Last reviewed 19 December 2016

Henrietta Clarke examines the European Commission proposals to update and improve trade defence instruments (TDIs).

The European Commission is urging EU countries to support its proposals to update and strengthen TDIs. Current TDIs have proved insufficient to deal with the huge overcapacities that result in dumped exports on the EU market. The EU is the biggest trading bloc in the world and accounts for 15% of world imports, second only to the USA, and yet the EU’s trade defence measures correspond to only 7.8% of those in place worldwide and affect a mere 0.21% of the imports.

President of the European Commission, Jean-Claude Juncker, said that the Commission had been deploying TDIs to their full but they are proving insufficient to combat the harm from unfair foreign competition. The Commission put forward an ambitious proposal to modernise TDIs in 2013 and is now urging Member States to adopt it. The October European Council asked for an urgent and balanced agreement by the end of 2016, and a major step towards this end was taken on 13 December when the Council agreed its negotiating position. This progress was welcomed by Trade Commissioner Cecilia Malmström who said “the EU stands for free, rules-based trade and we must be able to address unfair subsidies and dumping with determination”.

Lesser duty rule (LDR)

Included in the Commission’s 2013 proposal on modernising TDIs is the proposal to adapt the so-called LDR in certain well defined, narrow circumstances, for example, for exports which benefit from significant raw material distortions through dual pricing, export taxes, etc.

What is the LDR?

To impose anti-dumping measures, there needs to be proven dumping from a third country and proven injury for EU industry with a causal link between them. The level of anti-dumping duties is then imposed at the level of the dumping margin or the level that removes injury, whichever is the lower or “lesser duty”. The LDR therefore caps the level of duties that can be imposed. The EU’s systematic application of the LDR goes beyond the basic obligations set out in the World Trade Organization (WTO) Anti-dumping Agreement and the vast majority of other WTO members including the USA do not exercise this type of self-restraint. This means that on comparable dumped products originating from China, for example, cold-rolled flat steel products, the average EU anti-dumping duty was 21.1% in 2015 while in the USA where the LDR is not applied, the average anti-dumping duty was 265.8%. This marked difference in duty levels risks trade diversion of dumped products into the EU, putting additional pressure on EU industry and workers.

New anti-dumping methodology

In its recent Communication entitled Towards a Robust Trade Policy for the EU in the Interest of Jobs and Growth, the Commission also sets out further amendments to the EU Trade Defence legislation in response to new challenges and transitions in some world economies. The Commission is planning to table proposals for a new anti-dumping methodology before the end of the year. This would allow the EU, while respecting WTO rules, to impose higher anti-dumping duties in some instances and to capture market distortions linked to state intervention in third countries that mask the true extent of dumping practices.

Several criteria will be considered in determining distortions, such as state policies and influence, the widespread presence of state-owned enterprises, discrimination in favour of domestic companies and the independence of the financial sector. The proposal would not grant “market economy status” to any country. It would be country neutral and could be applied equally to all members of the WTO. There would be an orderly and transparent transition to the new system and it would only apply to investigations initiated after the legislative change enters into force.