Cleared from scrutiny; further information requested; drawn to the attention of the International Trade Committee and the Committee on Exiting the European Union
Commission Communication: Towards a robust trade policy for the EU in the interests of jobs and growth.
(38180), 13500/16 + ADD 1, COM(16) 690
8.1This non-legislative document details the background and potential changes to the EU’s trade defence instruments (TDIs), which are intended to tackle unfair trading practices by third countries.
8.2The Commission argues that existing EU trade defence legislation is no longer fit to deal with the global challenges of external overcapacities and ‘dumping’ and considers the following actions necessary:
8.3The Commission states that ‘faced with massive overcapacities flooding the EU market…we have reached the limit of what is feasible under the existing EU trade defence legislation to rein in external overcapacities and dumping.’ It therefore urges the adoption of the Commission’s 2013 proposal to modernise trade defence instruments.
8.4The Minister of State (Lord Price CVO) “supports the Modernisation of Trade Defence Instruments”, including “faster Commission investigations, strengthened actions on subsidies and…appropriate changes to the way in which injury margins are calculated”. He notes that the UK, along with a number of other Member States, has opposed the removal or watering down of the ‘lesser duty rule’ (LDR). In previous correspondence on steel and antidumping, the Government notes that this is on the basis that it enables the level of duties imposed on ‘dumped’ imports to be sufficient to remove the injury caused to EU producers by unfair trade, without imposing disproportionate costs on other parts of the value chain or on consumers. The Minister states that the UK has requested further evidence from the Commission on its rationale for revisions to the LDR.
8.5The Commission does not propose conferring MES to any country, but would instead amend its trade defence practices, including devising a new antidumping methodology similar to that of the US and Canada, to meet its legal requirements under WTO rules. The new antidumping methodology would be country neutral and be applied to all members of the WTO. To determine distortions, several criteria would be considered, including state policies and influence, the widespread presence of state-owned enterprises, discrimination in favour of domestic companies and the independence of the financial sector.
8.6The Minister states that the Government has “pressed the Commission to bring forward a proposal on how the EU should deal with the whole question of MES for China, including whether this is a legal requirement”. The Government position is that the proposal should meet EU WTO commitments but also provide effective protection against unfair trade.
8.7The UK’s approach to the operation and implementation of trade defence, both while it is a member of the EU and after Brexit, is of significant political and public interest.
8.8The current crisis facing the UK and wider EU steel industry—exacerbated by unfair trading practices from countries such as China and Russia and global overcapacity—provides just one example of where highly technical trade matters involving ‘dumping’ and ‘market economy status’ (MES) are also highly sensitive, as they directly impact domestic production, jobs and growth.
8.9While we are content to clear this Communication—a non-legislative document—from scrutiny, in order to focus on the development of the key legislative proposals, the Committee reminds the Minister that the Committee:
8.10Given its political importance, we note that any political endorsement of the draft Regulation on modernising TDIs, without being cleared from scrutiny, would constitute an override of parliamentary scrutiny.
8.11We draw the Communication and our conclusions to the attention of the International Trade Committee and the Committee on Exiting the European Union.
Commission Communication: Towards a robust trade policy for the EU in the interests of jobs and growth: (38180), 13500/16 + ADD 1, COM (16) 690.
8.12In April 2013, the Commission presented a proposal to modernise EU trade defence instruments (anti-dumping and anti-subsidy measures to tackle unfair trading practices).
8.13 It included a proposal to limit the LDR, which means that duties are based on injury margins, as opposed to actual dumping margins. This method compensates EU producers for the harm caused by unfair trade (to allow them to make a reasonable profit) rather than for the actual amount of dumping.
8.14The Commission considers that, in its present shape, EU legislation on trade defence instruments can no longer adequately address current challenges such as external overcapacity or dumping. It states that the EU’s approach “goes beyond the basic obligations set out in the WTO Anti-Dumping Agreement.” However, it finds that “the vast majority of other WTO Members (including the US) do not exercise this type of self-restraint”. The Commission advocates adoption of revised proposals, which would see the LDR “adapted in some specific and carefully defined cases where there are massive overcapacities and/or raw material distortions (for example in energy prices)”.
8.15The Government has previously noted that 14 Member States, including the UK, have opposed changes to the LDR, in the absence of compelling evidence from the Commission to the contrary. Derogations from this rule under specific circumstances would allow the EU to impose higher antidumping duties on imports from third countries.
8.16However, the balance of opinion is shifting. At the Foreign Affairs (Trade) Council on 13 May, Ministers considered the trade-related aspects of the Commission Communication, including how to modernise the EU’s defences against unfair trade practices. The Council called for technical work to proceed on these issues without delay. German and French trade ministers proposed a “balanced modernisation of the LDR”, arguing that the LDR should “not apply in anti-dumping and anti-subsidy procedures in cases where structural distortions in competition in the field of raw materials including energy would be caused. Moreover, in the case of massive over-capacities the EU is requested to identify those sectors where adequate responses are needed”.
