A practical guide to the EUs trade defence measures and anti-dumping policy

A practical guide to the EUs trade defence measures and anti-dumping policy

Presentation b y BEUBCBEUBC and BCCI workshopMinsk, 29 May 2009Dumping ProcedureDumpingSelling for export at a lower price than in the producing country, orSelling for export at a lossExample 1Belarus price to first independent customer: 100 Price ex work Belarus for export to EU: 80Dumping = 20Example 2Belarus price to first independent customer: 100Price ex works Belarus for export to EU: 100Cost of production: 120Dumping = 20

DumpingThe basic idea is that an exporter should not use high prices in the producing country to finance low prices for export. High prices in the exporting country normally can only be achieved when there is not enough competition, or there are other market failures.The difference between the prices in Belarus and the export prices can be imposed as customs duty (import duty) at the EU border. In my example: 20All this needs extensive investigation with exporting and/or importing companiesDumping (price differentiation) alone is not sufficient for import duties. The dumped imports have to cause injury.

InjuryIn a nutshell: injury is a less than good economic and/or financial situation of the competing EU industry. While dumping is a rather mathematical calculation - injury needs a lot of appreciation:The bad situation of the EU industry is mainly established on the development over three to five years of their benefits / profit / loss on their sales in the EU where they compete with Belarus (example: year 06 +8%, year 07 + 4%, year 08 +/-0, year 09 -5%) : clear injury indication,sales quantities and market share in EU (example: year 06: 79% market share, year 07: 75%, year 08: 70%, year 09: 65%); although the market share in 09 is still high the negative trend would be considered as injury indication.

InjuryThere are many other injury criteria (prices, employment, cash flow a.s.o.) but profit and market share are the most important.All this needs extensive investigations with the EU producers. All figures have to be put together in weighted averages.The presence of injury alone is not sufficient for import duties. The bad situation has to be caused by the dumped imports (causation)

CausationWhile injury needs a lot of appreciation, the establishment of causation is even more a question of discretion. There are, however, some criteria:First: Price undercutting: are the prices of the Belarus products (at the EU border) lower than the EU prices ex works EU-producer?are the products (Belarus/EU) according to consumer/customers appreciation comparable?Secondly: Market presence:what is Belarus market share in EU? It has to be anyway more than 1% in order to have a case. How did it develop?Thirdly: are the products competing with each other?CausationDumped imports have not to be the only cause of the bad situation. It is sufficient that they contributed in a considerable way to the injury.Dumping, injury and causation alone are not sufficient for import duties. There must be a public interest in imposing import duties and such increasing prices for consumers and user industries.

Public Community InterestIt is a general principle of EU law (and those of Member states) that a state intervention in economic affaires should only be carried out when the interests of a wider public community are not opposing such intervention. This principle applies for example also in competition cases. In WTO terms only a handful of WTO-members apply a public interest test. There are criteria laid down in the law but they are rather vague and we could have another seminar discussing them.

In short, the question is:

Would the benefits of antidumping duties to the EU producers and economy be disproportionate smaller than the disadvantages of border measures would cause to other economic operators (consumers, importing industries)? In general this has been in the past a kind of economic cost/benefit analysis taking into account that with accepting dumping unfair traded imports would be allowed. In recent years also wider considerations than only economic cost/benefit balancing have been on the Commissions agenda.

Public Community InterestThe Community interest test is extremely important and influences Member states decisions very much. It is not always called so but most Member states opposing measures refer to it. This is understandable becausedumping calculation is a mathematical exercise,injury is indicated when EU industry suffers declining market share and financial results,causation is difficult to contest if there is price undercutting and increasing market share of dumped imports.The most elegant way is to argue that border measures are not in the public interest of the EU.

Lower Duty RuleAccording to WTO rules the duty is the dumping margin i.e. in my example 20. However, the EU applies the lower or lesser duty rule. This means that the border measure should be lower (never higher!) than the dumping margin if this is sufficient to remove the injury from the EU producers. The amount is called: injury margin.As a general rule the injury margin is based on the difference between a target price at which the EU producers would sell with a reasonable profit margin and the actual export price at the EU border. Example: Lets assume that at a price of 92 the EU industry would make a profit of 5% and this is considered sufficient. Since the Belarus export price is 80 the import tax should not be 20 (which is the dumping margin) but only 12. Of course, all this seems simple but needs a lot of calculations!

Which Measures?The form of measures is custom duties (normally ad valorem duties i.e. a certain percentage of the customs value of the good) or price undertakings. The latter means that there are no border measures, no duty but the exporter has to guarantee that he sells at a certain price to the EU.Example: dumped export price was 80. According to the lesser duty rule the anti dumping penalty should be 15%. In case the price undertaking is applied the exporter has to guarantee that the product is sold at 92 at the EU border. The advantage is: the price increase goes into the pockets of the exporter and not to the EU budget!

How long do measures last?Normally measures last for five years. However:The EU producers can request a prolongation of again five years shoulddumping persist and/orthe existing measures did not make the injury disappear.The Belarusian exporters can request an end to the measures shoulddumping have disappeared and/orinjury have disappeared andthere is no danger that they will reappear should measures fall. All this needs again - a thorough and in-depth investigation and costs time and money.

