UK: China's Status In EU Trade Defence Investigations (And Why It Matters To Britain)

UK-China trade relations are making headlines, with China's appetite for future investment in the UK in the balance as the newly-minted British government hesitates over the involvement of Chinese companies in the UK's infrastructure.

The EU also faces a dilemma with respect to EU-China trade relations. Buoyed by a change to the terms of China's World Trade Organization (WTO) accession agreement, China is now mounting pressure on the EU to grant it 'market economy status' (MES) under EU trade defence legislation, an outcome that would leave Chinese exporters less vulnerable to swingeing anti-dumping duties.

From an EU perspective, however, there remain concerns as to how EU industry is to be shielded from unfair competition from Chinese manufacturers in a number of strategically important sectors, such as steel, at a time of excess capacity in China. This capacity may be being 'dumped' into the EU to the detriment of the Community industry.

Accordingly, in this guidance alert, we consider the European Commission's (the "Commission") latest proposals for reform and explain why the treatment of Chinese imports under EU trade defence legislation is (and will continue to be) of significance to British manufacturers.

Market economy status

At the heart of the EU's trade defence policy is the belief that the EU's commitment to open trade with third countries can only be viably maintained if EU industries are protected from unfair trading practices such as 'dumping'1.

Under EU trade law, the methodology for determining the maximum level of anti-dumping duties that may be imposed is predicated upon whether or not the exporting country holds MES.

Consequently, the status of the exporting country under EU trade law determines the maximum level of protection that may be offered to EU manufacturers. A concern voiced by those opposed to China being granted MES is that the application of the standard methodology to a non-market economy would fail to take account of State-induced distortions in that economy, resulting in artificially low dumping margins and a reduction in the level of legitimate protection that may be afforded to EU industries2.

Why the change?

China's bid to attain MES in EU trade defence investigations has, to date, been rejected on the basis that it does not yet satisfy all of the EU's predetermined market economy criteria.

Instead, there is a presumption in EU trade defence investigations (rebuttable on a case-by-case basis) that Chinese exporters do not operate within a market economy and that, accordingly, Chinese imports should be assessed using the non-market economy methodology3.

However, the continued legality of this approach is in doubt. China has fiercely argued that the expiry, on 11 December 2016, of the transitional provision (the "Transitional Provision") in China's WTO accession agreement, which forms the legal basis for the application of the non-market economy methodology to Chinese imports will mean that, as a matter of WTO law, the EU is obliged to apply the market economy methodology to Chinese imports into the EU, thereby effectively granting China MES.

While the validity of this assertion remains the subject of significant debate4, the Commission appears to have reached the conclusion that the EU is - if not legally, at least politically - obliged to stop applying the non-market economy methodology to Chinese imports. In a speech earlier this year, Cecilia Malmström, the Commissioner for Trade, while recognising that China was "clearly not" a market economy, enumerated the potential consequences of continuing with the status quo:

"Doing nothing would initiate disputes at the WTO and beyond, with unknown outcomes. It will create uncertainty, and uncertainty has costs - at least investment and financial costs. And it may well create new and serious frictions in our bilateral relationship with China, impossible to measure in economic terms.5"

Despite this, there remains a strongly-held view across most of Europe that the EU should nevertheless continue to deny China MES. Indeed, in May of this year, the European Parliament adopted a non-binding resolution urging the European Commission to continue applying the non-market economy methodology to Chinese imports unless and until China satisfies the five criteria for MES.

While China's economy has undergone considerable liberalisation in recent years, comments made by Commission officials show that the country is still thought to be a long way from satisfying the EU's market economy criteria6. Reducing the level of protection from Chinese dumping afforded to EU manufacturers at a time of deceleration in the Chinese economy and excess capacity in a number of sectors (such as steel) could have disastrous consequences for a number of EU industries.

Finding itself between a rock and a hard place, the Commission's proposals for reform are an attempt to offer continued protection for EU manufacturers without breaching the EU's international obligations and/or starting a potentially harmful trade dispute with China.

The Commission's solution

Following an in-depth assessment of the various options for reform, Commission officials announced the EU executive's preferred reform package. The measures proposed include a number of 'general' improvements designed to make the regime "firmer and faster". These include:

  • reducing the deadline for publishing provisional findings following the publication of the notice of initiation of anti-dumping proceedings from nine months down to seven months; and
  • abolishing the lesser duty rule where significant distortions in the export market are found, thereby allowing for the possibility of higher anti-dumping duties.7

Perhaps most significantly, however, the Commission now proposes to introduce a 'one size fits all' methodology for assessing dumping margins. This would see EU trade officials benchmarking export prices against international prices in order to determine whether (and to what extent) dumping has taken place. This comparison would be applied regardless of whether or not the exporting country had MES, rendering the distinction meaningless.

