The Future of the EU
Anti-Dumping Policy in Countering
Chinese Dumping
The new EU anti-dumping policy
after the expiration of some
provisions of article 15 of the
Protocol on the Accession of the
People’s Republic of China
Name: Raymond Alexander Kösters
Master track: International Trade and Investment Law Supervisor: dr. J.H. Mathis
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Abstract
The Commission proposed new amendments to the ADR to anticipate on the expiration of subparagraph (a)(ii) of article 15 of the CAP on 11 December 2016. This paper delves into the question whether these newly proposed amendments are in line with the legal implications of the expiration of subparagraph (a)(ii) of the CAP and what role the concept of MES plays in this.
It is argued that MES is a related issue to the expiration of subparagraph (a)(ii) of the CAP, but not what is at stake. The issue on the expiration of subparagraph (a)(ii) is whether the EU can still apply NME methodology after 11 December 2016. There are two different interpretations. According to one interpretation the application of NME methodology based on the CAP on Chinese dumped products is still possible after 11 December 2016, based on the non-expiring provisions of article 15 of the CAP. According to the second interpretation NME methodology is no longer possible because subparagraph (a)(ii) was the only provision explicitly allowing for NME methodology on Chinese dumped products. The AB gave a non -binding suggestion in EC Fasteners that the second interpretation is the right one.
The EU – Biodiesel case sheds more light on the proposed amendments to the ADR. The Commission proposed to no longer maintain a list of NME countries, but instead use a criterion of ′significant market distortion,′ which, if applicable, allows the investigating authorities to construct normal value by using international benchmarks. According to the EU – Biodiesel case, the normal value must still arrive at the domestic price, even though international benchmarks are allowed to be used. However, it is not allowed to arrive at a surrogate price based on international benchmarks that constitutes a normal value that would be in place if the market distortion was not there in the first place. It is argued that the proposed amendments are therefore not inconsistent with WTO law, but when applied accordingly to WTO law, it might not achieve its aimed effect of tackling the market distortion. Also, it is argued that basing NME methodology on the second adnote of article VI GATT appears to be too complicated because the threshold of that article is most likely too high to be met.
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List of Abbreviations
Abbreviation
Description
AB Appellate Body
AD Anti-Dumping
ADA Agreement on Implementation of Article VI of
the General Agreement on Tariffs and Trade 1994
ADD Anti-Dumping Duties
ADR Anti-Dumping Regulation
BIT Bilateral Investment Treaty
CAP Protocol on the Accession of the People’s
Republic of China
DET Differential Export Tax
DSB Dispute Settlement Body
DSU Dispute Settlement Understanding
EU European Union
GATT General Agreement on Tariffs and Trade
1994
IT Individual Treatment
LDR Lesser Duty Rule
ME Market Economy
MES Market Economy Status
NME Non-Market Economy
NMES Non-Market Economy Status
NMET Non-Market Economy Treatment
TDI Trade Defence Instrument
USD United States Dollar
VCLT Vienna Convention on the Law of the Treaties
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Table of Contents
Abstract ... 3
List of Abbreviations ... 4
1. Introduction ... 6
2. EU AD policy within the framework of the WTO ... 9
2.1 Dumping within the framework of the WTO ... 9
2.1.1 Determination of dumping ... 10
2.1.2 Determination of normal value ... 10
2.1.3 Determination of injury and causal link ... 11
2.2 EU AD policy ... 12
2.2.1 The EU ADR ... 13
2.2.2 The ADR and Chinese exporters ... 13
3. Role of (N)MES in AD ... 15
3.1 MES and WTO law ... 15
3.2 MES under EU Law ... 17
3.3 Russia and MES ... 18
3.4 Political features of MES ... 19
4. Interpretation issues of China’s WTO Accession Protocol ... 21
4.1 NME methodology can still be based on the CAP after the expiration of subparagraph (a)(ii) ... 22
4.2 Expiration of subparagraph (a)(ii) renders NME methodology impossible to be based on the CAP ... 23
4.3 EC - Fasteners ... 24
5. The future EU AD policy towards China ... 26
5.1 Proposed amendments and policy changes to the ADR ... 26
5.2 EU - Biodiesel ... 28
5.2.1 ′As applied′ claims ... 28
5.2.2 ′As such′ claims ... 29
5.3 Assessment of the proposed future EU AD policy ... 29
6. Conclusion ... 32
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1. Introduction
After almost 15 years of negotiations, on 10 November 2001 the World Trade Organization (WTO) Ministerial Conference approved China’s accession to the WTO. Thirty days after notification of the ratification of the Accession agreement by the Chinese parliament, China legally became a member of the WTO, which was on 11 December 2001.1 China became the 143rd member of the WTO. This was an historical moment for both China and the WTO. At the 10th anniversary of China’s accession to the WTO, then Chinese president Hu Jintao said: ′′China’s accession to the WTO is a milestone in China’s reform and opening up, bringing us into a new era to further open up. To join the WTO was a major strategic decision based on our comprehensive analysis of the situation at home and abroad in order to push forward China’s reform and opening -up and socialist modernization drive.′′ 2 It can be seen that in the
15 years after China’s accession to the WTO the Chinese trade in terms of merchandise exports was booming from 266.098 billion United States Dollars (USD) in 2001 to 2.275 trillion USD in 2015.3 Also, a steep rise in the Chinese gross domestic product and gross national income
(which is not only related to international trade) can be seen from 2001 onwards.4
However, it is not all gold that glitters. Since its accession to the WTO in 2001, China has participated in 54 cases before the Dispute Settlement Body (DSB).5 The increased trade friction between China and its trading partners is not so much a result of China’s accession to the WTO, but more because of the sharp increase of Chinese international trade since the mid-1990s.6 The aforementioned cases often revolve around the usage of Trade Defense Instruments (TDIs): anti-dumping (AD) measures, countervailing duties and safeguards. This essay will solely focus on AD measures, because these are the most frequently used TDI and therefore most influential on international trade patterns and diversions.7
1 ‘WTO Ministerial Conference approves China's accession’ (WTO)
Available at: <https://www.wto.org/english/news_e/pres01_e/pr252_e.htm> Accessed on 2 June 2017.
2 ‘China in the WTO: Past, Presence and future’ (Permanent Mission of China to the WTO)
Available at: <https://www.wto.org/english/thewto_e/acc_e/s7lu_e.pdf> Accessed on 2 June 2017.
3 ‘Trade China Data’ (Worldbank)
Available at: <http://data.worldbank.org/topic/trade?locations=CN> Accessed on 2 June 2017.
4 ‘Trade China Data’ (Worldbank)
Available at: <http://data.worldbank.org/country/china> Accessed on 2 June 2017.
