Select Committee on European Scrutiny Sixth Report


5 Trade defence instruments

(28165)

16702/06

COM(06) 763

Commission Communication: Global Europe — Europe's trade defence instruments in a changing global economy

Legal base
Document originated6 December 2006
Deposited in Parliament15 December 2006
DepartmentTrade and Industry
Basis of considerationEM of 9 January 2007
Previous Committee ReportNone, but see footnote
To be discussed in CouncilNo date set
Committee's assessmentPolitically important
Committee's decisionCleared

Background

5.1 On 7 November 2006, we drew to the attention of the House a Commission Communication[19] setting out the contribution which trade policy can make to stimulating growth. This document included a reference to trade defence mechanisms, which the Commission saw as helping to ensure that the benefits of openness are not undermined by unfair practices, and we noted that it intended to seek views on how to strengthen the Community's position in this area, and then to produce a Green Paper. It has now done so in this latest Communication.

The current document

5.2 According to the Commission, the Community, like most other importing economies, operates a system of trade defence instruments — Anti-Dumping, Anti-Subsidy and Safeguard measures — which allow it to defend its producers against unfairly traded or subsidised imports and against potentially harmful shifts in trade flows. It also notes that the use of these instruments is based on rules derived from World Trade Organisation (WTO) agreements; that the principles on which they operate are a legitimate part of the multilateral system of free trade; that they are crucial to defending free trade and helping to manage the consequences of globalisation; and that their economic rationale derives essentially from the fact that the international economy has no mechanism for correcting anti-competitive practice similar to those which operate nationally.

5.3 The Commission notes that the Community has gone further than any other WTO member in unilaterally building on WTO rules to tighten conditions for use and focus the impact of trade defence action in its own market, and in producing an open and balanced system of trade defence instruments. However, it says that, since the last major reform, there have been far-reaching changes in the global economy and in the structure of the Community economy, which have been an important bearing on its overall priorities, and that a review can therefore help to ensure that the Community's trade defence instruments remain an effective response to unfair trading practices.

5.4 The purpose of this Green Paper is to consider how the Community can continue to use these instruments to best effect in the European interest. It groups the issues concerned into the following six themes.

The role of trade defence measures in a global economy

5.5 The Commission notes that the Community currently initiates significantly more Anti-Dumping investigations than Anti-Subsidy investigations. It suggests that one reason is that companies fear retaliation by the governments concerned, and that it might itself initiate more Anti-Subsidy cases. It also points out that the economic justification for trade defence instruments remains controversial, some economists arguing that these are needed in the absence of internationally agreed competition rules, whilst others believe that they cannot be economically justified from an overall perspective, and that they could potentially be misused by sectoral interests as a means of obtaining protection.

Weighing different EU interests in trade defence investigations

5.6 The Commission says that trade defence measures must serve the overall economic interest of the Community, including that of producers and workers, and that its rules must continue to address situations in which genuine comparative advantages are increased by unfair subsidies or other state induced distortions. It notes that structural changes have made it more complex to determine the Community's economic interests, and that European companies are increasingly using production bases outside the Community whilst maintaining significant operations and employment in Europe. It highlights the need to consider whether the current rules take sufficient account of outsourced production, which might be negatively affected by trade defence measures, and says that it is vital to strike the right balance between free trade and fair trade

5.7 This part of the paper also identifies four key issues relating to the Community interest — the extent to which the public interest test is too strongly weighted towards Community producers to the exclusion of other considerations, such as the consumer interest or development assistance; the case for more flexibility in "fine tuning" the measures taken; applying the Community interest test at an earlier stage in the investigation proceedings; the weight given to assessments of an industry's viability.

The launching and conduct of trade defence investigations

5.8 The Commission says that a number of technical areas related to the launching and conduct of trade defence investigations have been identified where changes could further improve their proportionality, efficacy and fairness. These include earlier consultations with exporting third countries; the use of anti-subsidy instruments against individual companies in transition economies; increasing the number of producers which must expressly support a complaint before an investigation is launched; the de-minimis thresholds for dumping, subsidy and injury; dumping margin calculations; the treatment of new exporters; the case for requiring restructuring plans where producers benefit from Anti-Dumping measures; and the involvement of SMEs.

The form, timing and duration of trade defence measures

5.9 The Commission says that a number of areas have been identified relating to the imposition, form, duration and expiry of trade defence measures which could be reviewed. These are the quicker adoption of provisional measures; the need for a greater choice of possible counter-measures and the possibility of phasing these in over time; applying measures for less than the current five year period; and higher injury thresholds for the renewal of measures. The Commission also points out that, where an expiry review is initiated, the measures in question remain in force, and it suggests that, if such a review eventually concludes that they should not be maintained, consideration could be given to re-paying any duties collected beyond the 'normal' five year period. Alternatively, expiry reviews could be concluded before the maximum lifetime of a measure ends.

Transparency in trade defence investigations

5.10 The Commission says that openness is vital to the credibility of trade defence instruments, and it addresses four aspects of transparency. These are the appointment of a hearing officer to ensure that parties in trade defence investigations can better exercise their right to be heard, and that their rights are respected; public hearings for decisions whether a country is awarded Market Economy Status; making the work of the advisory Anti-Dumping Committee more transparent; and better access to non-confidential files.

Institutional process

5.11 The Commission says that, whilst the use of trade defence instruments can be politically sensitive, their credibility depends on their being transparent, predictable and subject to stringent review, and based on the results of investigations. It points out that the current institutional structure divides responsibilities between the Commission and the Council with decisions being subject to review by the European Court of Justice, and to the Community's WTO obligations. It suggests that this framework has worked well, but that some stakeholders are concerned that it sometimes allows decisions to be influenced by factors not directly linked to the facts of the investigation itself.

The Government's view

5.12 In his Explanatory Memorandum of 9 January 2007, the Minister for Trade, Investment and Foreign Affairs at the Department of Trade and Industry (Mr Ian McCartney) says that the document is a consultation paper which has no immediate policy implications. He adds that the UK welcomes the opportunity to contribute to a review of these current instruments, and the possibility of introducing appropriate changes.

Conclusion

5.13 As the Minister has pointed out, this is essentially a consultation document in which the Commission has identified a number of issues arising from the Community's current application of its trade defence measures, and in which it has posed a large number of questions to interested parties. For that reason, we think it right to draw it to the attention of the House, but, as the document does not call for nor propose any specific course of action at this stage, we are clearing it.





19   (27536) 7301/06: see HC 34-xlii (2005-06), para 14 (7 November 2006). Back


 
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