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TDI Series: A brave new world for EU trade defence policy?

The European Commission plans to roll out anti-dumping and anti-subsidy tools to tackle a whole range of new global challenges, not least in the digital sphere. Arnoud Willems discusses trends, challenges and accountability issues in EU trade defence policy with Borderlex’s Iana Dreyer.

Arnoud Willems says using trade defence policy in the digital sphere requires classifying certain services as intangible goods.

“I would call on the European Parliament to be more involved with anti-dumping.” This is the conclusion reached by Arnoud Willems a partner at the law firm Sidley Austin after decades of working on European Union trade defence policy in Brussels.

The call comes as the European Commission plans to use the instrument more broadly to fight new threats to European Union  firms’ competitiveness, ranging from market distortions due to Chinese state subsidies, to pushing back on digital market dominance by non-EU  tech giants.

The European Parliament played a significant role in shaping the EU’s new basic anti-dumping regulation in 2016 and 2017. Instinctively MEPs tend to be more in favour of anti-dumping duties than against.

“And that’s okay,” said Willems, who specialises in fighting against such duties as a lawyer for foreign companies or importing  EU firms in anti-dumping cases. “But not enough MEPs fully grasp the intricacies of trade defence.”

“On paper the European Parliament has the same rights as the Council. But they just don’t sufficiently use them,” laments the Dutchman. “Lack of resources is not an excuse for a legislator.”

In a paper published in the summer 2019, Willems and two co-authors took stock of the ‘comitology’ system for trade defence that came into play with the Lisbon Treaty a decade earlier.

Lisbon effect

Decision-making in anti-dumping and anti-subsidy decisions was amended when the Lisbon Treaty came into force. Until 2009, member state representatives – i.e. the Council – were directly involved in the decision-making process for every trade defence case. The Lisbon Treaty gave the European Commission the lead in anti-dumping decisions.

Since then member states can now only oppose anti-dumping measures by a qualified majority. The Council enjoys rights of information and scrutiny but, in practice, it can hardly block any decision to adopt anti-dumping measures.

Many in Brussels welcome the post-Lisbon ‘comitology’ system for trade defence. Supporters say that the Commission is able to act decisively in the face of dumping activities. The ‘comitology’ system limits the ability of powerful non-EU countries to exert pressure on individual member states to dilute or veto decisions.

Willems does not share this consensus view. He thinks the retreat of the Council and the absence of political process around a trade defence case makes compromise more difficult with EU-based interested parties, including users and importers. The measures are also less legally sound.

“The enhanced role of the Commission may have helped streamline anti-dumping rule-making but it came to the detriment of legislative accountability and meaningful scrutiny over the Commission’s actions,” wrote Willems.

The consequence, argues Willems, is a surge in litigation at the Court of Justice of the European Union compared to the pre-Lisbon era. In the past, negotiations with member state capitals might well have led to a compromise arrangement or a reduction in initially proposed tariff levels. But the measure would ‘stick’ and the foreign exporter or EU-based importer affected would be less inclined to go to court.

On 31 December 2019, a record number of cases related to anti-dumping, anti-subsidies and safeguards were pending in Luxembourg. Twelve were awaiting appeal at the Court of Justice, and a bumper 44 cases were in the queue at the General Court, up from 35 in 2018. “This raises questions on the effectiveness of the current comitology framework in enabling effective and accountable rule-making,” writes Willems.

The surge in litigation occurred despite the fact that under the last Commission the number of actual trade defence cases – in particular anti-dumping cases – went down.

New trade defence cases launched by the European Commission:

Year New anti-dumping New safeguards Case reopening China target
2019 7 3 5 9
2018 4 2 2 1
2017 5 2 2 6
2016 9 1 5 9

Source: European Commission. Compiled by Borderlex.

“Trade defence has become more technical and less political. Without political impetus, the Commission has the power to initiate and to end [cases]. If they consider that their resources are better spent somewhere else, then that’s their decision,” said Willems.