5 ′China and the WTO′ (WTO)
<https://www.wto.org/english/thewto_e/countries_e/china_e.htm> Accessed 30 May 2017.
6 Rui Pan, ‘China’s WTO membership and the Non Market Economy Status: discrimination and impediment to
China’s foreign trade’ (2015) Journal of Contemporary China, 24:94, p. 744.
7 Cecilia Bellora & Sebastien Jean, ‘Granting Market Economy Status to China in the EU: An Economic Impact
7 Since early 1995, China has had 1170 AD measures targeted against it, while worldwide on all countries there have been 5132 AD measures initiated in that same period. This means that almost 23% of all AD measures initiated since the establishment of the WTO by any country where targeted against China. The European Union (EU) is accountable for 128 of these AD measures against China and ranks third behind the USA (140 AD measures against China) and India (193 AD measures against China).8
Also, the amount of AD measures of the EU in force against China skyrocketed from 28, accounting for 21% of the total AD measures the EU had in force in 2001, to 51, accounting for 47% of the total AD measures the EU had in force in 2014.9
The high amount of cases before the DSB in which China is involved is not surprising, since the Chinese economy is more influenced by the state than most other countries, meaning that there is a lot of state interference with Chinese enterprises. This type of economy is often referred to as state capitalism.10 On top of that, China is also a vast economy. These factors
inevitably lead to trade frictions between China and its biggest trading partners.
Now, upon China’s accession to the WTO, a special accession protocol was negotiated, known as the Chinese Accession Protocol (CAP). Normally, a country acceding to the WTO only has to commit itself to abide by the WTO rules. China on the other hand, has with the CAP also committed to WTO-plus commitments and WTO-minus rights as well. An example of a WTO-plus commitment is the obligation of China to eliminate all export subsidies, including agricultural subsidies.11 This paper will focus on one of China’s WTO-minus rights that are stipulated in the CAP, namely the alternative methodology that applies in the determination of AD duties (ADD) on dumped Chinese products, in particular on the EU market.
Article 15 of the CAP thus allows for a deviation from the standard methodology that applies in the determination of ADD. The alternative methodology that could be applied to dumped Chinese products is often referred to as the Non-Market Economy (NME)-methodology. This alternative methodology allows the investigating authorities of an importing
8 ‘Anti-dumping Initiations: Reporting Member vs Exporter 01/01/1995 - 30/06/2016’ (WTO)
Available at: <https://www.wto.org/english/tratop_e/adp_e/AD_InitiationsRepMemVsExpCty.pdf> Accessed on 2 June 2017.
9 Yalcin Erdal, Gabriel Felbermayr & Alexander Sandkamp, ‘New trade rules for China? Opportunities and
threats for the EU’ (2016) European Parliament's Committee on International Trade, Brussels, p. 26. [Erdal]
10 ‘The Rise of State Capitalism’ (The Economist)
Available at: <http://www.economist.com/node/21543160> Accessed on 2 June 2017.
11 ‘China’s WTO accession: 15 years on taking, shaking or shaping WTO Rules?’ (Briefing European
Parliamentary Research Service) Available at:
<http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/593570/EPRS_BRI(2016)593570_EN.pdf> Accessed on 5 June 2017.
8 country, e.g. the EU, to determine the normal value of the dumped products, based on the records of an analogue country, instead of the Chinese producers’ records. This methodology is considered to be detrimental for Chinese exporters. However, article 15 of the CAP offers the possibility to grant China a Market Economy Status (MES), which means that the NME methodology of article 15 of the CAP no longer applies to Chinese exports to the country that granted China a MES. Yet, the requirements to obtain a MES are determined by domestic law. So far, 80 countries have granted China a MES.12 The EU on the other hand, has not granted China a MES.
Now, complications arise because some provisions of article 15 of the CAP expired 15 years after China’s accession to the WTO, on 11 December 2016. China argues that the NME methodology can therefore no longer apply to Chinese dumped products. On 12 December 2016, China requested consultations with the EU on the determination of price methodology in AD procedures, complaining that the current EU Anti-Dumping Regulation13 (ADR) is not in
compliance with the Anti-Dumping Agreement (ADA) and the General Agreement on Tariffs and Trade (GATT).14 However, by contrast, some authors disagree with China and claim that
after the expiration of some provisions of article 15 of the CAP, the NME methodology still applies to China. This paper seeks to answer the following question: to what extent do the proposed amendments to the ADR and its corresponding policy cover the legal implications of the expiration of some provisions of article 15 CAP for the EU in AD proceedings against China and what role does a Chinese MES play in this?
This paper will shed a light on the debate on the interpretation issues of article 15 of the CAP and will also focus on the relevancy of a potential Chinese MES in all this. Then, the EU AD policy and its recently proposed amendments and intended aimed effects will be addressed and evaluated in light of the recent outcome of the EU – Biodiesel case.15
12 Katarzyna Kaszubska, ‘Rethinking China’s Non-Market Economy Status Beyond 2016’ (2017) Observer
Research Foundation, p. 6. [Kaszubska]
13 Regulation (EU) 2016/1036 of 8 June 2016 on protection against dumped imports from countries not members
of the European Union.
14 European Union - Measures Related to Price Comparison Methodologies, WT/DS516/9. [EU –
Methodologies]
15 Appellate Body Report, European Union – Anti-Dumping Measures on Biodiesel from Argentina,
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2. EU AD policy within the framework of the
WTO
AD is governed by domestic law, which has to be in accordance with WTO law. Thus, when a country initiates an AD procedure, it stems from its own national laws, which has to be in accordance with article VI GATT and the ADA. If the national legislation is not in accordance with WTO law or not accordingly to WTO law applied, it can be challenged before the DSB and found to be inconsistent by the Panel and/or the Appellate Body (AB). This happened to the currently applicable ADR, which is the EU’s domestic AD legislation and was found to be applied inconsistently with WTO law. This will be discussed in chapter 5.
This chapter will first briefly discuss the general framework of AD within WTO law and then introduce the currently applicable ADR, while zooming in on the treatment of Chinese exporters under the ADR.
2.1 Dumping within the framework of the WTO
AD is an exception to the general regime of WTO law. The general regime aims to smooth trade flows through the application of most-favoured-nation Treatment (MFN).16 According to
the MFN rule, all tariffs of the importing country should be applied equally to all exporting countries. Imposing ADD on dumped products appears to be at odds with the MFN rule, since there is an additional tariff on the dumped products. Therefore, article VI GATT provides for an exception to the rules, by allowing dumped products to be charged with a duty. The provisions of the ADA are governing the application of article VI GATT, but shall only be applied under the circumstances which are stipulated in article VI GATT.17 It is said, that the
ADA is a part of the political balancing between WTO objectives of smoothing and liberalizing trade, while on the other hand taking the domestic concerns of WTO members into consideration, by protecting their domestic industries from unfair trade practices, such as dumping.18
16 ‘Anti-Dumping, subsidies, safeguards: contingencies, etc.’ (WTO)
Available at: <https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm8_e.htm> Accessed on 8 June 2017.
