Cleared from scrutiny; drawn to the attention of the International Trade Committee
Fourteenth report from the Commission to the Council and the European Parliament on third country defence actions against the European Union in 2016
(38942), 11549/17 + ADD 1, COM(17) 401
14.1Effective trade defence instruments (TDIs) are essential in protecting domestic industries from dumped or subsidised imports. The use of TDIs is governed by strict WTO rules, with which the UK, as it implements an independent trade policy in the coming years, will need to comply.
14.2The Commission reports annually on the trade defence actions of third countries against EU exporters. The document highlights clearly some of the challenges and trends that the UK’s proposed Trade Remedies Authority will need to grapple with.
14.3In particular, the report notes that TDI measures globally, including against the EU, continue to rise, with some of the world’s largest economies—India, the United States, China and Brazil—being among the most prolific users of trade defence measures.
14.4Industries such as steel continue to be the target of most trade defence measures—a consequence of ongoing excess capacity and over-production in China. The response to this by some countries has been to apply safeguard measures, which block particular imports from all countries. The Commission has found that EU steel exporters are sometimes included in the scope of anti-dumping investigations that in fact should properly be focused on China.
14.5These examples demonstrate clearly the necessity of establishing a well-resourced trade dispute resolution body able to deal with such challenges from the outset. The Taxation (Cross-Border Trade) Bill seeks to set out a new trade remedies framework for the UK, and many of these issues are addressed in that bill. In particular, we note that the Government proposes the use of an “economic interest test” in determining whether or not to apply anti-dumping, anti-subsidy or safeguard measures. This sounds similar to the “Union interest test” which the Commission refers to in its report as a “WTO plus element”, and which must be applied before trade defence measures can be imposed.
14.6In this context, we note also that we have retained under scrutiny since 2013 the Commission’s proposed draft Regulation on modernising TDIs, pending receipt of the Government’s Impact Assessment and the progress of negotiations, particularly with regard to the lesser duty rule.
14.7The report also brings out the importance of intervening actively in third country trade defence investigations and in the WTO to protect the interests of domestic exporters. The Commission sees the increased use of trade defence measures in the context of an “increasingly complex and often politicised global trading environment”. As such, it states that “continuous efforts” were required to respond to third country actions. These included not just systematic technical interventions in ongoing proceedings, but also bilateral dialogues and the sharing of best practice with trading partners so as to strengthen awareness of compliance with WTO rules. Political interventions, notes the Commission, have also been necessary, however, many issues of concern persist.
14.8This mixed assessment demonstrates vividly the global economic context within which trade defence measures are imposed, and the need for effective and systematic interventions to protect domestic industrial interests. We therefore draw our Report to the attention of the International Trade Committee.
14.9The Commission prepares an annual report on the trade defence actions taken by third countries against the EU. This is the fourteenth such report.
14.10The WTO framework permits members to make use of trade defence instruments (TDIs) to combat unfair trade practices. There are three main types of TDIs—anti-dumping, anti-subsidy and safeguards measures—and they must be used in accordance with WTO rules, as they will otherwise be viewed as unlawful and unjustified protectionist measures.
14.11The report notes that the EU deploys anti-dumping and anti-subsidy measures regularly, but has a “moderate and balanced approach”, as well as standards that are more stringent than WTO rules. For instance, the EU has a mandatory “Union interest test”, which considers the effect on the European economy of the imposition/non-imposition of TDI measures.
14.12The Commission states that since 2010 there has been a significant increase in the use of TDIs by third countries against EU exports, most likely due to the global economic slowdown and stagnant demand, particularly in certain sectors. When a third country begins a trade defence investigation against EU exports, the Commission seeks to intervene through written submissions to the investigating authority and regular participation in hearings, to ensure that EU exporters’ rights and interests are respected. The Commission also intervenes through consultation mechanisms in its bilateral agreements and in multilateral contexts where applicable.
14.13At the end of 2016, 156 TDI measures affecting EU exports were in force, an increase on the 151 measures recorded at the end of 2015.
14.14India, the United States, China and Brazil were the most active users of TDIs against the EU. Both India and the US deployed new TDI measures in 2016 against EU exporters, while China and Brazil remained stable.
14.15Anti-dumping measures are the most common—with 75% of TDI measures being of this type. Of the remainder, five were anti-subsidy measures and 35 were safeguarding measures.
14.16The Commission notes that safeguard measures are applied to imports from all origins, with the intention of providing domestic producers with temporary relief from an unforeseen or significant increase of imports. The EU does not tend to use safeguarding measures.
14.17Indonesia, India and four other Asian countries used safeguarding measures frequently. Despite this, the report notes a decreasing trend in the number of new safeguard investigations, which dropped from 18 in 2015 to 12 in 2016. As a result, the number of new TDI investigations against EU exporters was 30, a drop of seven from 2015.
14.18Of the 30 new measures, 10 related to safeguards, 19 to anti-dumping, and one to anti-subsidy cases.
14.19India opened five investigations, the highest of any EU trade partner. Investigations relating to steel represented the highest proportion of new cases overall, with 17 out of the 30 concerning steel products. The Commission states: “Even though there is no overcapacity in the EU steel production, EU industries are often targeted by trade measures imposed by third countries against imports of steel”.
14.20It goes on to say that this applies particularly to safeguard measures but also that third countries sometimes (wrongly) include EU industries in the scope of anti-dumping investigations which otherwise mostly target dumped steel products coming from Asia—i.e. China.
14.21In recognition of the continuing global excess capacity and overproduction in steel, the Commission has put in place a “steel surveillance mechanism” to monitor import trends that “threaten to cause injury to EU steel producers”.
