On October 18, 2016, the European Commission released a communication entitled “Towards a robust trade policy for the EU in the interest of jobs and growth” in which it urges the Member States to support its efforts to update and strengthen the EU trade remedy rules to maintain fair trade conditions and safeguard jobs within its territory. The communication builds upon the proposal the Commission tabled in 2013 on the modernization of the EU trade remedy rules and its ongoing efforts to address unfairly traded imports from countries characterized by market distortions and pervasive state influence on the economy.

The Commission notes that despite applying the existing trade remedy rules to their full extent, its efforts have proven insufficient to counter overcapacities in a variety of industrial sectors causing imports to be dumped in the EU market. The communication highlights two elements of the EU trade remedy methodology requiring particular attention – the application of the lesser duty rule and the grant of market economy status. The first limits the level of duties that can be imposed, while the second could result in the imposition of lower duties on unfairly traded imports from China.

Under the lesser duty rule, the EU imposes antidumping duties at the lower of two levels between that of the dumping margin and that which removes injury. As a result, antidumping duties imposed by the EU and U.S. on comparable products can vary significantly, with the U.S. affording its producers greater protection from unfairly traded imports and causing dumped products to be diverted to the EU market. The Commission is bound to apply the lesser duty rule systematically, but has now suggested adapting it in cases involving exporting countries in which there are massive overcapacities or distortions in the prices of raw materials, including energy.

The Commission also would not grant market economy status to countries in which markets are distorted by pervasive state influence on the economy. Instead, it proposes a new methodology whereby costs and prices would be disregarded in calculating dumping when distortions are found, to be replaced by other available benchmarks, including costs and prices in other economies. In support of EU industries seeking action against unfairly traded imports, the Commission would prepare reports on countries or sectors marked by distortions. In addition, subsidies identified in the course of the ensuing proceedings could be investigated and taken into consideration in the level of duties finally imposed.

As a result of the limitations under current EU trade remedy rules, the Commission states that no trade bloc exercises a similar level of self-restraint as the EU in the imposition of duties on unfairly traded imports. In presenting the communication, Commission President Jean-Claude Juncker thus said: “Trade is essential for our economic growth and jobs creation, but we should not be naïve. Our current rules are proving insufficient to combat the harm from unfair foreign competition.” Although the Member States in the Council thus far have failed to agree on the Commission’s proposal, further developments are expected before the end of the year.