The EU Commission has proposed a new method for calculating whether, and to what extent, imported goods have been dumped. While this issue is technical, it is highly important – for importers and third country exporters.
How to counter dumping in geographic markets? This issue has recently been raised with the EU Commission. Current rules for determining the dumping margin are claimed to be insufficient by certain stakeholders, including the European steel industry, in particular. The dumping margin is what establishes the level of anti-dumping duties imposed on a product that is found to be sold at a lower price than the cost of its production, transport and sales. The Commission currently must prove that these costs are greater than the sales price of the product in the EU. This presents great difficulty in situations where the market and cost levels in the country of origin are not transparent. This situation has become acute in the EU since it will no longer be possible for the European Comission to assess products from China using a special measure after 11 December this year. This special measure, as applied to China (and other countries considered non-market economies), permits using data from a third country for comparison when making this assessment. This method will now be phased out in relation to China, which leaves the European steel industry feeling threatened. This is namely due to China's gigantic overcapacity of steel production.
The EU Commission proposes that state subsidies and similar in the country of origin may be weighed in when calculating the dumping margin. It is well established that China heavily subsidizes several industries. This is done with soft loans, low or minimal land acquisition costs, export restrictions on certain products, and more. The Commission proposal also would involve eliminating the distinction between market and non-market economies. To replace this, the Commission would distinguish between WTO (World Trade Organisation) and non-WTO members. The snag with this is that the EU has already partly tested the new method in a WTO case brought against Argentina, but which was rejected. In the event the EU uses the proposed new method, but it is rejected by the WTO, the the union will face a difficult dilemma. In such a case, the ‘affected’ country could, within the scope of WTO rules, impose countermeasures, and the situation could easily spiral into a trade conflict.
We see anti-dumping duties as a heavy-handed tool that unnecessarily restricts trade. However, in limited cases such duties on dumped products may be a necessary evil, but these should not be used as a political weapon or to express pure protectionism. Unfortunately, the EU has, indeed, imposed anti-dumping duties on products in cases where the country of origin simply had comparative advantages. The most important considerations in any system for imposing such duties is having reliable calculation methods as well as providing importers with sufficient notice of planned measures so they can implement necessary adjustments accordingly. Transparency is absolutely critical! We also contend the EU should concentrate more on state subsidies in third countries when considering what trade defence instruments to utilize. To this extent the EU Commission proposal is welcome. In this case, we can only wait to see if is adopted, applied, and then that it actually works.
Olof Erixon, trade policy expert