17 Article 1 ADA.
10 2.1.1 Determination of dumping
Article 2 of the ADA defines dumping as follows: ′′[…] a product is to be considered as being dumped, i.e. introduced into the commerce of another country at less than its normal value, if the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country.′′ 19 Next, article 2.6 ADA defines like products as: ′′a product which is identical, i.e. alike in all respects to the product under consideration or, in the absence of such a product, another product which, although not alike in all respects, has characteristics closely resembling those of the product under consideration.′′ 20 Now, the ADA does not define what the ordinary course of trade means, but instead defines what is to be considered as not being in the ordinary course of trade. According to article 2.2.1 ADA, sales of the like product when exporting to another country at prices below the production costs may be treated as not being in the ordinary course of trade and therefore can be disregarded in determining the normal value.21 The notion behind this idea is to be able to compare two markets, therefore, in order to be in the ordinary course of trade, it is required that both the importing and the exporting country are market economies.22
In all, when country A exports a products to country B at a price which is below the cost of production of that (like) product in country A, then it should be considered to be dumped on the market of country B. Now, the difficulty lies in determining the normal value. Especially when there are certain market distortions, there are different possible methodologies to apply in determining the normal value.
2.1.2 Determination of normal value
When there are no market distortions, the normal value would be determined by comparing the prices of the like product in the exporting country to those of the producer(s) under investigation. Then, according to paragraph 2.4 ADA, there shall be made due allowance on the merits of each case to make a fair comparison between differences which may affect the price comparability.23 If that has been done so accordingly, then the difference between the normal value and the export price makes up the dumping margin. However, products are often being dumped by countries who do not operate under market economy (ME) conditions. This makes the determination of the normal value extra complicated, because the domestic prices do not reflect the price that would have been established if ME conditions prevailed. Therefore, Article VI GATT and the ADA allow for different methodologies to be applied in cases where normal value cannot be determined, due to the absence of proper domestic prices. First, the
19 Article 2.1 ADA. 20 Article 2.6 ADA. 21 Article 2.2.1 ADA.
22 Christian Tietje & Karsten Nowroth, ‘Myth or reality? China’s market Economy Status under WTO
Anti-Dumping Law after 2016’ (2011) Policy Papers on Transnational Economic Law, 34, p. 3. [Tietje]
11 second adnote of article VI GATT reads as follows: ′′It is recognized that, in the case of imports from a country which has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the State, special difficulties may exist in determining price comparability for the purposes of paragraph 1, and in such cases importing contracting parties may find it necessary to take into account the possibility that a strict comparison with domestic prices in such a country may not always be appropriate.′′24 This provision allows investigating
authorities explicitly, with a wide discretion, to deviate from a strict comparison between the exporter´s price and the domestic price. However, as can be seen from the underlined sentences, there is a very high threshold to be met in order to be applicable. This provision was included in 1955, when some countries’ trade was indeed (substantially) monopolized, with all domestic prices fixed by the state.25 It seems difficult, if not impossible, to be applicable in today’s world to a country like China.
If the second adnote of article VI GATT cannot be used to deviate from the standard methodology to determine the normal value, there are two remaining options for investigating authorities to resort to if they do not want to use the standard methodology. Either by means of applying article 2.2 ADA or through specific provisions, such as the CAP. Article 2.2 ADA is, unlike the CAP, equally applicable to all WTO members and allows for 2 alternative methods to be applied to determine the normal value:
Determining the margin of dumping in comparison with:
(i) A comparable price of the like product when exported to an appropriate third country (where this is considered to be a representative price).
(ii) Cost of production of the exporting country, plus a reasonable amount of administrative, selling and general costs.26
The application of article 2.2 ADA will be further elaborated on in the last chapter of this paper.
2.1.3 Determination of injury and causal link
Article VI GATT specifies that the determined dumping also has to threaten to either cause material injury or actually cause material injury or material retard the establishment of the domestic industry.27 Material retardation is not specified by the GATT and the ADA. Important in the determination of injury is that the impact on the domestic market of the imported country is made in such a way that all relevant economic factors (output, magnitude of dumping, market share etc.) are to be taken into account, as well
24 Second adnote article VI GATT (emphasis added).
25 ‘Article VI GATT Anti-Dumping and Countervailing duties’ (WTO) Available at:
<https://www.wto.org/english/res_e/booksp_e/gatt_ai_e/art6_e.pdf> Accessed 2 June 2017
26 Article 2.2 ADA.
12 as the causal link between the injury to the domestic importer’s market and the dumped products.28 It has to be noted that injuries that are caused by other factors than dumping, should not attribute to the dumping, but dumping itself on the other hand is not required to be proven to be the major cause of the injury.29
When it comes to a threat of material injury caused by dumping, the threat to further dumped exports must be imminent and article 3.7 ADA provides 4 factors (of which not only 1 can be decisive on its own) that have to be taken into consideration to prove a threat of material injury to a domestic market:
(i) a significant rate of increase of dumped imports into the domestic market indicating the likelihood of substantially increased importation;
(ii) sufficient freely disposable, or an imminent, substantial increase in, capacity of the exporter indicating the likelihood of substantially increased dumped exports to the importing Member’s market, taking into account the availability of other export markets to absorb any additional exports;
(iii) whether imports are entering at prices that will have a significant depressing or suppressing effect on domestic prices, and would likely increase demand for further imports; and
(iv) inventories of the product being investigated.30
2.2 EU AD policy
When it comes to international trade, the EU is of great importance, since it’s the world’s biggest trader, computing 16.5% of all imports and exports worldwide. On top of that, the EU has committed itself to liberalize world trade. 31 The EU has its own AD policy, codified in the ADR. This policy is now on the edge of changing, but before addressing the proposed amendments to the ADR and AD policy, this chapter will briefly discuss the current and previous AD policy of the EU.
