Anti-Dumping Measures of the European Union by Bundesverband der Deutschen Industrie e.V.

POSITION | EXTERNAL ECONOMIC POLICY | ANTI-DUMPING

Anti-Dumping Measures of the European Union For Open Markets and Fair Conditions in International Trade

Recommendations

August 2020

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The anti-dumping measures (AD measures) of the European Union (EU) are an important instrument to protect European producers from unfair competition from abroad. It must be en23. Oktober 2017 sured that their application is in accordance with World Trade Organization (WTO) rules and reflects the Union interest.

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Before once again reforming the AD toolkit, a detailed analysis of its effectiveness should be undergone, including consultations with the manufacturing, processing, exporting, and importing industries.

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The European Commission's introduction of the mandatory reporting requirement in the case of China was just and in order. Nevertheless, the burden of proof remains very high in individual cases. The EU should publish further reports on market distortions.

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Parallel anti-dumping and anti-subsidy proceedings are a welcome development. In principle, however, it remains difficult to provide the necessary evidence regarding subsidies. A key objective should therefore be to create more transparency about subsidies in third countries in the future.

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The reduction in the length of AD procedures is positive for most economic operators. Despite the SME Helpdesk, many small businesses in particular are still reluctant to initiate AD procedures due to the high administrative burden, so a further streamlining and optimization of procedures would be welcomed. The Commission must ensure that applicants and interested parties alike continue to be given sufficient time to represent their interests and to prepare for any duties that may be imposed.

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Trade defense measures should be subject to review prior to their expiry at the request of any Union producer or, if necessary, ex officio, and should be extended if warranted by the continued existence of global market distortions.

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An extension of the anti-dumping instrument to services should be examined without prejudice to the outcome.

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It would be desirable to examine whether environmental and social costs can also be taken into account in the determination of normal value, also with respect to WTO conformity.

Anti-Dumping Measures of the European Union

Background I: The Legal Framework The EU's basic anti-dumping regulation (AD regulation) has been in force since 1995 and has been continuously improved in the subsequent years. Revisions are necessary in order to adapt the defense instruments to the changing trade policy framework. To ensure fair competition, German and European industry is dependent on effective and balanced trade defense instruments. In 2016, the AD regulation and its numerous amendments were consolidated in a vertical codification process to ensure clarity in the upcoming reforms. Following proposals from the Commission, the actual renewal of the trade defense instruments was then addressed separately by the European Parliament and the European Council in a methodology section (determination of normal price as a basis for anti-dumping proceedings) and a modernization section (conduct of anti-dumping proceedings). The EU completed the reform of its trade defense instruments on 7 July 2018. As a result, the anti-dumping procedure has also been modernized. The reform was prompted by the expiration of a key article in China's WTO accession protocol in midDecember 2016. According to this article, Chinese producers had to prove that the prices of their products were achieved under market economy conditions. Without this evidence, importing countries were not allowed to base their determination of dumping on domestic market prices, but on cost structures that existed for the product in question in market economy countries. In order to avoid criticism of treating China as a country without market economy structures, the EU members agreed on a more differentiated methodology for determining the actual domestic price in China. Additionally, several other adjustments were introduced. In December 2016, China lodged a complaint against the EU at the WTO under the provisions of the AD regulation concerning the determination of normal value for non-market economy countries in antidumping proceedings. A panel was convened in July 2017. After the panel report was finalized in May 2019, China requested the suspension of the proceeding. This request was granted in June 2019. On 15 June 2020, in accordance with WTO rules, the panel's powers expired. The dispute is therefore considered to be settled, as the panel was not requested to resume its work. This development provides legal certainty for the EU, considering that the AD regulation should be in conformity with WTO rules. The final panel report will, however, not be published.1 Determination of Dumping Dumping occurs when like products are sold on the export market at a lower price than on the domestic market (price dumping). This also applies if the goods are sold below their full costs on the domestic market (cost dumping), provided that the full costs plus a reasonable profit margin are higher than the price on the export market. The price normally paid by independent customers in the exporting producer's domestic market is also referred to as normal value. When, for example, the price in the domestic market cannot be determined due to a lack of local sales, or where the full cost of production is unreliable or incomplete because of local market distortions, it must be established or constructed accordingly. Only then it can be determined whether the product sold on the export market is cheaper than the normal value as established or constructed and thus dumping can be found. The WTO provides for two methods for this purpose: Either the export prices to another third country or the full costs (with a reasonable profit margin) in the

