27thJuly 2018
THE CALCULATION OF THE NORMAL VALUE IN
THE NEW EUROPEAN ANTI-DUMPING REGULATION:
BETWEEN INCONSISTENCIES WITH WTO LAW AND
DISCRIMINATION
Marie Caro
International Trade and Investment Law dr. J.H. (James) Mathis
Abstract
The purpose of this thesis is to prove that the new EU Anti-Dumping Regulation of 2017 is inconsistent with WTO law.
The new Regulation is indeed not consistent with the WTO rulings in EU-Biodiesel (Argentina) in which the Appellate Body has refused the EU methodology of using out of country of origin’s prices to calculate the normal value. The Regulation might pass the test of the “as such” consistency with the WTO covered agreements but it is more doubtful for an analysis of the consistency “as applied”.
The EU has always discriminated against non-market economy countries, especially China. The 2017 Regulation amending the 2016 Regulation is supposed to cease this discrimination by suppressing the NME methodology and being ‘country-neutral’. However, the amendments are inconsistent with the MFN treatment and the Commission’s Reports establish a presumption that is hard to rebut.
The conclusion of this thesis is that the new Regulation is not WTO law consistent. The Regulation in itself or its application are likely to be found inconsistent in future DSB rulings.
Table of Content
INTRODUCTION...5
CHAPTER I: THE INCONSISTENCY OF THE CALCULATION OF THE NORMAL VALUE WITH WTO LAW... 9
I. HISTORY OF MODIFICATIONS OF EU ANTI-DUMPING LAW DUE TO WTO... 9
A. MODIFICATIONS BETWEEN 2001 AND 2011 DUE TO WTO...9
B. MODIFICATIONS AFTER EC-FASTENERS AND EU-FOOTWEAR...10
II. EU-BIODIESEL (ARGENTINA)...15
A. PANEL REPORT...16
B. AB REPORT... 18
III. THE COMPLIANCE OF THE NEW GUIDELINES WITH THE EU-BIODIESEL RULINGS... 20
CHAPTER II: THE DISCRIMINATORY TREATMENT OF NON-MARKET ECONOMY COUNTRIES... 24
I. THE TREATMENT OF NON-MARKET ECONOMY BY THE EU IN ANTI-DUMPING CASES... 24
A. THE EU REFUSAL TO GRANT MARKET ECONOMY STATUS - THE EXAMPLE OF CHINA...24
B. THE CLEAR SIMILARITIES BETWEEN THE CRITERIA FOR THE MARKET ECONOMY STATUS AND THE INDICATORS OF SIGNIFICANT DISTORTIONS... 27
II. FIRST REPORT OF THE COMMISSION ON CHINA – DOES IT ESTABLISH A REBUTTABLE PRESUMPTION?... 29
A. THE CONTENT OF THE FIRST REPORT... 29
B. DOES IT ESTABLISH A PRESUMPTION?...31
III. THE DISCRIMINATORY TREATMENT OF NON-MARKET ECONOMY, INCONSISTENT WITH ARTICLE I:1 OF THE GATT 1994... 32
A. THE PREVIOUS REGULATION IN VIOLATION OF THE MFN CLAUSE33 B. THE INCONSISTENCY OF THE NEW REGULATION WITH THE MFN CLAUSE... 36
CONCLUSION... 40
Annex 1 – Comparison of Article 9(5) before and after the amendments brought by Regulation 765/2012 following the DSB rulings in EC-Bed Linen (AB)...46 Annex 2 – Comparison between the five criteria used to grant the market economy status and the factors listed in the new Regulation that are indicators of significant distortions... 47
INTRODUCTION
The European Union (EU) is one of the most prolific users of anti-dumping measures in the World Trade Organisation (WTO).1 In ten years, between 1995 and 2016, the EU initiated nearly 500 anti-dumping investigations and imposed more than 300 measures.2 Only India and the United States imposed more measures than the EU.3 Dumping is not illegal per se in the WTO. Members have a choice on whether or not to have anti-dumping laws regulating it. However, if they decide to do so, they must respect the framework put forward in the different WTO Agreement. Dumping happens when a product is sold in another country at less than its normal value4, i.e. at a cheaper price than in the country of origin.5 The framework for anti-dumping in the WTO is composed of Article VI GATT 1994 and its Agreement, the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (so-called Anti-Dumping Agreement (ADA)). This agreement is part of the Annexes of the GATT so WTO Members must respect it.