28 Articles 3.4, 3.5, 3.6 ADA. 29 Luo, supra note 18 at 71. 30 Article 3.7 ADA.
31 ‘European Union Trade’ (European Union)
13 2.2.1 The ADR
The ADR is a lot like the ADA, but it has its own specific features that not all other WTO members necessarily have. Article 2(7) ADR maintains a list of countries who are considered to be an NME and to whom a different regime applies. The normal value in case of dumped products from these countries can be determined by using a third country’s prices and production data. This is also known as the analogue country method, or the NME methodology. The dumped products will then be compared to a third country’s export price of the like product. This is considered to be detrimental to exporters from these NME countries, since the dumping margins will go up as the prices of the third country might be higher.32 China complained about the arbitrariness of the EU in selecting a proper third country and filed a case against the Commission. According the ECJ, the EU investigating authorities are required to use all the available information before them in order to select a proper third country, without easily switching to another third country if the selected third country’s producers do not cooperate, otherwise the EU investigating authorities will violate article 2(7) ADR.33
Also, Article 9(4) ADR contains the lesser duty rule (LDR), which stipulates that the dumping margin should be lessened when the lesser ADD are adequate to remove the injury from the EU industry that suffers the detrimental effects of the dumped products under investigation. The LDR thus leads to lower ADD. This rule is not mandatory, but only recommended under WTO law.34 As a comparison, the USA does not use the LDR.35
2.2.2 The ADR and Chinese exporters
China is also considered an NME country, in which case article 15 of the CAP allows for a deviation from the standard methodology in determining normal value. If a Chinese exporter’s products are considered to be dumped on the EU market, there are three possible scenarios for the Chinese exporter when the normal value of his product is being determined: under the current and previous ADR, dumped Chinese exports can be calculated on the basis of the analogue country method, or receive market economy treatment (MET), or individual treatment (IT).
32 Jochem de Kok, ‘The Future of EU Trade Defence Investigation against Imports from China’ (2016) journal
of international economic Law, 19, 515-547, p. 519. [De Kok]
33 ECJ: C-338/10, Grünwald Logistik Service GmbH (GLS) v. Hauptzollamt Hamburg-Stadt. 34 Kaszubska, supra note 12 at 16.
35 Yalcin Erdal, & Alexander Sandkamp (2016), ‘China’s Market Economy Status and European Anti-Dumping
14 According to article 2(7)(b) ADR, Chinese exporters can apply for MET if the 5 conditions set out in article 2(7)(c) ADR are met. These are as follows:
— decisions of firms regarding prices, costs and inputs, including for instance raw materials, cost of technology and labour, output, sales and investment, are made in response to market signals reflecting supply and demand, and without significant State interference36 in that regard, and costs of major inputs substantially reflect market values,
— firms have one clear set of basic accounting records which are independently audited in line with international accounting standards and are applied for all purposes
— the production costs and financial situation of firms are not subject to significant distortions carried over from the former non-market-economy system, in particular in relation to depreciation of assets, other writeoffs, barter trade and payment via compensation of debts,
— the firms concerned are subject to bankruptcy and property laws which guarantee legal certainty and stability for the operation of firms, and
— exchange rate conversions are carried out at the market rate.37
When MET is found to be applicable, the normal value of the dumped products will be determined as if the exporter was located in an ME country, thus leading to lower ADD.38
The last option would be IT. This would be possible if it is not too burdensome for the EU investigating authorities to come up with an individual duty of a firm. The NME methodology then still applies, but the third country records will be compared to the individual exporter instead of the average of several Chinese exporters, thus leading to lower ADD.39
36 State interference cannot be automatically equated to significant state interference, see. ECJ: C-337/09 P,
Council of the European Union v. Zhejiang Xinan Chemical Industrial Group Co. Ltd.
37 Article 2(7)(c) ADR. 38 Erdal, supra note 35 at 80. 39 Ibid.
15
3. Role of (N)MES in AD
The political and academical debate about the future treatment of Chinese dumping on the EU market revolves around the expiration of subparagraph (a)(ii) of article 15 of the CAP. However, MES can be seen as a separated issue from the expiring clauses of article 15 CAP. The Chinese envoy to the EU pointed this out as well on 25 February 2016 stating: ′′[…], the real issue is about the EU honouring an international legal obligation, namely Article 15 of the Protocol on the Accession of China to the WTO […] Though this and MES are related, they are different issues. […].′′ 40 Also, the Chinese Ministry of Foreign Affairs in a regular press conference on 26 May 2016 said: ′′Regarding the market economy status, there is no such concept as "market economy status" in the WTO rules. […] as provided for in Article 15 of the accession protocol China signed when joining the WTO, WTO members should drop the practice of "surrogate country" in anti-dumping investigations against China by December 11, 2016.′′ 41 The Chinese stance on the matter is clear; the NME methodology should no longer apply to China.
Some scholars and practitioners seem to assume that China will be granted a MES by default on 11 December 2016, while others disagree. Now, this chapter aims to clarify the meaning and role of the concept of MES in the whole discussion about the future treatment of Chinese dumping. Then, the next chapter shall focus on the interpretation issues of the expiration of subparagraph (a)(ii) of article 15 of the CAP.
3.1 MES and WTO law
Paragraph (d) of article 15 of the CAP reads as follows:
[…]
(d) Once China has established, under the national law of the importing WTO Member, that it is a market economy, the provisions of subparagraph (a) shall
40 ′Keynote Speech by H.E. Ambassador Yang Yanyi, Head of the Chinese Mission to the EU, at
BUSINESSEUROPE Executive Committee Meeting′ (Mission of the People’s Republic of China to the
European union)
<http://www.chinamission.be/eng/mh/t1343489.htm> Accessed 28 May 2017 (emphasis added).
41 ‘Foreign Ministry Spokesperson Hua Chunying's Regular Press Conference on May 26, 2016.’ (Ministery of
Foreign Affairs of the People’s Republic of China) Available at:
<http://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/2535_665405/t1367062.shtml> Accessed 10 June 2017. [Press Conference]
16 be terminated provided that the importing Member's national law contains market economy criteria as of the date of accession. In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession. In addition, should China establish, pursuant to the national law of the importing WTO Member, that market economy conditions prevail in a particular industry or sector, the non-market economy provisions of subparagraph (a) shall no longer apply to that industry or sector.42
As can be seen in paragraph (d) of article 15 of the CAP, once China qualifies as a MES, the provisions in paragraph (a) of article 15 of the CAP shall no longer apply. Accordingly, paragraph (a) of article 15 of the CAP allows investigating authorities to apply NME methodology on the determination of the normal value of dumped Chinese products. Thus, China is keen on receiving a MES, because it will result in lower ADD.43 Also, 14 out of 16
countries that have granted China a MES reduced their amount of AD investigations on Chinese imports.44 On top of that, countries with a MES have a smaller chance (59%) of an AD
investigation resulting in definitive duties, than China with a NMES (76%).45
However, the underlined provision indicates that the provisions of paragraph (a) of article 15 of the CAP shall only be terminated if the national importing WTO member already had adopted market economy criteria prior to China’s date of accession to the WTO. The EU did not yet maintain these market economy criteria on 11 December 2001.46 Still, China requested the EU to be granted a MES. In 2008 the Commission published a working report in which it rejected China a MES, because only one out of 5 of the EU’s criteria to qualify as a MES was met by China.47 In 2011 China was also rejected a MES, due to a lack of cooperation with the EU authorities.48
42 Article 15(d) CAP (emphasis added).
43 David Kleimann, ‘The vulnerability of EU Anti-Dumping Measures against China after 11 December, 2016’
(2016) European University Institute, p. 3. [Kleimann]
44 Urdinez Francisco, ‘The Political Economy of the Chinese Market Economy Status given by Argentina and
Brazil’(2014) Revista CS, 14, p. 72.