The Commission believes that this solution complies with the EU's international obligations and will also continue to protect EU manufacturers from unfair trading practices. Announcing the proposals, the Commission Vice President, Jyrki Katainen, commented that the change "will result in anti-dumping duties that are very similar to what we have now."

This proposal is unlikely to be popular with China - an article in Xinhua, a Chinese State-owned newspaper has suggested that "the only difference between the old and new methodologies will be in scope and name8." Of course, if China feels it is being cheated by the EU, it could retaliate in precisely the manner the Commission is seeking to avoid.

The next stage in the process will be for the Commission to table its formal legislative proposals. A number of EU Member States, particularly in Southern Europe, could resist the suggested reform on the basis that the Commission's proposals do not go far enough to protect EU industry. As the UK - which has historically been one of the most liberal-minded EU Member States in terms of trade - inevitably sees its influence within the EU wane, countries such as Spain may be bolstered in their resolve9.

Why these developments matter (and will continue to matter) to Britain

China's status in future EU trade defence investigations is likely to be resolved long before Britain actually leaves the EU. How the EU decides to interpret its future obligations towards China will, at least in the short to medium term, directly dictate the extent to which British manufacturers can be protected from Chinese imports within the EU.

While the devil will be in the detail, Mr. Katainen's reassurances will be a relief for those manufacturers whose businesses are vulnerable to cheap Chinese imports and who may have feared that any change would be likely to lead to a reduction in the level of protection available.

How the EU now adapts its trade defence regime (and China's reaction to any reform) is also likely to play an influential role in Britain's longer-term trading relations with both China and the EU (i.e. post-Brexit).

The British government has traditionally taken a far more liberal stance towards Chinese imports than its EU counterparts and favours resolving the current dilemma by simply granting China MES. Assuming that the British government decides to implement an independent trade defence regime post-Brexit, it could be tempted to follow Australia's lead in granting China MES in part-exchange for what is likely to be a politically desirable free trade agreement with China10.

By adopting a markedly more liberal approach towards Chinese imports than the treatment eventually decided upon by the EU, the UK government would effectively be assisting those British companies which purchase raw materials and/or components and compete closely with other European rivals, allowing them to reduce relative purchasing costs (subject to rules of origin and the potential application of EU trade defence measures to British companies in a post-Brexit world).

Conversely, those companies which compete directly with Chinese imports would be placed under greater strain than their EU-based competitors. The huge losses incurred by Tata Steel at its Port Talbot plant have highlighted the pressure under which a number of these companies who operate in the global market already are under.

Footnotes

1. http://ec.europa.eu/trade/policy/accessing-markets/trade-defence/index_en.htm

2. See: DG Trade's Inception Impact Assessment considering "possible change in the methodology to establish dumping in trade defence investigations concerning the People's Republic of China".

3. Where an individual Chinese manufacturer can rebut this presumption, Article 2(7)(b) of the Anti-dumping Regulation provides for the possibility of individual Chinese manufacturers being granted market economy treatment (MET), i.e. having their 'normal value assessed in accordance with the rules applicable to market economy countries'.

4. For useful background on the different positions adopted see the report prepared by the European Parliamentary Research Service entitled: "Granting Market Economy Status to China: An analysis of WTO law and of selected WTO members' policy", November 2015, pages 6 and 7.

5. Speech by Cecilia Malmström, "Trade Defence and China: Taking a careful decision", 17 March 2016.

6. See e.g. the comments made by Cecilia Malmström in the speech cited above; and the comments made by DG Trade in its Inception Impact Assessment

7. Pursuant to the so-called 'lesser duty rule', the level of duty imposed must be the lower of: the duty considered sufficient to remove the injury caused by the dumping to the relevant EU industry; and the difference between the exporter's normal value and export price, known as the 'dumping margin'.

8. http://news.xinhuanet.com/english/2016-07/21/c_135529965.htm

9. For background on a number EU Member States' respective positions in response to China's calls for reform see: http://www.ft.com/cms/s/0/9412fe0a-4dca-11e6-8172-e39ecd3b86fc.html (subscription required).

10. "Granting Market Economy Status to China: An analysis of WTO law and of selected WTO members' policy", November 2015, page 1.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
31 Oct 2017, Seminar, Toronto, Canada

Gowling WLG and ACA Aponix have joined forces to provide a practical session for regulated financial services businesses, putting the legal requirements into context and giving you concrete actions.

1 Nov 2017, Seminar, London, UK

Our next ThinkHouse Foundations session has again taken on board your feedback from the last session which means we are turning our attention to employment, cloud and warranties and liabilities.

2 Nov 2017, Seminar, Toronto, Canada

Our next ThinkHouse Foundations session has again taken on board your feedback from the last session which means we are turning our attention to employment, cloud and warranties and liabilities.

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.