Under Article VI:1, there are three conditions to consider that there is dumping: (i) the export price of the product must be less than its normal value, (ii) this export must either cause or threaten to cause material injury to a domestic industry or materially retard the establishment of a domestic industry and (iii) the dumping must be the cause of the injury or the retardation6. It is therefore crucial to determine the normal value, i.e. the price at which the product is sold in the exporting country. The normal value will be used as a basis to compare with the export price and determine the dumping margin, which will limit the amount of anti-dumping duties imposed.7 The costs used to determine the normal value must respect the conditions set out in Article
1 WTO Statistics on Anti-Dumping from January 1995 to December 2016, available at
<https://www.wto.org/english/tratop_e/adp_e/AD_InitiationsByRepMem.pdf>. 2 Ibid.
3 Ibid.
4 GATT 1994 art VI:1. 5 ADA art 2.1. 6 i.e. causal link.
7 Mitsuo Matsushita, Thomas J. Schoenbaum and Petros C. Mavroidis, The World Trade Organization,
2.1 of the ADA. If the domestic costs of the exporting country do not respect these, WTO Members are authorized to use other sources.8
In the EU, the Regulation on anti-dumping is Regulation 2016/10369 that was amended on 20th December 2017. The rules are sensibly the same except for two points: the Union Interest and the non-market economy (NME) methodology.10 The Union interest is a fourth condition used during the anti-dumping investigation. If the first three conditions are fulfilled and there is indeed dumping, the investigating authority (the Commission) must ensure that the imposition of anti-dumping duties will not hurt the industry concerned, other industries or consumers.11
The NME methodology came into play for certain countries that were listed in the Regulation. For these countries, the costs reflected in the producers’ data were not considered reliable. The Commission would therefore construct the normal value based on costs found in “appropriate third countries”.12 The use of this methodology was automatic for countries that were not part of the WTO. For WTO Members branded as NME13, the producers of this country concerned by the anti-dumping investigation had the possibility to be treated as operating under market economy conditions if they could prove it.14
This changed in December 2017 when Regulation 2017/2321 was adopted.15 The NME methodology was deleted and replaced by the concept of ‘significant distortions’. The list of countries branded as non-market economy also disappeared, rendering the Regulation ‘country-neutral’.16 The Commission will have the possibility to use other costs than the exporting country’s, such as international
8 GATT 1994 art VI, Ad Note Para. 1, 2; ADA art 2.2 and 2.2.1.1.
9 Regulation (EU) No 2016/1036 on protection against dumped imports from countries not members of the European Union [2016] OJ L176/21 (hereinafter Regulation 2016/1036).
10 Van Bael and Bellis EU Anti-Dumping and Other Trade Defence Instruments (5thedn Aspen Publishers 2011).
11 European Commission, ‘Full Conditions for putting an anti-dumping measure in place’, avalaible at <http://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_151016.pdf>.
12 Regulation 2016/1036 art 2(7)(a).
13 These countries were China, Vietnam and Kazakhstan.
14 Regulation 2016/1036 art 2(7)(b), known as Individual Treatment (IT).
15 Regulation (EU) No 2017/2321 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 [2017] OJ L338/1, (hereinafter ‘Regulation 2017/2321’ or ‘the new Regulation’).
16 European Commission, ‘Fact Sheet about the EU’s new trade defence rules and first country report’ (20 December 2017), available at <http://europa.eu/rapid/press-release_MEMO-17-5377_en.htm>.
benchmarks or prices or the domestic costs insofar that they are not distorted17, when there are significant distortions in the country concerned by the anti-dumping investigation.
Anti-dumping is a tool used by WTO Members to protect their market against what they consider unfair prices. Anti-dumping laws are thus protectionist and must be well framed to avoid any abuse of this accepted form of protectionism. The People’s Republic of China has been the preferred target of the EU and the US in anti-dumping proceedings these last ten years.18 China indeed enjoyed a quick economic growth which was translated into more exports abroad. China was a communist country and has tried to move towards a ‘socialist market economy’.19 This concept is unique and in itself contradictory.20 China became a Member of the WTO in 2001. Because its economy was still in transition, its Accession Protocol includes a provision that authorizes other Members to treat China differently in anti-dumping proceedings. This provision was set to expire, in any event, 15 years after the accession of China to the WTO.21 It expired on the 11th December 2016. China has always asked to be treated as a market economy country in these proceedings but the EU and the US always refused.22 Since 2010, China has adopted a more aggressive approach against these two.
The NME methodology has thus been replaced but the new one is also about the determination of the normal value in certain situations. The determination of the normal value may also be calculated using other costs than the exporting country’s.23 The different methodologies existing in the EU Anti-dumping Regulation have been subject to different rulings by the Dispute Settlement Body (DSB) of the WTO over the last few years. The question that arises is whether the calculation of the normal value in the new Regulation is consistent with WTO law.