WTO, DS516: European Union â&#x20AC;&#x201D; Measures Related to Price Comparison Methodologies, <https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds516_e.htm> (accessed 23 June 2020). 1

Anti-Dumping Measures of the European Union

country of production are used. The difference between the normal price and the dumping price is called the dumping margin. Over the years, different methods of calculation have been developed by the WTO members in the construction of full costs, which have attempted to address the specific conditions prevailing in certain exporting countries; for example, the use of a reference country for full costs (analogue country method) or the substitution/addition of individual cost components (production factor method) in proceedings against state-trading countries. Even in cases where a constructed comparison between the domestic market price and the export price proves that dumping exists, it must also be positively concluded that this dumping has caused material injury to producers in the importing country before an anti-dumping measure can be imposed. WTO rules allow the importing country to impose a protective duty on the product in question in order to restore fair market conditions. This anti-dumping duty cannot be higher than the dumping itself. An important innovation in the basic EU anti-dumping regulation is that the EU no longer makes a distinction between a market economy and a state-trading country. Instead, the components of full costs are systematically examined to determine whether they are complete and reasonably priced. The Commission provides market reports for potential complainants, which facilitate the substantiation of the anti-dumping complaint and thus the initiation of an anti-dumping investigation. The new method is no longer specific to China. According to the Commission, normal value is constructed only on the basis of the cost of manufacturing and selling costs, which reflect undistorted prices or comparable prices, and the normal value must include a reasonable amount for selling, general, and administrative costs and profits without any distortion. The Commission may use costs of manufacturing and selling in an appropriately comparable country with a level of economic development similar to that of the exporting country, provided that the relevant data are readily available; where there is more than one such country, preference shall be given, where appropriate, to countries having an adequate level of social and environmental protection. A separate calculation method will continue to apply to countries which are not, for example, members of the WTO. In such cases, the analogue country method will continue to be used to establish normal value.2 It is also new that the injury margin is calculated by taking the costs incurred by EU producers to comply with local environmental and labor standards into account. Costs arising from necessary investments in business infrastructure or in-house research and development can be included in the calculation of the injury margin as well. The EU can reject undertakings, i.e. voluntary price increases by an exporter in order to avoid antidumping duties, for goods dumped into the EU in cases where, for example, International Labor Organization standards or multilateral environmental agreements are violated. Previously, the Union's interests have been the main reason for such refusal. Commission Reports on Market Distortions Since the reform, the Commission has been subject to a reporting requirement to publish its own assessments of market distortions in order to help companies demonstrate distortions of competition.

European Commission, DurchfĂźhrungsverordnung (EU) 2020/39, <https://eur-lex.europa.eu/legal-content/DE/TXT/PDF/?uri=CELEX:32020R0039&from=EN> (accessed 8 July 2020).

Anti-Dumping Measures of the European Union

Application of the Lesser Duty Rule The Lesser Duty Rule limits the anti-dumping duty to the level of injury suffered by the applicant concerned or to the amount necessary to eliminate such injury (injury margin), even if it is lower than the dumping margin. Its application was adapted by the last reform of the basic anti-dumping Regulation. For goods imported into the EU whose production has been driven by artificially low prices for raw materials or energy, the full extent of the dumping margin is now taken into account, not only the injury margin. Time Frame The period for prior disclosure, i.e. the time between the announcement and implementation of antidumping measures, is now three weeks. Modern value chains derive from the fact that inputs required for production are available at exactly the time they are needed (just-in-time production). Anti-dumping duties can make the import of the production goods affected more expensive, which is why upstream or downstream industries have to make necessary arrangements. They need time to adapt accordingly. At the same time, advance notice periods should not be misused to build up large stocks shortly before the imposition of anti-dumping measures and to thus circumvent the measures. To this end, the European Commission must make use of the existing possibilities (registration, retroactive application of customs duties) where necessary. The duration of anti-dumping proceedings was reduced from 15 to 14 months. The period for the adoption of provisional measures was reduced from nine to a maximum of eight months. Complainant Unions have the possibility to initiate investigations jointly with industry associations and are admitted as parties to the dispute. Support for Small and Medium-Sized Enterprises A Helpdesk provides support for small and medium-sized enterprises (SMEs).