Exceptions from the five year ruleUnder exceptional circumstances measures can be shortened. Nobody knows exactly what such exceptional circumstances are. In addition, in the past years measures have been shortened sometimes considerably (shoes, light bulbs) without any convincing motivation. This means: The five year rule is not written in stone and with good arguments and/or the necessary political support it may be shorter.The specific situation of BelarusBelarus as a country is unlike Russia and Ukraine - not considered as a market economy. In addition and unlike Ukraine, Belarus is not a member of the WTO. Both factors have rather negative consequences.

The bad news isAs a Non-WTO-member the rules and advantages of the WTO antidumping system do not apply. Since WTO is normally exporter friendly this makes it easier for the EU to apply tough rules and practices. As a non market economy the costs and prices in Belarus of the exporter are not taken into account. This means that costs and prices in a third country (Russia, Ukraine, US) are taken to examine whether there is dumping. This has several disadvantages for the exporters:the exporters prices are substituted by costs/prices in a market which is not necessarily fully comparable to the conditions in Belarusthe exporter has no access to these data ( business secrets) and fully exposed to the findings of the Commissionany review is very difficult to request because changes in the situation in a third country has to be proven.

The good news isAn individual Belarus exporter can argue that he works under undistorted market conditions.In order to show this it is necessary that:-Business decisions are taken without state influenceThere are no open or hidden subsidiesThe books and accounting follows international rules The conditions seem to be simple but for China less than half of the exporters fulfil these conditions.The rationale of these conditions is that the prices and costs of this exporter should not be distorted by the state. It is, therefore, a question of fair competition.The reward is that an exporter to whom market economy treatment is granted is treated in the same way as an exporter from a recognized market economy.

The practiceIn practice Belarus exporters may have difficulties to convince the Commission that they work under undistorted market conditions. In the past Commission tended not to grant market economy treatment when there were some doubts. It is up to the exporters representation in Brussels to argue against this rather hesitant attitude. This is even more important in cases when the found market distortion is minor and it would be disproportionate to refuse this favourable treatment because of minor and reparable faults.

The Brussels political environmentThe complaintAD proceedings are requested by a complaint of minimum of 25% of the EU industry. It is fully industry driven and no political influence takes place at this stage. The Commission examines the complaint and if acceptable (sufficient prima facie evidence of dumping, injury and causation) requests the opinion of the 27 Member States within an advisory committee. The opinion is only an advice to the Commission and not binding. Anyway, it is extremely seldom that there is a majority of Member States against the opening of a proceeding.The proceedingThe Commission antidumping service conducts the investigation.It sends out questionnaires (rather detailed concerning costs, prices, quantities, etc.) and afterwards visits the companies (exporters, importers, EU industry) to verify the correctness of the data in the questionnaires. Participation and cooperation in this proceeding is voluntary and there is no obligation whatsoever to participate or to tell the truth. However:In case of no cooperation or cheating, all the data will be taken from other sources under the heading best information available. In fact it is normally the most unfavourable information available. It is therefore highly advisable to cooperate and give the correct information.Provisional findingsAt the latest after nine months there have to be provisional findings normally in the form of provisional AD duties (or no duties). The imposition of provisional duties is not mandatory and exporters can argue that no provisional duties should be imposed. Importers can provide a bank guarantee if duties are imposed. The right to be heard is limited before provisional duties.Any provisional measures are imposed by the Commission. The opinion of the Member States is again - only advisory and not binding. There are quite a few cases in which the Commission has imposed provisional measures, although there was no majority of Member States in favour of duties.Definitive measuresOn the basis of the arguments of the parties involved the investigation continues until months 15. Around four months after provisional findings the Commission will make a proposal to the Member States for definitive findings. Definitive measures are imposed by a simple majority one Member State one vote - of the Council i.e. the Member States. Abstention is, however, counted as in favour of the Commission proposal. Now a certain political battle may start. There are some Member States which are traditionally against all kind of trade measure and AD duties. There are also a number of Member states which are traditionally in favour of measures. And there are those who decide on a case by case basis.

LobbyingOf course, the findings of the Commission should be predominant but the practice is that quite a few Member States decide according to their own short term interests. This is now the time for all kind of lobbying. This is the sad reality. Since in many cases concerning injury, public interest and amount of the duty there is discretion, lobbying can be quite successful.

Final advice 1Avoid dumping and monitor the EU market situation and its development.Try to find out (with your importers) what EU producers have in mindIf there is a case opened against your exports to the EU:cooperate in the proceedingtake an experienced consultant (lawyer, business representation, embassy etc.)prepare the files very carefullyfight for getting market economy treatment

Final advice 2If there are provisional measuresstart your arguments immediatelylook carefully into the detail of the Commission findings. There may be mistakes which only you can correct.If the Commission proposes definitive measures intensify your lobbying. Your case may not yet be lost!

Questions?Anna ZvolikevychBEUBCBrusselswww.beubc.comTel: +3227355626az@beubc.comVladimir MetelskyBEUBCMinskwww.beubc.comTel: +375296260708vm@beubc.com