8.17At the European Council of 20–21 October, EU leaders “committed to reaching an agreement on the modernisation of all trade defence instruments by the end of 2016, and…tasked trade ministers with breaking the stalemate on the remaining issues.”
8.18The post-Council Written Ministerial Statement by the Secretary of State (Dr Liam Fox) of the Trade Foreign Affairs Council on 11 November states:
“Over breakfast, the Presidency’s latest compromise proposal was discussed, which included suggestions for how to limit use of the Lesser Duty Rule (LDR) in particular circumstances. Commissioner Malmström underlined that limitations to the LDR would be the exception and not the rule and committed to provide further evidence in support of the proposal.
“Given that there were still outstanding issues to resolve, no vote took place at trade FAC. However, given the support from a significant number of Member States, work will continue at working level and Coreper, where the Presidency will aim to finalise a comprehensive mandate for trilogues before the December European Council.”
8.19China joined the WTO in 2001. Section 15 of China’s WTO Accession Protocol (the Protocol) permits WTO members to treat China as a non-market economy (NME) in anti-dumping proceedings if Chinese firms cannot prove that they operate under market economy conditions.
8.20China argues that the ability for WTO members to deny China MES automatically ends after 11 December (fifteen years after China’s accession), when certain section 15 provisions of the Protocol expire. Yet for many other WTO members, section 15 of the Protocol is highly controversial and subject to differing legal opinions.
8.21Under the Protocol, each WTO member is able to determine whether or not to classify China as a market economy for the purpose of price comparability in accordance with its own national legislation. For example, in the case of the EU, China is listed as a NME in its annex of its antidumping Regulation. Several WTO members have already granted China MES ‘early’ (before 11 December). For example, Australia and South Africa did so as a condition for negotiating trade agreements with China. However, others, such as the US and Japan, have not.
8.22Until the WTO has ruled on the interpretation of the expiry clause of section 15 of the Protocol, there is no definitive answer on the consequences of not granting China MES after 11 December.
8.23Affording China MES would, as a general rule, make it harder for the EU to impose anti-dumping duties on Chinese goods, as it would have to compare the price of Chinese exports to China’s domestic market, instead of higher-priced third countries.
8.24In February, the Commission announced that it would undertake a detailed assessment of the impact of granting China MES. Between 10 February and 20 April, the Commission ran an online public consultation on whether the EU should alter its treatment of China in its anti-dumping investigations. It sought stakeholders’ views on the following options being considered by the Commission:
8.25On 12 May, the European Parliament passed a resolution saying that the EU should not grant China MES. It urged that Chinese exports be treated in a “non-standard way” so as to “ensure a level playing field for EU industry and defend EU jobs”.
8.26A proposal involving a change to the antidumping Regulation will have to be agreed by both the Council and the European Parliament under the ordinary legislative procedure (previously known as co-decision).
8.27If the EU chose to not grant China MES after 11 December, and China challenged this, the WTO would have to decide whether EU rules are WTO compliant. A challenge could take two to three years to reach a decision in the WTO. This would buy EU industries’ time, but could have other economic and political implications.
8.28The Minister sets out the policy implications as follows:
“The UK government supports the Modernisation of Trade Defence Instruments, but does not agree that the case has been made for restrictions on the operation of the LDR. The UK therefore did not support the specific proposals in relation to the LDR. We have however pressed the Commission to provide evidence in support of their position. The UK has indicated support for faster Commission investigations, strengthened actions on subsidies and to consider appropriate changes to the way in which injury margins are calculated.
“The UK has pressed the Commission to bring forward a proposal on how the EU should deal with the whole question of MES for China, including whether this is a legal requirement. We have not seen the details of the Commission proposal, so cannot take a position. We want a proposal that meets the EU’s WTO commitments but continues to provide effective protection against unfair trade.
“On 23 June, the EU referendum took place and the people of the United Kingdom voted to leave the European Union. Until exit negotiations are concluded, the UK remains a full member of the European Union and all the rights and obligations of EU membership remain in force. During this period the Government will continue to negotiate, implement and apply EU legislation.”
8.29On the expected timetable, the Minister states:
“We are not expecting any Council agreement or conclusions on the Communication in near future, however we are expecting a detailed proposal to be published on 9th November 2016 and the issue of China MES will next be discussed at the Foreign Affairs Council (Trade) on 11 November 2016.”
43 The term ‘dumping’ refers to the export by a country or company of a product at a price that is lower in the foreign market than the price charged in the domestic market.
44 This is where the level of anti-dumping duties is imposed either a) at the level of the dumping margin or b) at the level that removes injury, whichever is lower (the ‘lesser duty’).
16 December 2016