The European Commission proposed ambitious amendments to the basic EU legislative rules on anti-dumping and anti-subsidy.

On 10 April 2013 the European Commission proposed ambitious amendments to the basic EU legislative rules on anti-dumping (Regulation (EC) No 1225/2009) and anti-subsidy (Regulation (EC) No 597/2009). The proposal includes positive as well as negative elements for exporters from a number of countries granting subsidies to industry and/or practicing domestic price controls (e.g. China, Russia). The two regulations have not been subject to any comprehensive changes since their implementation. Therefore the European Commission (Commission) has now, after conducting a public consultation and impact assessment in 2012, put forward a proposal for an ambitious review of the EU’s main trade defence instruments.

The main issues that the proposal aims to address are:

  1. Transparency and predictability of anti-dumping and anti-subsidy investigations,
  2. Provision of effective measures to fight retaliation against Union producers,
  3. Introduction of changes to review investigations,
  4. More rigorous enforcement against subsidies and price controls/export duties on raw materials, and
  5. Reflecting the Commission’ reaction to recent EU judicial precedents into the legislation.

1. Improvement of transparency and predictability of anti-dumping and anti-subsidy investigations through a higher degree of party involvement, a longer prior warning period of impending imposition of measures and clearer sampling rules of Union producers.

The improvements in this section encompass three elements. First, the Commission introduced an obligation for the institutions to inform the interested parties at least 2 weeks in advance either of the upcoming imposition of provisional duties or the non-imposition of duties (where investigations are being continued anyway, for example). In addition, investigations are to be immediately terminated, and the parties have to be informed of such termination where the injury found is negligible and the dumping margin is less than 2%.

Secondly, interested parties can request in writing information on any planned imposition of provisional duties and the investigating authorities have to provide this information at the latest 2 weeks before the deadline for the imposition of duties. Such information shall include a) a summary of the proposed duties and b) details concerning the calculation of the dumping and injury margins.

Thirdly, concerning the sampling of Union producers, the sample shall be chosen from all the producers within the Union and not just from the producers bringing the complaint.

These changes are overall positive and will mean more predictability, especially with regard to the imposition of provisional duties and will therefore give companies more time to react and to provide their own input in an investigation. The sampling process has also long been a point of debate. It will be more favourable for exporters in many cases to have the Union producer sample be picked from the entire industry, instead of just the complainants, who regularly are injured to a higher degree than the industry average. Stakeholders will therefore be very interested in such a development, but it will remain to be seen whether there will be any meaningful participation of the non-complaining Union producers without a formal obligation to cooperate. There does not seem to be an incentive on their part to participate, which is again likely to lead to a sampling predominantly from within the complainants.

2. The introduction of effective measures to protect Union producers against retaliation.

It appears that the Commission had a priority to ensure the protection of Union producers from retaliation, when the latter bring complaints against third country exporters. The proposal provides a possibility for initiating an investigation on the Commission’s own motion, without a formal complaint, where the risk of retaliation is reasonable. Such own-motion initiation of investigations, as in the case of formal complaints, requires sufficient evidence of the existence of dumping or countervailable subsidies.

In order to ensure the availability of sufficient information for the Commission to move forward with an investigation, the proposal includes an obligation for Union producers to cooperate in such proceedings. There are doubts however if this proposal will serve the purpose of shielding Union producers.

It is believed that this element of the proposal targets primarily China and that an ex-officio investigation of the Commission into Chinese telecommunications network equipment will start soon.

3. Changes to review investigations (reimbursement of duties in cases, where measures are not continued after an expiry review; allowing different methodologies in review investigations as opposed to the methodology used in the original investigation).

The Commission proposes the retroactive reimbursement of all duties paid to national customs authorities during the course of an expiry review, when measures are not continued as a result of a sunset review investigation. This can be seen as a positive development. The reimbursement of duties paid during expiry review investigations will be more than welcome to exporters, since if measures are not continued they should be assumed to have ended at that point in time and not after the end of the expiry review.

