argued that making such changes would bring EU practices on par with those of other major players, such as the US and Canada.

While reports suggest that the debate over the lesser duty rule is still ongoing, European Commission officials have argued that EU national leaders should reach a deal – at least a political one – in time for their next Council-level meeting in mid-November.

ICTSD reporting; “Theresa May expected to maintain opposition to EU trade tariff reforms,” THE GUARDIAN, 21 October 2016; “China trade tests UK’s clout in Europe post-Brexit,” POLITICO, 17 October 2016.

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