Background II: Increasing Numbers of Anti-Dumping Cases in the EU and Worldwide Between October 2008 and May 2020, the EU initiated 139 anti-dumping investigations against 29 countries, an average of eleven investigations per year. It is the sixth largest user of anti-dumping investigations within the G20, behind India (499 investigations) and the United States (343). Most of the investigations (57, or 41 %) were targeted against China. Investigations were also initiated against India (10), Russia (8), and Turkey (7); five each against Indonesia, South Korea, and Taiwan; four each against Thailand and Ukraine. In 72 cases, or 52 percent of cases, definitive anti-dumping measures were imposed on the basis of investigations initiated by the EU. Within the G20, measures were taken in 61 percent of cases.3

Methodology: Each investigation against N countries is counted as N investigations. Russian investigations include all investigations of the Euro-Asian Economic Union (EEU), South African investigations include those of the South African Customs Union (SECU), and Saudi Arabian investigations include those of the Gulf Cooperation Council (GCC). Only definitive measures were counted.

Anti-Dumping Measures of the European Union

Number of Newly Initiated Anti-Dumping Investigations (G20 Countries) Total (October 2008 - May 2020) 600

499 500

400

343

300

260 174

200

160

139

136 98

100

Source: WTO, G20 Trade Monitoring Report, <https://www.wto.org/english/news_e/news20_e/g20_annex_bis_jun20_e.xls>,

Number of Newly Imposed Anti-Dumping Measures (G20 Countries) Total Measures (October 2008 - May 2020) 350 300

296

250 200

194 168

150

111 100 50

90 71

54 31

Source: WTO, G20 Trade Monitoring Report, <https://www.wto.org/english/news_e/news20_e/g20_annex_bis_jun20_e.xls>, BDI Analysis.

Between October 2008 and May 2020, the G20 initiated a total of 2182 investigations. Definitive antidumping measures were imposed in 1341 cases (61 %). With 243 investigations, 2013 was the year with the most cases in the past ten years. Most new measures were taken in 2016 (175). Between January and May 2020, the G20 already initiated 98 investigations.

Anti-Dumping Measures of the European Union

Number of Newly Initiated Anti-Dumping Investigations (G20 Diagrammtitel Countries) (October 2008 - May 2020) EU

300

G20

243

250

226

216

208 200 137

150

176

165

160

179

168

129 98

100

50 16

2014

2015

2016

2017

2018

2019

0 2008

2009

2010

2011

2012

2013

2020

Source: WTO, G20 Trade Monitoring Report, <https://www.wto.org/english/news_e/news20_e/g20_annex_bis_jun20_e.xls>, BDI Analysis. .

Number of Newly Imposed Anti-Dumping Measures Diagrammtitel (October 2008 - May 2020*) 200 180

175

168

G20

155

160 131

140

135

129

117

120

103

100

80 60

40 20

12 2

0 2008

2009

2010

2011

2012

2013

Source: WTO, G20 Trade Monitoring Report, <https://www.wto.org/english/news_e/news20_e/g20_ann ex_bis_jun20_e.xls>, BDI Analysis.

2014

2015

2016

2017

2018

2019

*As only definitive anti-dumping measures were counted here and no definitive measures were taken in 2020, there is no column for 2020.

Experiences of German Industry and Recommendations In General â&#x2013;Ş

The last reform of the anti-dumping instrument was of great importance for German industry. Overall, the instrument is considered to be effective in principle.

â&#x2013;Ş

German industry is facing numerous third-country suppliers seeking to gain significant market shares through dumped and/or subsidized low prices. Anti-dumping and countervailing

Anti-Dumping Measures of the European Union

measures are therefore the central instrument for the industries affected to protect themselves against unfair market behavior. ▪

A detailed analysis of its effectiveness should be carried out before any further reform of the AD toolkit. So far, many sectors of the German economy lack relevant experience.

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In the case of further reform, it should be considered that: -

changes in AD law are not unilaterally to the detriment of one of the parties involved (complainant/defendant);

a far-reaching tightening of anti-dumping and anti-subsidy legislation in the EU may lead to retaliatory measures in third countries, for example by making national antidumping legislation more stringent or initiating anti-dumping proceedings against EUbased companies.

In Particular Effectiveness of the Anti-Dumping Instrument ▪

In principle, the AD instrument is effective. German industry welcomes the latest reform. However, individual sectors report that existing anti-dumping duties are being circumvented by various measures (channeling through the use of preferential TARIC codes, transshipment, incorrect classifications, and so on). This undermines the effectiveness of the duties and contributes to the fact that a level playing field is not being established. Measures are therefore necessary to limit the possibilities of circumvention. As a general rule, the concerns of importing economic operators must be taken into account as well.

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An extension of the anti-dumping instrument to services should be examined without prejudice to the outcome.

