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EU Strengthens Trade Defence: Things Ukraine Should Be Aware Of

Date of publication: 9 January 2018

Olena Omelchenko,  Head of International Trade Practice

Source: European Pravda

Last week the European Commission, the European Parliament and the Council of Europe have reached a political agreement on the EU trade defence reform.

These are the first significant changes in the EU legislation on combating dumping and subsidized imports introduced within the past 15 years.

The reached reform agreements are the result of four years of expert work, negotiations, compromises and extensive consultations with Member States, the European Council, the European Commission and the European Parliament.

It is expected that the changes will come into force at the end of this year.

Therefore, it is worthwhile to consider in more detail why the EU has introduced such changes and what should the companies exporting their products to the European Union be aware of.

China’s New Status

The WTO membership has led to deterioration in the level of tariff defence, especially for developed countries. Being restricted by the tariff duties and seeking to protect their economies, many countries began to actively use trade defence instruments in a form of anti-dumping and countervailing duties.

Although initially designed to combat unfair competition, they have subsequently evolved into a widely used trade defence instrument.

The introduction of anti-dumping and countervailing duties is considered to be legitimate if they are applied without gross violations of the WTO Anti-Dumping Agreement and the WTO Anti-Subsidies Agreement.

The provisions of these agreements lay down basic requirements for the application of measures based on the results of investigations and allow the Member States to determine details of the methodologies and adjustments that affect the calculation of duties.

When it comes to implementing measures for job protection in its territory, none of the states respecting its citizens will apply procedures that limit their opportunities, unless it is directly provided for in the international treaty.

That is why when developing their own domestic legislation the countries tend to draw the rules in such a way as to charge high duties where necessary, referring to fair terms of trade.

For example, at some point the USA has widely used the zeroing methodology, which was later challenged in the WTO. In the same way, the rules for calculating the dumping margin depending whether the country is considered a market economy or a non-market economy have emerged in the national anti-dumping legislations.

The aforementioned status mainly allows for the non-market economies to apply the methodology for calculating duties based on a surrogate country approach.

The use of a separate methodology for calculating the dumping margin for the non-market economies allows many WTO members, including the EU, the USA, Canada, India, Mexico and Turkey, to impose countervailing duties on China and thereby create competitive conditions in the market.

For many years China has been an absolute world leader against which the trade defence instruments have been applied.

In turn, the EU is one of the largest trading economies accounting for 15% of world imports, while its trade measures constitute only 7.8% of those imposed globally and only 0.21% as related to imports.

The low trade defence indicators, world trends towards protectionism and, most importantly, the need to recognize China as a market economy, finally pushed the EU to implement trade defence reform.

What Does the Reform Envisage?

The EU decided not to sour relations with China and has equalized the rules for calculating the dumping margin for market and non-market economies, replacing them with a new alternative methodology that will apply to all third countries without exception.

This contributed to the creation of non-discriminatory rules required by the WTO and strengthened the possibility to defend the domestic market from dumping and subsidized imports.

For the WTO members the dumping margin is usually calculated by standard rules. However, the domestic prices and costs may be distorted due to state intervention. In this case, they do not provide an adequate basis for comparing the domestic and export price.

The new methodology of the EU anti-dumping policy will help to protect domestic market against the imports from countries with market distortions or countries with ¬increased state regulation of the economy. In its investigations the European Commission will compare the prices fixed in such countries with the world prices, and will also have an opportunity to define prices and establish the actual margin of dumping where there is a distortion.

In determining distortions, several criteria will be considered, such as state policy influence, the presence of state-owned enterprises, discrimination in favour of domestic companies and the lack of financial sector independence.

The Commission will draft reports for countries or sectors where it will identify significant distortions that will be available for future investigations. When filing complaints, the industry will be able to rely on such reports prepared by the Commission. The relevant assistance will also be provided to the small companies to facilitate the initiation and their participation in the investigations.

For the first time, social and environmental standards will play certain role in the context of trade defence.

The EU will also remove the lesser duty rule in cases of unfairly subsidized imports or where raw materials and energy prices are distorted. According to the EU, the systematic application of the lesser duty rule goes beyond the basic obligations set out in the WTO Anti-Dumping Agreement.

The changes will be based on the Commission’s proposal to modernize the trade defence instruments developed in 2013, which will increase the transparency and efficiency and reduce the investigation procedure by two months.

The implementation of the said new methodology will also provide for a transition period during which all anti-dumping and countervailing measures currently in place, as well as ongoing investigations, will remain unchanged. In addition, the legislation makes clear that without other changes in circumstances, the new methodology shall not be the basis for review of the existing measures.

How Will the New EU Reform Influence Ukraine?

The EU reform will continue to significantly impact the calculation of dumping margin for China, Belarus and Russia (in some sectors).

As for Ukraine, there are still grounds to expect that these changes will be selectively applied to the domestic producers. So far there are no reasons to say that Ukrainian social or environmental standards will give the reasons for the EU to apply its defence measures.

The only thing the Ukrainian business will definitely experience difficulties with is the collection of information when filling in the questionnaires and providing evidence during investigation.

At the same time, Ukraine shall definitely take into account new EU approaches.

Now the Ministry of Economic Development drafts three new laws to improve its own procedures for anti-dumping, anti-subsidy and defence investigations. Judging from the draft laws, the EU innovations are not implemented therein.

And this is not surprising, considering that the new EU changes have not yet been put to the test, and Ukraine does not divide countries into a market and non-market economy for the purpose of anti-dumping investigations.

However, it is expected that the new EU approaches will ensure a higher level of trade defence without violation of the international trade law. If the said forecast proves to be true, it is possible that in the future the application of the new EU methodology will be reflected in the Ukrainian legislation.