45 Bellora, supra note 7 at 7. 46 Kleimann, supra note 43.
47 Commission of the European Communities, Commission Staff Working Document on Progress by The
People’s Republic of China Towards Graduation to Market Economy Status in Trade Defence Investigations, Brussels, 19 September 2008, SEC(2008) 2503 final. [Commission]
48 Commission staff working document, report from the Commission to the European Parliament, 30th Annual
Report from the Commission to the European Parliament on the EU's Anti-Dumping, Anti-Subsidy and Safeguard activities, 2011 COM(2012) 599 final.
17 3.2 MES under EU Law
First, it has to be noted that WTO law does not define when countries should be granted a MES and which conditions apply. Instead, this is all up to the discretion of WTO members. Thus, EU law sets out the criteria that China has to meet in order to qualify as a MES. In order to qualify as a MES under EU Law, China has to meet 5 criteria, which are quite similar to the criteria set out in article 2(7)(c) ADR when a Chinese exporter is applying for MET. The 5 criteria to qualify for MES, however, are as follows:
1. a low degree of government influence over the allocation of resources and decisions of enterprises, whether directly or indirectly (e.g. public bodies), for example through the use of state-fixed prices, or discrimination in the tax, trade or currency regimes.
2. an absence of state-induced distortions in the operation of enterprises linked to privatization and the use of non-market trading or compensation system
3. the existence and implementation of a transparent and non-discriminatory company law which ensures adequate corporate governance (application of international accounting standards, protection of shareholders, public availability of accurate company information).
4. the existence and implementation of a coherent, effective and transparent set of laws which ensure the respect of property rights and the operation of a functioning bankruptcy regime.
5. the existence of a genuine financial sector which operates independently from the state and which in law and practice is subject to sufficient guarantee provisions and adequate supervision.49
According to the Working report dating from 2008, the EU considers China to only having fulfilled the second criterion.50 This working report was established through exchanges with the Chinese government, the MES Working Group, which was established in 2004.51
The EU acknowledges in the working report that China has made considerable progress, especially in the field of law, and that it has become more of a market-based economy. But
49 Commission, supra note 47 at 6. 50 Commission, supra note 47 at 12. 51 Commission, supra note 47 at 5.
18 despite all the progress, distortions in the market remain in place and are, according to the EU, the primary source of consideration for the purpose of TDIs.52 However, the EU points out that the assessment of the 5 criteria are of a purely technical nature in relation to TDI and are not about whether China in fact is an ME.53 As will be shown in chapter 5, these (potential) market distortions will play an important role in the proposed amendments to the ADR.
3.3 Russia and MES
The effects of being granted a MES may not always be as beneficial as it seems. In 2002, during the EU-Russia summit, Romani Prodi, who was back then president of the Commission, announced that the EU would grant Russia a MES.54 It is argued, that this was nothing but a political gesture, because Russia and the EU had political tensions over the fact that Russia wanted a visa free corridor for Russians, to travel from Russia to Russia’s exclave Kaliningrad. The EU hoped that by granting Russia a MES, tensions over the Kaliningrad dispute would mitigate.55
However, the legal effects of Russia’s MES in AD proceedings barely changed compared to Russia’s NMES situation, if it even changed at all. This was because the EU amended the ADR that was applicable in 2002, by introducing legislative changes that would still allow for NME methodology to be applicable on the determination of the normal value of Russian dumped products, which meant that de jure effects were still the same as when Russia had a NMES.56
Yet, Russia in 2002 is not the same situation as China in 2017, because Russia was not a WTO member back then, so they could not resort to the DSB to challenge the measures, leaving the EU with more discretion. On top of that, the amendments that were made in 2002 to the ADR to mitigate the effects of the Russian MES, are difficult to have a mitigating effect on a Chinese MES, since Chinese dumped products are much more diversified than the Russian ones and the amendments to the ADR, were more equipped to deal with a less diversified set
52 Commission, supra note 47 at 26. 53 Commission, supra note 47 at 5.
54 ‘EU announces formal recognition of Russia as "Market Economy" in major milestone on road to WTO
membership,’ European Commission Press Release Database, (EU) Available at: >http://europa.eu/rapid/press-release_IP-02-775_en.htm> Accessed 10 June 2017.
55 Hanne Dekeyser, Jim Stoopman, Sylvain Plasschaert, Sebastiano Mori, Lucia Vaculova & Hongda Xu,
‘China: NME at the Gates? Article 15 of China’s Accession Protocol: A multi-perspective analysis’ (2016)
European Institute for Asian Studies, p. 35. [Dekeyser]
19 of dumped products.57 Still, the example of Russia being granted a MES by the EU serves as an illustration that MES is not always necessarily equally beneficial.
3.4 Political features of MES
Now, having touched upon the political features of a MES in the previous paragraph, there will now be a more comprehensive elaboration on the political features for the EU in the situation of granting China a MES.
Focussing on China, it is obvious that in the case of granting, or not granting China a MES there is a lot at stake. Not only from the perspective of the TDIs, but also from a more general trade and economics perspective.
First, there is the issue of jobs that are at stake in the EU if China would be granted a MES. Especially the Steel sector is worried. There have been several rallies in the EU, attended by more than 50.000 steel workers, were they were urging the EU to protect their industry.58 It
is estimated that if the EU would grant China a MES, as much as 3.5 million jobs in the EU will be jeopardized.59 However, it has to be said that this is also being disputed by others as
being an exaggeration.60
Secondly, China and the EU are currently negotiating a deep and comprehensive bilateral investment treaty (BIT). If the EU does not grant China a MES, these negotiations might delay or stop, since China claims that granting a MES should be a precondition in establishing a free trade agreement (FTA), because it guarantees the equality of both parties.61 A BIT is not the same as an FTA, but it seems to be a step up to future FTA negotiations between the EU and China.62 Australia is an interesting case in this respect, because they considered the establishment of an FTA more beneficial than the negative effects of granting China a MES, therefore they granted China a MES and established an FTA with China.63
Finally, if China is granted a MES by the EU, it is likely that there will be a trade diversion of more imports from China in the EU, leading to decreasing imports from other countries, which might cause political tension with these third countries since their exporters
57 Ibid.
58 ′Steelworkers urge EU protection against imports′ (PressTV)
<http://www.presstv.ir/Detail/2016/11/09/492889/EU-Brussels-steel-protest> Accessed 30 May 2017.
