On December 12, 2017, the European Union ("EU") adopted Regulation (EU) 2017/2321 ("Regulation"), which was published in the Official Journal of the European Union on December 19, 2017. This Regulation is based on the inter-institutional agreement reached on October 10, 2017 ("Inter-Institutional Agreement"1 ) and has arisen in the context of the debate on whether China should be treated as a market economy as a result of Sections 15(a) and 15(d) of its Protocol of Accession to the World Trade Organization ("WTO").
The Regulation substantially amends the methodology that the European Commission ("Commission") may use in order to calculate dumping margins, in particular by providing for a "non-standard" dumping calculation methodology to address cost and price distortions for all WTO countries alike.
What is the purpose of the Regulation?
In principle, dumping calculations must be based on the costs and prices recorded in the accounts of the targeted exporting producers. Nonetheless, exceptions to this rule exist and are the subject of the Regulation.
Previously, for all countries qualified by the EU as "non-market economies" and, in the first instance, China, the EU’s Anti-Dumping Regulation applied the so-called "analogue country" methodology whereby dumping could be calculated based on prices or costs in the analogue country. Through the Regulation, the EU has removed all references as to whether any given country qualifies as a market economy. In fact, the Regulation expressly provides that it "is without prejudice to establishing whether or not any WTO Member is a market economy."2
Insofar as an anti-dumping investigation targets exporting producers located in a country that is a WTO Member, the Regulation provides that costs and prices on the domestic market of any given WTO Member will be used as the standard methodology for dumping calculation purposes with a non-standard methodology being used where significant distortions caused by government intervention are established.3 4 In the latter case, the Commission will be entitled to disregard the prices and costs of exporting producers on their domestic markets and to use certain undistorted benchmarks, including costs in an appropriate representative country with a similar level of economic development.
(Further information on the functioning of this new methodology can be found in our Legal Update dated October 20, 2017.)
What does the Regulation imply for currently applicable anti-dumping measures and ongoing anti-dumping proceedings?
The Regulation will enter into force on December 20, 2017. However, as per Article 4 of the Regulation, it should only apply to "all decisions on the initiation of proceedings, and to all proceedings, including original investigations and review investigations, initiated on or after the date on which this Regulation enters into force."
This means that anti-dumping measures that are currently in force and ongoing proceedings will not be affected by the new, "non-standard" methodology. For those proceedings concerning China that have been initiated before December 20, 2017, the "analogue country" methodology will continue to apply.
With regard to interim and newcomer reviews,5 the non-standard methodology is set to apply "only after the date on which the first expiry review of those measures, after 20 December 2017, is initiated." This means in practice that for products currently covered by anti-dumping measures based on the former provisions, EU producers and foreign exporting producers can request an interim review based on changed circumstances. However, in reviewing the dumping margins, the Commission will apply the former provisions (including the use of prices and costs in an analogue country) until an expiry review is initiated.
Importantly, the Regulation clarifies that the adoption of the "non-standard methodology" is not a sufficient reason to trigger an interim review.6 In other words, in order to obtain an interim review, lasting changed circumstances must be demonstrated other than the change in legal provisions.
What does the Regulation imply for the future?
The "non-standard" methodology will apply to all new and expiry review investigations initiated on or after December 20, 2017. This means, in particular, that those who seek the initiation of such investigations and wish to allege that there are significant market distortions within the meaning of the Regulation will need to show prima facie evidence of such distortions.7
While the burden of proof is in part shifted to the complainants, Article 2(6a)(c) of Regulation (EU) 2016/1036 (i.e., the EU’s Anti-Dumping Regulation), as amended by the Regulation, reads that the Commission, when it has "well-founded indications of the possible existence of significant distortions … shall produce, make public and regularly update a report describing the market circumstances [evidence the existence of significant distortions] in that country or sector."
As foreseen by the Regulation, complainants in anti-dumping investigations will be allowed to rely on these reports to invoke the existence of significant distortions and to justify dumping calculations on the basis of the non-standard methodology.8 On the other hand, during the investigation, interested parties, and notably targeted exporting producers, will be able to comment on and rebut the findings made in the Commission’s report.
The Commission published its first report on December 20, 2017. That first report covers China and (i) provides for a macro-economic description of the Chinese economy highlighting cross-cutting distortions linked with the existence of a socialist market economy, the Chinese Communist Party, the systems of plans, State-Owned Enterprises, the financial system, public procurement markets and investment restrictions; (ii) provides for a description of the distortions affecting the main production factors used in all manufacturing processes (land, energy, capital, raw materials and material inputs, and labor); and (iii) addresses certain specific sectors of the Chinese economy, in which distortions are prevailing (namely the steel, aluminum, chemical and ceramic sectors).9 The Commission has justified its choice to issue a first report covering China on the basis that "the bulk of the EU's anti-dumping activity concerns imports from that country." In that respect, the Commission stated that other reports will be prepared and which countries covered will depend on "their relative importance in the EU's anti-dumping activity, as well as indications that there may be distortions related to government interventions in the economy." Importantly, the Commission already announced that the next report would concern Russia.10 There, is however, no indication as to when this report will be published.
This notwithstanding, the Commission has emphasized that it "will examine whether distortions exist in each and every case based on its own merits" and that the "application of the alternative methodology is not automatic for any country."11 This means that the existence of "significant distortions" will be considered on a case-by-case basis and may be rebutted despite the findings made by the Commission in any given report.
1 See our Legal Update, available at: https://www.mayerbrown.com/EU-Institutions-Agree-On-Draft-Trade-Remedy-Legislation-10-20-2017/.
3 Whereas the "analogue country" methodology concerned only those countries considered to be "non-market economies," the "non-standard methodology" applies horizontally. This means that it can be applied against any WTO Member in situations in which "significant distortions" are found to impact prices and costs.
4 For countries that are not WTO Members and are listed in Annex I to Regulation (EU) 2015/755 (i.e., Azerbaijan, Belarus, North Korea, Turkmenistan and Uzbekistan), the "analogue country" methodology will continue to apply.
5 In contrast with expiry reviews, which assess the need to renew existing anti-dumping measures for a set period of time, interim reviews assess the need to amend the level of anti-dumping duties that are in force. Newcomer reviews aim at assigning individual margins of dumping for new exporters in the exporting country covered by anti-dumping measures.
7 The date to be taken into consideration is not that of the filing of the complaint or of the request but the date of the initiation of the investigation, i.e., the date of publication of a notice of initiation.
8 In addition, to facilitate the familiarization of complainants with the new methodology, the Commission has updated its guide to complainants, which is available at: http://trade.ec.europa.eu/doclib/docs/2017/december/tradoc_1564126.96.36.199_final.pdf.
9 Commission Staff Working Document, On significant distortions in the economy of the People's Republic of China for the purposes of trade defence investigations, December 20, 2017, available at: http://trade.ec.europa.eu/doclib/docs/2017/december/tradoc_156474.pdf.
10 European Commission's Press Release, EU puts in place new trade defence rules, December 20, 2017, available at: http://europa.eu/rapid/press-release_IP-17-5346_en.htm.
11 European Commission's Fact Sheet, The EU's new trade defence rules and first country report, December 20, 2017, available at: http://europa.eu/rapid/press-release_MEMO-17-5377_en.pdf .