However, as a reaction to precedents set by the European Courts, the Commission proposes to abolish the existing provision requiring the Commission to apply the same methodology in a review, unless the circumstances have changed from the original investigation. The Commission therefore wishes to obtain the wide power to apply a different methodology in review investigations, as compared to the respective original investigations. This risks creating significant uncertainty for exporters and importers (e.g. unpredictable changes in methodology may bring a result which is quite different from the expectations stemming from application for an interim review) and may lead to findings of higher dumping or injury margins, as well as to limiting the scope of judicial review of the Commission’s findings.

4. Changes to the ‘lesser duty rule’ and amending the rules concerning circumvention.

There are two areas that have been specifically addressed by the Commission in the context of more rigorous trade defence mechanisms, namely the non-application of the lesser duty rule under certain circumstances and changes to the registration process in anti-circumvention cases.

First the Commission has set a focus on countries that regularly use subsidies, since the lesser duty rule will no longer be applied in cases where third countries provide countervailable subsidies to their domestic industries. In other words, should the injury margin suffered by the Union industry be lower than the amount of subsidies per unit, the subsidies will become countervailable in their entirety (previously the countervailing duties were limited to the injury margin if the latter was lower than the rate of subsidy).

Importantly, in anti-dumping cases the lesser duty rule will not apply if structural raw material distortions were found to benefit the industry exporting the investigated product.

Clearly, the Commission attaches increasing importance (and intends to apply more rigorous trade defence) in anti-subsidy cases and in anti-dumping cases where an exporting producer benefits from State-regulated prices and raw material export restrictions.

Since WTO’s anti-dumping rules do not make the lesser duty rule mandatory, the proposal appears not to be in breach of such rules. However, this proposed change may potentially be questioned in light of other rules.

This amendment is expected to primarily affect Chinese companies and companies from natural resource-rich countries, such as Russia, South Africa, Canada, etc. For certain market economy countries such as Russia and Algeria the proposal is likely to bring a double negative effect: on the one hand the Commission has a practice of applying questionable adjustments to costs (e.g. to regulated domestic gas price) under Article 2(5) of the Basic anti-dumping regulation which significantly increase the dumping margin, and on the other hand the Commission also would not apply the lesser duty rule to the margins of investigated exporters from such countries.

Secondly, in cases where the conditions for the initiation of an anti-circumvention investigation are met, imports as a matter of practice have so far been registered (with the purpose of imposing duties retroactively if circumvention is found). The Commission now intends to codify this practice. However, the Commission now proposes exemptions from this registration rule, where companies can show that despite their connection to producers in the original investigation, they are not engaging in circumvention. The same would apply importers in case of circumvention within the EU. This is done in order to put the burden of proof on the company from an investigated country to show that it is not engaging in circumvention practices.

Conclusion and Outlook

Many of the proposed changes have already been applied by the Commission in practice, such as registration of imports in case of a circumvention investigation. Other changes are due to the Commission’s reaction to (and even disagreement with) case law of the European Courts, as in the case of the proposal to allow a free application of a different methodology in review investigations, which increase the powers of the Commission and reduce the scope for judicial review. Other changes, such as the non-application of the lesser duty rule are clearly a new development in an attempt to put pressure on third countries which provide subsidies and raw material price controls. Some changes, on the surface, may prove to be positive for third country exporters, in particular the rules on prior warning about the (non-) imposition of provisional duties or on the reimbursement of duties paid during an expiry review. This however also means that companies must be very fast, for example, in replying and commenting on calculations and findings for the imposition of a provisional duty.

Other measures, such as the non-application of the lesser duty rule will be particularly negative for Chinese, Russian and potentially other resource-rich exporting countries. This new approach by the Commission is highly worrisome. It appears that in line with WTO law there is neither a mandatory obligation to apply the lesser duty rule, nor is there a rule that if applied, it has to be applied uniformly “across the board”. However, there is scope for opposite conclusions. One will have to wait and see if China, Russia or other trading partners would decide to have recourse to WTO dispute settlement if the proposal is passed by the other EU institutions. Should you have any other question, please feel free to contact any member of our Global Trade, WTO and Customs Practice.