backOn 9 November 2016, the European Commission published a proposal to amend the EUs rules concerning the imposition of anti-dumping measures to counter unfair trade practices that cause injury to an EU domestic industry. The changes are designed to update the EUs trade defence instrument to deal with the current realities, such as significant market distortions which are deemed to exist in some of its (unnamed) trading partners. The changes are prompted by the expiration in December 2016 of certain provisions of Chinas Accession Protocol to the World Trade Organization (WTO) concerning Chinas status as a non-market economy (NME) for purposes of anti-dumping investigations.
The proposal provides for a new dumping-calculation methodology where significant distortions are deemed to exist in countries not only previously labelled as NMEs but also all other countries where prices and costs may be considered directly or indirectly affected by government intervention. Such distortions may be deemed to exist when reported costs of exporters/producers, including the costs of raw materials, are not the result of free market forces as they are affected by government intervention. The proposal is likely to raise questions about the extent to which it is actually different from the EUs current practice and about its consistency with WTO law.
This is because, whenever significant distortions are deemed to exist, the new rules provide that it would be inappropriate to use domestic prices and costs to determine the normal value and the EU is encouraged instead to construct the normal value on the basis of costs of production and sale reflecting undistorted prices or benchmarks. There is a wide range of sources that may be used for this construction, including undistorted international prices, costs or benchmarks as well as costs of production and sale in an analogue country.
The question remains therefore, as predicted previously on this blog, whether this new approach is consistent with the provisions of the WTO Anti-Dumping Agreement. The EU recently lost a very similar debate in the context of the EU Biodiesel dispute with Argentina, where the WTO Appellate Body made it very clear that suitable and reliable cost data from the country of origin of the foreign products cannot be rejected and replaced with international cost data because they were considered artificially low compared to international prices.
In light of the EU Biodiesel dispute, the question is whether WTO panels and the Appellate Body nevertheless left sufficient space for dealing with the kind of distortions referred to in the European Commissions proposal, or whether the rulings permitted using third-country costs as long as they are somehow adjusted to reflect the conditions in the country of origin. Another question may be whether alternative bases for justifying this new approach exist in provisions not directly examined in the EU - Biodiesel dispute, such as the terms particular market situation or the requirement that foreign producers costs shall only normally be calculated on the basis of the cost records of that producer.
The proposal will now be reviewed by the European Parliament and Council, two bodies that have previously been unable to take a decision regarding Chinas NME status because of significant differences regarding the use of trade remedies. There is also a recent history of twice having failed to modernize the EUs trade defence instruments in 2006 and in 2014.
Assuming, however, that this new approach will be adopted by the Parliament and the Council and become law in the EU, we can expect another interesting legal battle in Geneva in 2017.