14.22The Commission cites four recurring issues in trade defence investigations brought by third countries. These are: anti-circumvention, rights of defence, injury and causal link, and the questionable use of safeguards.
14.23Circumvention refers to illegal practices such as trans-shipment, mis-declaration of origins, product modification or assembly operations. The intent of these practices is to avoid the payment of applicable anti-dumping or anti-subsidy duties.
14.24There are currently no uniform WTO rules regarding circumvention. The Commission notes that anti-circumvention measures can become problematic when they capture genuine producers, and that this is an area which the Commission is monitoring closely.
14.25In 2016, as in 2015, there were five cases against the EU involving circumvention. Turkey accounted for three of these, plus one new investigation, while Argentina initiated one case.
14.26Investigating authorities of countries initiating trade defence investigations are required to ensure that a “meaningful, non-confidential file” is made available to affected parties for consultation. While excluding business secrets, it should present redacted information “in the form of indexes or ranges that enable all parties to have a complete picture of the situation”.
14.27The Commission observes, however, that in many investigations, minimal information is provided in the non-confidential file, or is completely redacted. This means that parties are unable to effectively exercise their right of defence. In such cases, the Commission states that it “intervenes systematically, insisting on more transparency during the proceedings”.
14.28WTO rules require that trade defence measures should only be imposed when applicable conditions have been strictly fulfilled. However, the Commission notes that countries imposing measures often fail to demonstrate a clear causal link between the alleged dumped imports and the injury suffered by the domestic industry.
14.29The Commission notes further that there can be several reasons for injury to a domestic industry that would not establish a causal link. These include: the inefficient utilisation of capacity; a drop in domestic demand; or an increase in the prices of raw materials and energy.
14.30The Commission states that it pays particular attention to third country analyses of injury and causal link; as without such a link any measures represent protectionism.
14.31Safeguards are the most trade-restrictive instrument, and as such the Commission believes they should be used only in the most exceptional circumstances. Although 2016 saw a decrease in their use, the Commission continues to intervene systematically in “almost all’ safeguarding investigations.
14.32This is because it believes that many do not appear to respect the strict rules set out in the WTO Safeguards Agreement. For instance, many safeguard investigations, particularly those in South East Asia, refer only to imports originating in one country i.e. steel from China. In such cases, anti-dumping or anti-subsidy instruments, which can be country or even company specific, would be the most appropriate response, rather than restricting market access for all producers regardless of origin.
14.33A number of countries either ended anti-dumping measures against the EU or imposed less restrictive measures.
14.34The Commission highlights ten such cases. Examples include China’s ending of anti-dumping measures on certain steel products from the EU and Japan following a ruling by the WTO Appellate Body which concluded that the 2012 measures were in breach of WTO rules. Another example is Australia’s lowering of duties for producers of processed tomato products from Italy. The Commission states that in 2015 Australia imposed anti-dumping duties based on the use of a methodology that “raised systemic concerns”. This was because it “indirectly challenged EU agricultural green box payments (which are allowed under WTO rules) within the framework of an AD investigation”.
14.35The Italian government and affected companies asked Australia’s Anti-Dumping Review Panel to review the measures, and the Commission also intervened, to demonstrate that the price of raw tomatoes purchased by the exporters in the production of the processed product was not influenced by EU green box payments. Australia accepted this argument and reduced the applicable duty, acknowledging that the cost adjustment methodology used was not appropriate.
14.36The report notes that the Commission is active in the WTO to defend EU interests in specific cases and to challenge trade defence measures if it considers that these violate WTO rules. The Commission also intervenes actively as a third party in WTO proceedings, “with the aim of addressing and monitoring issues of systemic concern and advocating for higher standards in trade defence investigations worldwide”.
14.37An example of a EU challenge to trade defence measures concerned Russian anti-dumping duties imposed against imports of EU light commercial vehicles. The EU requested the establishment of a WTO dispute settlement panel. The panel subsequently declared the duties in breach of WTO rules, agreeing with the EU on all procedural claims and recognising flaws in the analysis used by Russia, which in particular disregarded “massive overcapacity in the domestic LCV sector”. However, Russia lodged an appeal in early 2017, and this matter is still pending.
14.38The Committee intervened as a third party in two WTO disputes—involving US imposition of anti-dumping duties against South Korea and China. The parties challenged the methodology used by the US to establish targeted dumping. The Commission notes that the WTO Appellate Body reports in both these cases “are of particular interest to the EU, as this methodology, which artificially inflated dumping margins, is used by the US also in cases against imports from the EU”.
14.39The Commission takes part in WTO anti-dumping and anti-subsidy committees, where individual actions taken by WTO members are discussed and reviewed. The Commission also raises individual cases of concern in the Safeguard Committee, “in view of the intensive use of this instrument, which is a cause of major concern”.
14.40The former Minister of State for Trade Policy (Lord Price), in an Explanatory Memorandum dated 14 August 2017, has little to comment on this report, noting simply that the document is a “list of decisions and measures taken by third countries against the EU”. He adds:
“The document is designed to be open and informative about trends and the EU Commission’s general approach to trade defence instruments.”
152 India had 24 measures in place, an increase of 5; the US had 21, an increase of 3; China and Brazil had 19 and 15 TDI measures in place respectively.
153 Malaysia, the Philippines, Thailand and Vietnam.
154 These relate to the following countries: China, Australia, Brazil, Turkey, Morocco, Tunisia, Egypt, South Africa and New Zealand.
15 December 2017