On November 9, 2016, the European Commission (the Commission) presented its proposal to amend Regulation 2016/1036 (the Basic EU Anti-dumping Regulation) and Regulation 2016/1037 (the Basic EU Anti-subsidy Regulation).

The proposed amendments to the Basic EU Anti-dumping Regulation largely reflect what has already been anticipated by the Commission in its communication of October 2016 “Towards a robust trade policy for the EU in the interest of jobs and growth” (see TMIT article). The changes concern the rules governing the calculation of the normal value (NV) for countries where significant distortions affecting market forces may be deemed to exist, including distortions of prices and costs by State intervention, discrimination in favor of domestic suppliers, and distortions of access to finance.

In its past anti-dumping practice, the EU has used cost adjustment methodologies in anti-dumping investigations of imports from countries where prices or costs, including costs of raw materials were deemed to be distorted by government intervention. This methodology runs afoul of World Trade Organization (WTO) rules and has been recently criticized and found in breach of the WTO Anti-Dumping Agreement by both the WTO Panel and Appellate Body.

The new methodology proposed by the Commission allows domestic costs and prices to be disregarded “where there are significant distortions in the exporting country with the consequence that costs reflected in the records of the party concerned are artificially low” and to adjust costs in order to construct NV on “any reasonable basis, including the information from other representative markets or from international prices or benchmarks.”

The Commission would prepare reports on countries or sectors marked by such distortions. Reports would then be added to the file of any investigation relating to a country or sector and would be open for comment by interested parties.

The previous methodology will remain in use for investigations which have already led to the imposition of a duty for the purposes of calculation of NV in all review and refund investigations, provided circumstances have not changed. If circumstances have changed, and in all new investigations initiated on or after the date on which the proposal enters into force, the new methodology shall apply. The determination as to which methodology shall be used in the calculation of the NV in review and refund investigations of the measures imposed before the entry into force of the proposal will depend on an assessment of the change of circumstances prevailing on a market. This will be based on evidence submitted by the parties, including by-country and by-sector assessment reports prepared by the Commission and their supporting evidence.

The proposal can be seen as the EU’s response to the forthcoming expiration on December 11, 2016 of provisions in Annex I to China’s Protocol of Accession to the WTO which allowed other WTO Members to use its own legislation to establish whether or not the country would be classified as a market economy. In the EU, China was listed alongside other countries as a non-market economy which entitled the Commission in the context of anti-dumping investigations to use a methodology that is not based on a strict comparison with domestic prices and costs in the exporting country, but allows for the creation of NV on the basis of price or constructed value in a market economy third country or any other reasonable basis (the analogue country methodology). Going forward, the analogue country methodology will still be used in all cases involving countries that, at the date of initiation of the investigation, are not members of the WTO and are listed in Annex I of Regulation 2015/755. These countries are Azerbaijan, Belarus, Kazakhstan, North Korea, Turkmenistan and Uzbekistan.

Finally, the amendments proposed by the Commission to the Basic Anti-subsidy Regulation concern subsidies identified in the course of a proceeding whose existence could not have been known before carrying out the investigation; going forward, such subsidies could be investigated and taken into consideration in the level of duties finally imposed.

The proposed amendments to the EU Anti-dumping and EU Anti-subsidy Regulations will now have to be adopted under the ordinary legislative procedure – and may still be amended – by the European Parliament and the Council of the European Union.