The European Union today adopted its long awaited new methodology for the calculation of dumping duty rates for Chinese exporters.

At the heart of the new methodology is the perceived need to remove the distinction in EU anti-dumping law between market economy countries and those that are considered not to be. China has been the most vociferous critic of special rules that are applied to its exporters because the burden of the non-market economy label being applied to it. This treatment allegedly gives rise to higher anti-dumping duty margins for its exports to the EU.

Under the old system, dumping margins for Chinese imports were calculated by comparing the export price of merchandise when sold to the EU with the comparable domestic price, not in China, but instead in a so-called analogue country. Effectively, Chinese domestic prices were disregarded except in some rare instances where Chinese firms were able to show that, exceptionally, they were eligible for Market Economy Treatment (MET).

Under the new rules, the Commission will use Chinese normal values, or domestic prices, for the purposes of making the dumping margin calculations. In theory this puts the treatment of Chinese exporters on the same level as exporters in market economy countries.

But, and it is a huge caveat, Chinese domestic prices will only be used where these are not impaired by significant distortions in costs, specifically including those for raw materials and energy, attributable to substantial government intervention. The elements set out for establishing substantial government intervention include the significant presence of State-Owned Enterprises in the market, public policies that restrict the operation of free market forces and state interference in the setting of prices and costs. At a first glance, it seems that these criteria have been established with China specifically in mind.

Where there are direct or indirect significant distortions in the exporting country with the consequence that costs reflected in the records of the party concerned are artificially low, such costs may be adjusted or established on any reasonable basis, including information from other representative markets or from international prices or benchmarks.

The impact and approach towards substituting non-distorted costs for distorted ones will ultimately determine whether the new methodology impacts the dumping margins established for Chinese exporters in any meaningful way.