Consideration of the Union Interest ▪

In order to ensure fair international competition, German industry is dependent on effective and balanced trade defense instruments that ensure fair and level playing fields worldwide for EU-based manufacturers and importers. The protection interests of the affected manufacturers of competing products in the EU must be weighed against the interests of industrial users, consumers, or traders in low-cost imports.

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When assessing the Union interest, only information established on the basis of data from all interested parties concerned and verified by the European Commission should be taken into account.

Reversal of the Burden of Proof ▪

The reversal of the burden of proof in the case of China at times caused major financial and administrative problems for some companies and sectors. With the publication of the country report, these problems will be partially eliminated. Nevertheless, the burden of proof remains very high in individual cases, as evidence and information on sector and market-specific distortions cannot be conclusively documented in the country report. Moreover, the markets are subject to constant change, which also cannot be conclusively covered by the report.

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The introduction of mandatory reporting by the European Commission was correct and important. The report impressively documents the enormous extent of market distortions in China and clearly shows the deep extent of the influence of the Chinese government on industry, as well as the scarce justification in describing China as a market economy. This observation is of great value. It is now important that the European Commission publishes further market distortion reports.

Anti-Dumping Measures of the European Union

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The publication of further country reports is necessary.

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From an industry point of view, it would be desirable for the European Commission, within the framework of its discretionary powers, to examine, openly and with due regard for WTO compliance, whether the standards for accepting complaints can be lowered, depending on the country to which the complaint is addressed.

Concurrence of Anti-Dumping and Anti-Subsidy Proceedings ▪

German companies have already carried out proceedings in which both market-distorting dumping and subsidization have been addressed and have had positive experiences with these.

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In principle, it remains difficult to provide the necessary evidence of subsidization. A key objective in the future should therefore be to create more transparency about subsidies in third countries.

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It is also apparent that China is increasingly investing in the production capacities of third countries and supporting them with subsidies. The products manufactured there are exported to the EU market.

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As concurrence makes the procedures as a whole much more expensive and complex than individual proceedings, proceedings should only take place where a significant increase in protective duties can be expected. Nevertheless, anti-subsidy proceedings in particular send an important political signal.

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Concurrent proceedings must not lead to double counting and excessive duties.

Duration of AD Proceedings ▪

The reduced length of proceedings is a step forward for most economic operators (depending on their position in the process). However, the effort involved in providing the necessary information to open a complaint and answering the questionnaires for EU producers is significant and often prevents legitimate complaints from being filed at all. A further streamlining and simplification of the procedures would therefore be welcome. This would also be in the interests of smaller industries, which have so far been reluctant to use the anti-dumping proceedings due to the financial and administrative challenges.

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There is also a problem, in part, with the way the European Commission handles the proceedings. For example, importing companies occasionally report that interested parties are given less time than the complainants, despite the legal deadlines and formal balance. In the Union interest, it is essential that the interests of both complainants and interested parties are taken into account.

Consideration of Labor and Environmental Protection in Anti-Dumping Proceedings ▪

It would be desirable to examine whether environmental and social costs can also be taken into account in the determination of normal value, also with respect to WTO conformity.

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If the European Commission recognizes future costs, especially from emissions trading and the upcoming CO2 avoidance costs, the damage margin is likely to be larger.

Lesser Duty Rule ▪

Restricting the application of the Lesser Duty Rule where there are distortions of competition due to low energy and raw material prices is mainly seen as sensible and as a contribution to creating fairer conditions of competition. The Union interest must be taken into account.

Anti-Dumping Measures of the European Union

Duration of the AD Duties ▪

Provision of Support/ Helpdesk ▪

The Commission's assistance is welcome.

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Further standardization of the individual stages of the proceedings would be desirable, for example in the preparation of an AD claim in the sense of providing checklists, questionnaires, or decision guidance with explanations on the websites of DG Trade or of the Member States. The same level of assistance should be provided for all economic operators.

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The general aim should be to provide companies with sufficient information to constructively counteract any possible uncertainties.

Anti-Dumping Measures of the European Union

Imprint Bundesverband der Deutschen Industrie e.V. (BDI) Breite StraĂ&#x;e 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0 Authors Dr. Stormy-Annika Mildner T: +49 30 2028-1562 s.mildner@bdi.eu Katherine Tepper T: +49 30 2028-1499 k.tepper@bdi.eu Anna Kantrup T: +49 30 2028-1526 a.kantrup@bdi.eu

Document Number: D 1225