The trade defence litigation frenzy in Luxembourg is also due to the fact that the judges at the court have gotten under the skin of anti-dumping cases and have not infrequently rebuked the Commission on procedural and technical grounds. “I have seen increasing attention to nitty-gritty of dumping cases,” notes the lawyer.

Change of course under Hogan?

Former trade commissioner Cecilia Malmström, a Swedish liberal with free-trading instincts, oversaw a slowdown of trade defence activity at the Commission’s trade directorate. She also terminated a  large number of investigations and cases. Could the new European Commission, and Malmström’s successor Phil Hogan, change course?

Signs are that this could well be the case. The last months of 2019 already saw a small uptick in new cases initiated by the Commission. Hogan does not seem to want to stand in the way. “I intend to make full use of our trade defence instruments,” the then agriculture commissioner announced during his confirmation hearing in the European Parliament last September.

The Commission has also made clear that trade defence would be an instrument of choice in tackling distortions stemming from state subsidies, especially from China.

The new anti-dumping methodology that came into force in 2018 already contributes to the bloc’s environmental and social agenda. To calculate injury from imports, the Commission now estimates ‘future costs’ of climate mitigation for EU firms as in a recent decision on EU anti-dumping measures on urea and ammonium nitrate from Russia, Trinidad and Tobago and the United States of America. It also takes into account labour costs and labour rights.

Enter 5G

Most recently, EU anti-dumping has entered the global technological battle. The Commission unveiled a new ‘toolbox’ to deal with new-generation digital infrastructure investments. The move stems from a concern with potential market dominance of Huawei, the Chinese leader in the field, and with possible security breaches due to the company’s alleged close ties with the Chinese state.

Commission Vice President Margrethe Vestager said trade remedy proposals against certain companies in the 5G world could act “as a deterrent”. Credit: EC.

The Commission announced that it would “monitor all relevant market developments in the EU and in third countries, and protect EU actors in the European 5G market with trade defence measures to address potential trade distorting practices (dumping or subsidisation), including by launching preliminary enquiries where appropriate”.

Such action would require much more resources for DG Trade – and these have been scarce in recent years. It may also require the Commission to initiate an anti-dumping investigation ‘ex officio’ instead of relying on a formal complaint from industry, because companies, for many reasons, may be reluctant to bring a complaint in this area.

To Willems, trade defence in the digital sector brings particular challenges. A first challenge relates to potential investigations targeting ‘intangible goods’. This would require classifying such intangibles as goods – rather than services or something else – given that anti-dumping investigations can only target goods. It is unclear how the Commission would approach the value added to goods by services.

These are tricky questions, but addressing them could give trade defence a new impetus and make it  more relevant to the 21st century economy, argues Willems.

Pushback against litigation surge

Both the Court of Justice of the EU and the Commission – for different reasons – are pushing back against the rise in trade defence court cases.

The Court of Justice may simply be trying to bring down the caseload. “The Court basically created a new admissibility hurdle for direct actions,” explains Willems. Companies must now show an interest in bringing specific arguments rather than just showing an interest in bringing the case.

The Commission itself has strarted dealing differently with anti-dumping measures following court cases it has lost. In 2019, the Commission reopened five high-profile cases ranging from bicycles from Sri Lanka to steel fasteners from China.

“The Commission introduced a new practice of implementing court judgements ex tunc,” said Willems. In other words, the Commission goes back years in time to readjust anti-dumping measures retroactively. In the past, it would simply cancel the measures and make adjustments for the remaining time an anti-dumping measure was in place.

The new practice saves money, as the Commission would otherwise need to reimburse duties to aggravated firms. The result of this practice is that companies that bring a successful court case against trade defence measures are less likely to obtain reimbursement of the duties they paid. Not many companies are likely to start court cases out of principle only – so Willems expects fewer court cases in future.

If trade defence activity is genuinely to increase in the EU in the coming years, perhaps efforts to increase transparency and accountability in the decision-making process, through more involvement of the European Parliament, won’t be that bad an idea.

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