59 Erdal, supra note 9 at 38.
60 Louise Curran & Andoni Maiza, ‘Here There Be Dragons? Analysis of the Consequences of Granting Market
Economy Status to China’ (2016) Journal of World Trade 50, 6, p. 1058.
61 Dekeyser, supra note 55 at 34.
62 Ewert Insa, ‘The EU–China Bilateral Investment Agreement: Between High Hopes and Real Challenges’
(2016) Egmont Institute: Security policy brief, available at <http://www.egmontinstitute.be/wp-content/uploads/2016/02/SPB68-Ewert.pdf> Accessed 9 June 2017.
20 lose a market share in the EU.64 Especially the USA takes a harsh stance on China and MES, where President Trump last December said that: ′′China is not a market economy.′′ 65 Also, President Trump criticizes Chinese trade practices and suggested that the USA would ignore future WTO rulings,66 which is highly controversial in the case of China and dumping, because just like against the EU, China initiated a WTO case against the USA concerning price methodology in AD proceedings.67
In conclusion, the possible legal effects of a MES (lower ADD and less AD measures imposed), and also the place of MES within international law and the requirements of obtaining a MES under EU Law have been discussed. Also the political features of a MES in the case of China have been briefly discussed in this chapter. It can be concluded that MES is not merely a legal concept with legal consequences, but is well rooted in the political arena as well. However, MES does not a play a central role in the debate revolving around the expiration of subparagraph (a)(ii) of the CAP.
64 Erdal, supra note 9 at 40.
65 Donald Trump unlikely to grant China a Market Economy Status (The Australian).
<http://www.theaustralian.com.au/business/wall-street-journal/donald-trump-unlikely-to-grant-china-market-economy-status/news-story/02ca3482e4406c12bfb594df88f5ada4 > Accessed 10 June 2017.
66 ‘Trump may ignore WTO rulings in major shift of US trade policy’(Washing ton Post)
<https://www.washingtonpost.com/news/wonk/wp/2017/03/01/trump-may-ignore-wto-in-major-shift-of-u-s-trade-policy/?utm_term=.79496e09413e> Accessed on 1 June 2017.
21
4. Interpretation issues of China’s WTO
Accession Protocol
As shown in the previous chapter, a potential Chinese MES is not the core issue at stake. Instead, it is the application of NME methodology based on the CAP in the determination of the normal value of Chinese dumped products that is widely discussed. It is not questioned that subparagraph (a)(ii) of article 15 of the CAP expires. Paragraph (d) of article 15 of the CAP states: ′′[…] In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession.[…].′′ 68 However, the question is, what will be the effect of the expiration of
subparagraph (a)(ii)? The Panel and the AB have not yet ruled on the interpretation of the meaning of the expiration of subparagraph (a)(ii) of article 15 of the CAP, although the AB did say something about it in an obiter dictum in EC - Fasteners.69
Article 15(a) of the CAP reads as follows:
‘ (a) In determining price comparability under Article VI of the GATT 1994 and the Anti-Dumping Agreement, the importing WTO Member shall use either Chinese prices or costs for the industry under investigation or a methodology that is not based on a strict comparison with domestic prices or costs in China based on the following rules:
(i) If the producers under investigation can clearly show that market economy conditions prevail in the industry producing the like product with regard to the manufacture, production and sale of that product, the importing WTO Member shall use Chinese prices or costs for the industry under investigation in determining price comparability;
(ii) The importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product.70
68 Article 15 (d) CAP (emphasis added).
69 Appellate Body Report, European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel
Fasteners from China, WT/DS397/AB/R, adopted 28 July 2011, DSR 2011:VII, para. 289. [Fastners]
22 China claims that the expiration of subparagraph (a)(ii) means that countries will have to stop using NME methodology to determine the normal value of dumped Chinese products.71 However, not everybody agrees with China, because some say that there are enough provisions in article 15 CAP that do not expire and still allow for NME methodology, which means that even after 11 December 2016 the normal value of Chinese dumped products can still be calculated by applying NME methodology.72 This chapter will evaluate the different viewpoints on the expiration of subparagraph (a)(ii) and the obiter dictum of EC - Fasteners.
4.1 NME methodology can still be based on the CAP after the expiration of subparagraph (a)(ii)
O’ Connor and other authors claim that after the expiration of subparagraph (a)(ii) it is still possible to apply NME methodology on Chinese dumped products, because the chapeau of paragraph (a) and paragraph (d) remain intact and still allow for NME methodology to be applied on dumped Chinese products.73 A reference here is being made to the effective rules of
treaty interpretation, accordingly articles 31 and 32 of the Vienna Convention on the Law of the Treaties (VCLT).74 Also, the US – Gasoline75 case makes a statement about the interpretation of clauses of a treaty and their effect: ′′One of the corollaries of the "general rule of interpretation" in the Vienna Convention is that interpretation must give meaning and effect to all the terms of a treaty. An interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility.′′ 76
Accordingly, it is claimed that the purpose, the meaning and the context of the words of the remaining parts of article 15 of the CAP do not change after 11 December 2016 and have to be given full effect to not be rendered inutile. If the drafters of the CAP wanted to render other parts of article 15 of the CAP ineffective, they would have done so and know how to do that, because in article 16 of the CAP there is a provision that clearly states that article 16 expires 12 years after China’s accession. If article 15 should be rendered ineffective they would have used the same language as in paragraph 9 of article 16 of the CAP.77
71 Press Conference, Supra note 41.
72 Bernard O’ Connor, ‘The Myth of China and Market Economy Status in 2016’
<http://worldtradelaw.typepad.com/files/oconnorresponse.pdf> Accessed on 5 June 2017. [O’ Connor]
73 Bernard O’Connor, 'Much Ado About ‘Nothing’: 2016, China and Market Economy Status' (2015) 10 Global
Trade and Customs Journal, Issue 5, p. 177–178. [O’ Connor]
74 F. Martín Malvarez, 'China’s NME treatment after December 2016’ (2015) Aegis Europe Europe, p. 5. 75 Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline,
WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I [Gasoline]
