MEP Christofer Fjellner explains why he voted in support of the EU’s new trade defence methodology, which comes into force today, despite what he sees as its shortcomings.
Throughout my 13 years in the European Parliament, I have worked for balanced use of the EU’s trade defence instruments.
These instruments deprive importers and exporters of the predictability that is offered by tariffs bound in the World Trade Organization. They put more jobs at risk in downstream industries than they protect EU industries. Research shows these measures slow structural change in Europe’s industries.
Still, I voted in favour of a dubious new dumping reform that enters into force today.
The reason the EU is changing its methodology to calculate dumping duties is a provision in China’s accession protocol to the WTO that expired slightly more than a year ago.
The provision states that 15 years after China’s accession to the WTO, no trading partner can continue to use third-country prices by default when calculating the dumping margin in dumping investigations against the country.
In the EU’s trade jargon, this is called the ‘analogue country method’. The decision to regularly stop using that method is called granting ‘market economy status’ or MES to a country – a very misleading term.
The honest thing to do would have been to accept the provisions that the EU agreed on when China joined the WTO in 2001, and simply to grant China MES, despite the Asian nation not being a market economy. Yet that would have been politically impossible.
Instead, the European Commission drew up a new complicated calculation method that would replace the analogue country method altogether when the commission finds significant distortions in a trading partner exporting goods to the EU.
After a few slight modifications, I voted in favour of this methodology for two major reasons.
Firstly, the new methodology abolishes the analogue country method. As applied today, continuing its use would have been an example of outright and indefensible protectionism. Vis-à-vis China, it would have been flat out illegal under WTO terms.
The fact that the commission usually chooses the United States as the analogue country when investigating dumping complaints means that it can practically find sky-high dumping margins for any product, at any time.
With the new method, the commission at least has to choose third-country prices from a country that has a similar level of development. This is an improvement, as it can make dumping margins slightly more realistic.
Secondly, the new method gives the commission a chance to apply trade defence measures in a WTO-compatible way. The current legislation is obviously incompatible with our WTO commitments, as it directly discriminates against China.
The new legislation doesn’t have that problem, even if it runs against the basic idea on how trade defence instruments are governed in the WTO.
Room for improvement
Indeed, to compensate for companies in exporting countries selling at a price under the normal value determined by the costs it faces in the country of production, the instrument permitted in the WTO is dumping duties. For government-induced distortions, the allowed instrument is countervailing duties. Dumping duties are supposed to tackle foreign company behaviour that causes injury to a domestic industry. Countervailing duties are there to tackle state action in third countries that causes injury to domestic industry.
The new legislation is slightly unclear regarding who will have to prove that significant distortions make domestic prices unfit to be used by the dumping authorities. To be WTO-compatible as a piece of legislation, I believe it must be clear that the burden rests on the commission as the investigating authority. Hopefully, this legislation can stand the test in WTO dispute settlement.
I am almost certain that if the commission were to apply this new methodology to the extent the legislation says it can, the EU would be in illegal territory once again.
After the WTO dispute settlement case on biodiesel duties from Argentina that the EU lost in 2016, we know there is little wiggle room for introducing duties built on constructed prices where some costs have been replaced with third-country prices or international benchmarks. It is quite likely that after a few further setbacks in WTO dispute settlement, the margin for manoeuvre in the commission will become even smaller.
I do not expect a significant shift in how the commission conducts dumping investigations against China right now. However, with forthcoming jurisprudence, our dumping action may in fact become both less protectionist and more WTO-compatible than today. Abiding by the rules of multilateral trade must be the core of EU trade policy. We, the co-legislators, have done our part. The commission must now do the same.
This is a far from perfect new piece of legislation, but certainly an improvement over the one we have had so far.