17 Regulation 2016/1036 as amended by Regulation 2017/2321 art 2(6a)(a). 18 Ibid.
19 European Commission, ‘Commission Staff Working Document on Significant Distortions in the Economy of the People’s Republic of China for the purposes of Trade Defence Investigations’ (20 December 2017) SWD(2017) 483 final/2.
20 Francisco Urdinez and GilmarMasiero ‘China and the WTO: Will the Market Economy Status Make Any Difference after 2016’ (2015) 48 The Chinese Economy 155.
21 Accession Protocol of the People’s Republic of China (10 November 2001) WT/L/432. 22 Urdinez, supra note 20.
To explain why this is the case, the first chapter will focus on the consistency of the new Regulation with the recent DSB rulings opposing Argentina to the EU. This chapter will demonstrate why the new Regulation is not consistent with this ruling. The second chapter will be focused on the discrimination found in the Regulation against certain countries through the example of China and will demonstrate why the new Regulation is not consistent with Article I:1 of the GATT 1994.
CHAPTER I: THE INCONSISTENCY OF THE
CALCULATION OF THE NORMAL VALUE
WITH WTO LAW
I.
HISTORY OF MODIFICATIONS OF EU ANTI-DUMPING
LAW DUE TO WTO
a. MODIFICATIONS BETWEEN 2001 AND 2011 DUE TO
WTO
In 2001, a dispute brought by India led to a change in the Commission’s practice. It was about anti-dumping duties imposed by the European Communities (EC) to bed linens exports from India.24 India considered, inter alia, that the ‘zeroing’ practice used by the European Communities was inconsistent with Articles 2.4.2, 3.4 and 15 of the ADA. This method was used when calculating the margins of dumping by the EC; the negative margin dumping, i.e. when the product was sold at a more expensive price than the normal value, was not taken into account and attributed a ‘zero’ value when calculating an average dumping margin as a whole. The Panel considered that zeroing the negative dumping when the EC calculated the overall rate of dumping was inconsistent with Article 2.4.2 of the ADA.25 The Appellate Body (AB) upheld this finding.26 Following the adoption of the AB Report, the EC and India agreed on a period of five months and two days for the EC to comply with the DSB’s rulings and recommendations. The Council adopted Regulation 1515/200127 or the so-called “WTO Enabling Regulation”.28 This would allow the EC to modify measures that have been deemed inconsistent with the WTO rules.
Following this dispute, the Commission announced, as is possible under the Regulation 1515/2001, that it was going to review any existing anti-dumping measures that would be inconsistent with the EC-Bed Linen interpretation, on
24 European Communities – Anti-Dumping Duties on Imports of Cotton-type Bed Linen from India;
Report of the Appellate Body (1 March 2001) WT/DS141/AB/R (hereinafter EC-Bed Linen (2001)).
25 European Communities – Anti-Dumping Duties on Imports of Cotton-type Bed Linen from India:
Report of the Panel (30 October 2000) WT/DE141/R [6.119].
26 EC-Bed Linen (2001) [66].
27 Regulation (EC) No 1515/2001 on the measures that may be taken by the Community following a report adopted by the WTO Dispute Settlement Body concerning anti-dumping and anti-subsidy matters [2001] OJ L201/10.
28 Geert A. Zonnekeyn ‘The Bed Linen Case and its Aftermath Some Comments on the European
demand.29 While this dispute did not change the anti-dumping regulation that was in force at this time, it modified the Commission practice when calculating the dumping margins. Since then, ‘zeroing’ has not been used in the EU.
In 2010, the Regulation 1225/200930 was adopted. It codified most of the amendments adopted in the previous years.31 This Regulation codified the recognition of both Russia and Ukraine as market-economy countries.32 More interesting, this Regulation enabled the Commission to apply the market-economy methodology to countries that are members of the WTO.33
b. MODIFICATIONS AFTER EC-FASTENERS AND
EU-FOOTWEAR
In 2011, two cases about anti-dumping duties imposed by the EU using the non-market economy methodology had an impact on the relationship between China and the EU: EC-Fasteners and EU-Footwear. The Panel came to a decision for EC-Fasteners34 in December 2010 and the Appellate Body Report35 was circulated in July 2011. Concerning EU-Footwear, the Panel Report was circulated in October 2011.36
i. EC-Fasteners
Concerning EC-Fasteners, China claimed that Article 9(5) of the Basic Regulation (Regulation 1225/2009) was inconsistent with, inter alia, Articles 6.10 and 9.2 of the
29 European Commission, ‘Notice regarding the AD measures in force following a ruling of the DSB WTO adopted on 12 March 2001’ (8 May 2002) OJ C111/4.