76 Gasoline, supra note 75 at 23.
77 Price, Alan, Brightbill, Timothy C. & Nance, Scott, ‘The treatment of China as a Non-Market Economy
23 However, the expiration will only leave a gap in the instructions to the investigating authorities.78 Subparagraph (a)(ii) allows investigating authorities to use non-market economy treatment (NMET) on Chinese dumped products if the Chinese producer cannot show that ME conditions prevail. Thus, the burden of proof is then on the Chinese producers. The remaining subparagraph (i) is only stating what methodology has to be used when a Chinese producer can show that ME conditions prevail, not what should be used when ME conditions cannot be proven. This gap in instructions to the investigating authorities of the importing member should be filled up by the discretion of the investigating authorities, as long as it does not run contrary to general principles of international law.79 The remaining parts of article 15 of the CAP should give guidance on how the aforementioned gap should be filled up. The fact that the words shall use either Chinese prices or costs for the industry under investigation or a methodology that is not based on a strict comparison80 remain intact, proofs that the investigating authorities still
have an option to use a methodology that is not based on a strict comparison, thus they can still choose to apply NME methodology. Also, as discussed in the previous chapter, paragraph (d) requires China to show that ME conditions prevail in a certain sector or in the entire country to obtain MES, which means that NME methodology would no longer be applicable, at least not by default.81
4.2 Expiration of subparagraph (a)(ii) renders NME methodology impossible to be based on the CAP
When it comes to effective treaty interpretation according to the VCLT and the US – Gasoline case, the argument can work both ways. Accordingly, it is also argued that if the expiration of subparagraph (a)(ii) does not change the application of NME methodology on dumped Chinese products, the expiration of subparagraph (a)(ii) itself is then rendered inutile, which would run contrary to the principles of effective treaty interpretation.82 It is argued that the words shall be based on, mean that NME methodology is only allowed according to the rules specified in the remaining part of paragraph (a),83 which is not subparagraph (a)(ii) anymore, while that was the only provision that specifically allows for NME methodology to apply.84 O’ Connor on the
<http://www.wileyrein.com/media/publication/159_China-Can-Still-Be-Treated-As-A-Nonmarket-Economy-After-2016.pdf> Accessed 10 June 2017.
78 O’Connor, supra note 73 at 178. 79 Ibid.
80 Article 15(a) CAP.
81 O’Connor, supra note 73 at 178. 82 De Kok, supra note 32 at 527. 83 Ibid.
24 other hand claims that the words based on should not be interpreted too rigidly.85 However, the word shall was put in later as a replacement of the word may, which means that the drafters of the CAP had a clear intention to not let it be a non-binding suggestion, but an obligation to base the application of NME methodology on the specified rules, in this case subparagraph (a)(ii).86 On top of that, the DSB cannot add or diminish rights of covered agreements, which means that the gap-filling, as O’ Connor suggested, would run contrary to articles 3.2 and 19.2 of the Dispute Settlement Understanding (DSU).87
It is also argued that China should be considered to have received MES erga omnes by 11 December 2016, since qualifying china as an NME can no longer find its basis in the CAP and such a qualification could then only be based on other WTO law.88 Accordingly, other WTO law in this sense could be the second adnote of article VI GATT, but as has been shown in chapter 2, there is a very high threshold to be met then, which is unlikely to ever be met.89
4.3 EC – Fasteners
Paragraph 289 of EC – Fasteners contains an obiter dictum which states:
′′[…] Since paragraph 15(d) provides for rules on the termination of paragraph 15(a), its scope of application cannot be wider than that of paragraph 15(a). Both paragraphs concern exclusively the determination of normal value. In other words, paragraph 15(a) contains special rules for the determination of normal value in antidumping investigations involving China. Paragraph 15(d) in turn establishes that these special rules will expire in 2016 and sets out certain conditions that may lead to the early termination of these special rules before 2016. ′′ 90
The AB refers to the expiring provisions of subparagraph (a)(ii) as being special rules which will expire. Thus, the NME methodology based on the CAP will expire according to the AB. However, it has to be noted that this is only an obiter dictum that does not have to be followed by the Panel and the AB in future cases, such as the in this situation relevant EU – Price methodology case.91
85 O’ Connor, supra note 72. 86 De Kok, supra note 32 at 528. 87 De Kok, supra note 32 at 527. 88 Tietje, supra note 22 at 7. 89 Tietje, supra note 22 at 10. 90 Fasteners, supra note 69.
25 In conclusion, the 2 interpretations on the consequences of the expiration of subparagraph (a)(ii) appear to differ on the rigidness of the interpretation of the words ′′based on′′ and the interpretation of giving full effect to the meaning of the remaining clauses. The drafting history of the CAP and the direction the AB is pointing at in its obiter dictum in the EC – Fasteners case seem to make the argument that NME methodology against Chinese dumped products can no longer be based on the CAP after 11 December 2016 a stronger interpretation. However, it has to be taken into account that, as done in section 16 of the CAP, article 15 could have been terminated entirely, but this has not been done, which also implicates that there should be given a meaning to the remaining provisions of article 15 CAP. However, the meaning that has to be given to the remaining provisions of article 15 of the CAP does not mean that NME methodology is authorized, because subparagraph (i) does not explicitly allow for NME methodology to be applied. It would then, however, be questionable what the meaning of the remaining provisions then would be. In all, both interpretations are based on strong arguments, but the second interpretation which renders the application of NME methodology based on the CAP impossible, seems to be the most likely interpretation.
26
5. The future EU AD policy towards China
Now, in anticipation of the expiring provision of article 15 of the CAP, the EU has proposed amendments to the ADR. This chapter will give an overview of the amended proposals and what their legal impact might be. Also, the legal sustainability of the proposed amendments will be assessed in light of the recent EU- Biodiesel case and WTO law in general.
5.1 Proposed amendments and policy changes to the ADR
To avoid the question of whether or not China should be qualified as a MES or not under EU law, the EU instead no longer differs between NME and ME countries among WTO members by eliminating the list of NME countries. Thus, all WTO members will have the same rights and obligations under the proposed amendments to the ADR. Different treatment beforehand will only be applicable to non-WTO members, to whom the analogue country method in determining the normal value of dumped products will still be applicable by default.92
However, to counter unfair trade practices where domestic prices cannot be used to determine the normal value, the Commission proposes to introduce a new article, namely article 2(6)(a) to the ADR, which allows for an alternative determination of normal value, in case of market distortions. Article 2(6)(a) introduces the criterion of ′significant market distortions′ and sets out a non-exhaustive list of criterions that could constitute significant market distortions:
(i) the widespread presence of enterprises which the state owns or which operate under its control, policy supervision or guidance,
(ii) the presence of the state in companies allowing interference with respect to prices and costs,
(iii) public policies or measures discriminating in favor of domestic companies, or otherwise influencing free market forces, and
(iv) the access to finance granted by institutions implementing public policy objectives.93
92 European Commission, Proposal for a Regulation of the European Parliament and of the Council amending
Regulation (EU) 2016/1036 on protection against dumped imports from countries not members of the European Union and Regulation (EU) 2016/1037 on protection against subsidised imports from countries not members of the European Union.
