Documents considered by the Committee on 22 November 2017 Contents

25Strengthening trade defence instruments to deal with China Market Economy Status

Committee’s assessment

Politically important

Committee’s decision

Cleared from scrutiny; further information requested; drawn to the attention of the International Trade Committee

Document details

Proposal for a Regulation amending Regulation (EU) 2016/1036 on protection against dumped imports and Regulation (EU) 2016/1037 on protection against subsidised imports

Legal base

Article 207(2) TFEU; ordinary legislative procedure; QMV

Department

International Trade

Document Number

(38310), 14249/16 + ADDs 1–2, COM(16) 721

Summary and Committee’s conclusions

25.1The EU deploys anti-dumping and anti-subsidy duties against a number of countries, of which those against China are the most numerous. In December 2016, on the fifteenth anniversary of China’s accession to the World Trade Organisation (WTO), certain provisions of its accession protocol ceased to have effect. The result of this is that China asserts that it is entitled to be granted market economy status within the WTO.

25.2Other WTO members, such as the United States, do not accept this. The EU, while not yet taking a formal view on the issue, has recognised that the Commission’s current methodology for investigating and responding to anti-dumping and anti-subsidy cases needs to be revised. This is because the EU’s current methodology lists China (and a number of other countries) as non-market economies, and deploys a methodology known as the analogue country methodology, which uses market information from the relevant sector in a comparable third country to calculate the normal value of a good for the purpose of calculating subsequent anti-dumping and anti-subsidy duties.

25.3The issue has taken on some urgency as China lodged a formal WTO dispute case against the EU and the United States in December 2016, and in March 2017 requested that a dispute panel convene to determine the case against the EU. China’s case is based on the EU continuing to use its current methodology after December 2016. However, China has indicated that it does not accept the basis of the new proposal either, and may either include the EU’s revised methodology in its existing case, or initiate a separate dispute in the future.

25.4The previous Committee considered the Commission’s proposed regulation in January 2017, and asked the Government at that time for its views on the merits of the Commission’s proposal. The Committee also recalled that it had asked the Government, in relation to a related draft Regulation on trade defence instruments,323 for analysis of potential post-Brexit trade defence options.

25.5Following a detailed update to the previous Committee in April 2017, the Minister of State for Trade Policy (Greg Hands MP) has now provided us with helpful analysis of the likely effects on vulnerable UK industrial sectors of treating China as a market economy for the purposes of calculating anti-dumping and anti-subsidy duties.

25.6Although this analysis is based on the Commission’s impact assessment, the Government has explained that in its view the methodology used is sufficiently rigorous and takes into account the likely additional indirect upstream and downstream impacts on other sectors that do business with currently protected sectors.

25.7The compromise text agreed by the Commission, Presidency and Parliament meets with the cautious approval of the Government, which states that in reaching its position it has taken into consideration the UK’s role as a Member State, its global trade ambitions and the position of UK industries “with a high interest in trade defence”.

25.8The Minister adds, however, that the UK has some reservations about the “inclusion of labour and environmental standards in the regulation as a determination for what costs and data would be used by the EU to define trade defence measures”. Our understanding is that this would require the Commission, as part of its assessment of whether market distorting practices existed in a producer country, to determine if that country meets core International Labour Organisation and multilateral environmental conventions.

25.9According to the Minister, the inclusion of such provisions is not provided for in WTO rules dealing with trade remedies, and the Government does not believe that trade remedies cases “are an appropriate vehicle for such issues”.

25.10We therefore ask the Minister whether the inclusion of such criteria is likely to mean that the new methodology will not comply with WTO rules, and that China will seek to contest it in the WTO dispute settlement process.

25.11Following trilogue agreement on an acceptable text, the proposal is expected to move to a Council vote in the coming weeks. Given the Government’s substantive responses, we do not see a need to retain this draft Regulation under scrutiny. However, we do request that the Minister, in his next update to us on trade issues, inform us of the outcome on this important dossier, including a response to our specific question.

25.12We draw this chapter to the attention of the International Trade Committee, which will no doubt wish to follow closely the Government’s developing plans on trade remedies.

Full details of the documents

Proposal for a Regulation amending Regulation (EU) 2016 / 1036 on protection against dumped imports and Regulation (EU) 2016/1037 on protection against subsidised imports: (38310), 14249/16 + ADDs 1–2, COM(16) 721.

Background

25.13The previous Committee’s Reports, listed at the end of this chapter, provide details of the proposed Regulation and background to the China market economy status issue.

The Minister’s letter of 19 April 2017

25.14The previous Committee asked the Government for its views on the merits of the proposal and for its analysis of potential post-Brexit trade defence options. The then Minister of State for Trade Policy (Lord Price) wrote on 19 April to indicate that the Government “tentatively supports” the Commission’s proposed approach to revising its anti-dumping and anti-subsidies methodology.