93 Gisela Grieger, ‘Protection from subsidised and dumped imports’ (EU Parliament Briefing) 23 January 2017,
Available at:
<http://www.europarl.europa.eu/RegData/etudes/BRIE/2017/595905/EPRS_BRI%282017%29595905_EN.pdf> Accessed 7 June 2017.
27 If the EU investigating authorities conclude that there is a significant market distortion under article 2(6)(a) ADR, then the normal value will be determined by using an alternative methodology, namely the constructed normal value methodology, where normal value is being based on: costs of production and sale reflecting undistorted international prices, costs, or benchmarks, or corresponding costs of production and sale in an appropriate representative country with a similar level of economic development as the exporting country.94 Unlike the analogue country method, this method would include the international sources of undistorted prices and costs, instead of only one third country’s records and the selection of third countries will be different, because instead of choosing a country based on its production volumes of the like product under investigation, the third country will be chosen on its economic development level in comparison to the country under investigation.95
The main consequence of this amendment to the ADR in the case of China is that there will be a shift in the burden of proof. Instead of the Chinese exporters bearing the burden of proof that ME conditions prevail in order to avoid NMET by default, the EU investigating authorities have to prove that there are significant market distortions (NME conditions) in the Chinese industry under investigation.
Another possible change in the EU’s AD policy might be the elimination, or at least partly removal, of the LDR.96 As explained in the second chapter, the LDR leads to lower ADD, thus by removing it (partly), it would lead to higher ADD. This is an option to counter the possible lowering effects of ADD of the proposals to the ADR. However, different studies expect different results of the removal of the LDR when it comes to the extent of the result of higher ADD.97
Thus, due to the shift in burden of proof it will be more difficult to give Chinese exporters NMET. Compared to the current situation, there will probably be lower ADD, despite the possible removal of the LDR.
94 Ibid. 95 Ibid.
96 ‘Draft, (03/05/2016) Common core demands from Germany and France on modernising the Trade Defence
Instruments (TDI) of the European Union (EU)’ Available at:
<https://ec.europa.eu/carol/index-iframe.cfm?fuseaction=download&documentId=090166e5a8ead650&title=wennelo_Scan_3660851924_094930 _EC.pdf> Accessed 7 June 2017.
28 5.2 EU – Biodiesel
The EU – Biodiesel case is of significant importance, because it not only challenged the currently applicable ADR, but also has some implications for the EU’s new approach in the proposed amendments. This case was about Argentina’s Differential Export Tax (DET), which imposes higher taxes on raw material than on finished products. A raw material of Biodiesel is soybeans and because of the DET, this would result in an artificially low price of soybeans on the Argentinean market, which makes the price of biodiesel from Argentina to be a distorted price. 98 The EU used the constructed normal value methodology to determine the price of biodiesel by using international benchmarks of undistorted prices and came up with a surrogate price of what biodiesel in Argentina would have costed in the absence of DET.99 Argentina then made two sets of claims. On the one hand they claimed that the EU ADR is inconsistent with WTO law as applied and on the other hand a claim that the EU ADR was inconsistent with WTO law as such. Both the Panel and the AB ruled that the EU ADR was inconsistent with WTO law as applied, but not inconsistent with WTO law as such.100
5.2.1 ′As applied′ claims
Argentina claimed that the ADR was applied inconsistently with article 2.2.1.1 ADA, which stipulates that ′′[…] costs shall normally be calculated on the basis of records kept by the exporter or producer under investigation, provided that such records […] reasonably reflect the costs associated with the production and sale of the product under consideration […].′′101 The AB found indeed that the ADR was applied inconsistently with WTO law by the EU, because the fact that the Argentinean prices of soybeans are lower than the international prices of soybeans, does not mean that the producers’ records of Argentinean producers do not reasonably reflect the costs.102 The Panel found that: ′′the object of the comparison is to establish whether the records reasonably reflect the costs actually incurred, and not whether they reasonably reflect some hypothetical costs that might have been incurred under a different set of conditions or circumstances and which the investigating authority considers more "reasonable" than the costs actually incurred.′′ 103 The AB concurred with this finding of the
98 Panel Report, European Union – Anti-Dumping Measures on Biodiesel from Argentina, WT/DS473/R and
Add.1, adopted 26 October 2016, as modified by Appellate Body Report WT/DS473/AB/R, para. 7.180 para. 5.5. [Panel Biodiesel]
99 Panel Biodiesel, supra note 98 para. 5.8. 100 AB Biodiesel, supra note 15.
101 Article 2.2.1.1 ADA (emphasis added). 102 AB Biodiesel, supra note 15 para. 6.55.
29 Panel.104 Thus, the discretion of the EU to come up with surrogate prices is more limited when relying on these provision than expected.
5.2.2 ′As such′ claims
The ADR was not inconsistent with WTO law as such because there was no mandate in the ADR that required the EU investigated authorities to come up with a surrogate price by using the constructed normal value methodology in case of artificially low prices in the domestic market.105 The AB stated that: ′′Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 make clear that the determination is of the "cost of production […] in the country of origin". Thus, whatever the information that it uses, an investigating authority has to ensure that such information is used to arrive at the "cost of production in the country of origin". Compliance with this obligation may require the investigating authority to adapt the information that it collects.′′ 106 Thus, it is legally sound for the EU investigating
authorities to use international benchmarks of undistorted prices, but they still have to establish the cost of production in the country under investigation, instead of coming up with an (international) price that would have been in place if there were no market distortions.
5.3 Assessment of the proposed future EU AD policy
Removal of the LDR would not raise any legal issues concerning WTO law, since the LDR is encouraged by the WTO, but not mandatory under WTO law. Still, non-legal issues might come into play with the removal of the LDR, such as trade diversion.107 However, this paper will not examine these non-legal issues and their effects, but instead focus on the legality and intended effects of the proposed constructed normal value methodology.
The EU investigating authorities have 3 options that can serve as a legal basis in order to deviate from the standard methodology to determine normal value. First, there is the option of applying NME methodology based on the application of the second adnote of article VI GATT. Secondly, there is the option of an alternative methodology based on a specific provision in a protocol, which in China’s case always has been the CAP. Lastly, there is the option of deviating from the standard methodology in determining normal value, by resorting to article 2.2 ADA.
104 AB Biodiesel, supra note 15 para 6.57. 105 AB Biodiesel, supra note 15 para. 6.165.
106 AB Biodiesel, supra note 15 para 6.73. (emphasis added). 107 Kaszubska, supra note 12 at 16.