25.15He noted that:

“There are elements of the proposal where we may wish to question and push the Commission, particularly around grandfathering existing measures and the way in which country reports are compiled and used.”

25.16On the UK’s future trade defence measures, he stated that:

“My Department is developing options for introducing a balanced and proportionate approach to trade defence on exit, which will include how we approach taking measures against goods from market and non-market economies alike.”

25.17Lord Price also informed the previous Committee that China had launched a formal WTO dispute case against the EU and United States for continuing to treat it as a non-market economy past the December 2016 deadline. China also left open the option of challenging the EU’s new proposal.

25.18At its final meeting before the dissolution of Parliament ahead of the general election, the previous Committee granted the Government a scrutiny waiver for any Council votes on the proposal until such time as the new Committee was appointed.

The Minister’s letter of 14 November 2017

25.19The Minister of State for Trade Policy (Greg Hands MP) informs us that the Commission, the Estonian Presidency and the European Parliament have reached a compromise agreement on the Commission’s proposal.

25.20After summarising the main features of the proposal, the Minister states, with regard to the new methodology that:

“The Commission believe protection against dumped or subsidised imports will remain at a similar level and will not therefore have significant economic or social impacts on the EU as a whole, or on individual Member States, including the UK.”

25.21This assessment is based on economic modelling carried out in the Commission’s impact assessment. Using ten existing anti-dumping cases, the Commission has estimated that using the standard methodology (prices and production costs in the country of origin), the average duties imposed by the EU would have reduced by around 30%, including a drop to zero duties in three of the cases. The revised methodology, however, would have led to an average reduction in current duties by around 4%.

25.22The Minister observes that this suggests that the current methodology results in duties that “slightly overstate the duties needed to counter the effects of dumping”.

25.23In response to the previous Committee’s request for analysis of the potential impacts of granting market economy status to China, the Minister cites a key finding in the Commission’s impact assessment.

25.24This states that if the EU were to use the price and productions costs in China to calculate dumping margins and the level of duties, this would “lead to a direct reduction in UK employment of over 15,000, and an overall reduction of over 17,000 compared with the baseline [existing methodology]”. The Minister adds that although this is

“a small loss in the context of overall UK employment, the impacts would be heavily concentrated. For example, over 80% of UK employment in sectors currently protected by anti-dumping measures against China is in the iron and steel and ceramics sectors.”

25.25If, however, the Commission’s proposed revised methodology were to be used, the impact assessment estimates that job losses would be in the region of 2000.

25.26The Government notes that the Commission’s impact assessment “does not take account of wider macro-economic impacts of having lower anti-dumping duties than at present”. However, it commends the fact that the Commission has taken account of longer term direct and indirect employment impacts, including on those sectors that supply and buy from sectors directly protected by anti-dumping measures. These estimates, say the Minister, “add an additional element of rigour to the assessment”.

25.27The Minister considers that overall, the Commission’s impact assessment “provides a good guide to the likely economic impact of the [revised methodology] on the UK economy at this stage”.

25.28The Minister further informs us that “The UK has supported the Commission’s proposal, while advocating that any amendments to the regulations must be applied in a way which is WTO compliant”.

25.29In addition:

“Whilst the UK would generally support the compromise agreement, the Government has some concerns on the inclusion of labour and environmental standards in the regulation as a determination for what costs and data would be used by the EU to define trade defence measures.”

25.30The Minister explains that the UK plays an active role in upholding labour and environmental standards globally, and that while the Government is looking at human rights, environmental and labour protection in the context of the design of the UK’s future trade agreements, it does not believe that trade remedies cases are an appropriate vehicle for such issues. In addition, the Minister notes that such an approach is not provided for in the relevant WTO rules.

25.31The Minister explains that in taking a position on the compromise agreement the Government has taken into account “both its position as a member of the EU, and the UK’s exit from the EU and our global trade ambitions”. Looking to the future, he adds that the Government has taken into consideration future trading relationships with third countries including China, and the EU, and the position of UK industries with a high interest in trade defence.

25.32Supporting the proposed Regulation does not mean, asserts the Minister,

“the UK should look to replicate, in total, the EU’s trade remedies framework after exiting the EU. My Department is developing options for introducing a balanced and proportionate approach to trade defence on exit, which will enable the UK to tackle significant market distortions.”

Timeframe

25.33The Government anticipates that further progress will be made quite rapidly on the proposal, and that it will be tabled at Council in December.

Previous Committee Reports

Twenty-fifth Report HC 71–xxiii (2016–17), chapter 2 (11 January 2017); Background on trade defence instruments and China Market Economy Status issue in Twenty-fourth Report HC 71–xxii (2016–17), chapter 1 (14 December 2016).


323 Twenty-fourth Report, HC 71–xxii (2016–17) chapter 1 (14 December 2016).




28 November 2017