30 Regulation (EC) No 1225/2009 on protection against dumped imports from countries not members of the European Communities [2009] OJ L343/51 (hereinafter Regulation 1225/2009).
31 Van Bael and Bellis, supra note 10. 32 Ibid.
33 Regulation 1225/2009 para 8.
34 European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners
from China: Report of the Panel (3 December 2010) WT/DS397/R (hereinafter EC-Fasteners (Panel)).
35 European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners
from China: Report of the Appellate Body (15 July 2011) WT/DS397/AB/R (hereinafter EC-Fasteners (AB))
36 European Union – Anti-dumping Measures on Certain Footwear from China: Report of the Panel (28 October 2011) WT/DS405/R (hereinafter EU-Footwear).
ADA37 because this article stipulated that, in case of imports from non-market economy countries, the anti-dumping duty was calculated “country-wide”38 and not individually for each supplier. The rationale is that, because the country is a non-market economy, it is possible to treat the producers and the State as one entity as the producers are controlled by the State. An individual duty would be specified only in cases where the supplier could prove it was operating under market-economy conditions.39 China thus argued that this article stipulated that all Chinese producers in an anti-dumping investigation would be subjected to the country-wide duties, except when they can prove they fulfill the five criteria listed in Article 9(5). Article 6.10 of the ADA stipulated that “the authorities shall, as a rule, determine an individual margin of dumping for each known exporter or producer concerned of the product under investigation”, the EU Regulation was inconsistent with the ADA. The Panel agreed with China.40 China also argued that Article 9(5) of Regulation 1225/2009 was inconsistent with Article 9.2 of the ADA because the latter article stipulates that anti-dumping duties must be imposed on an individual basis.41 The Panel agreed with this analysis and stated that it is only in situations where there are too many producers to name each of them that duties would be imposed country-wide.42 Otherwise, each supplier must be named individually which entails the imposition of individual anti-dumping duties.43 In conclusion, the Panel found that Article 9(5) was inconsistent “as such” with Articles 6.10 and 9.2 of the ADA and inconsistent “as applied” in the concerned investigation.
Furthermore, the Panel considered that nothing in the ADA or other WTO Agreement allows for the different treatment of imports from non-market economy as is the case in Article 9(5).44 The Panel also criticized the treatment by the EU of NME countries in anti-dumping investigations, stating that the EU did not demonstrate the reason for the different treatment but merely stated that there was a difference in the nature of imports.45
37 EC-Fasteners, Request for Consultations by China (4 August 2009) WT/DS397/1. 38 EC-Fasteners (Panel), [VII.49].
39 i.e individual treatment (IT) test. 40 EC-Fasteners (Panel) [VII.97]. 41 Ibid [VII.99].
42 Ibid [VII.107]. 43 Ibid [VII.107]. 44 Ibid [VII.125]. 45 Ibid [VII.125]
Both China and the EU appealed the Panel Report. The Appellate Body upheld the Panel’s findings concerning, inter alia, the inconsistency “as such”46 and “as applied”47 of Regulation 1225/2009 with Articles 6.10 and 9.2 of the ADA. The AB reviewed the presumption of the EU that the producers and the State were the same entity in non-market economy. The presumption was that producers from non-market economy countries could be considered the same entity as the State. It was therefore on the producers to show that they were operating under market economy conditions to get individual treatment. The Appellate Body considered that such a presumption does not come from any WTO Agreement.48 It also considered that Section 15 of China’s Accession Protocol provided no basis to presume that country-wide export prices should be used.49 Section 15 does not say that China is a non-market economy but only that a different methodology may be used to determine the normal value.50 The Appellate Body also addressed the claim made by the EU that China’s Accession Protocol, specifically Section 15, allows other WTO Members, here the EU, to treat China as an non-market economy in anti-dumping investigations. It considered that Section 15 only authorizes WTO Member to treat China differently for the determination of the normal value.51 There is no “open-ended exception that allows WTO Members to treat China differently for other purposes”52 under the ADA and the GATT 1994, e.g. the determination of export prices.
ii. EU-Footwear
A few months after the AB Report in EC-Fasteners came the Panel Report in EU-Footwear. The claims made by China were essentially the same as the ones made in the EC-Fasteners case.53 In particular, China challenged an EU Regulation extending the definitive duty on imports of certain footwear with uppers of leather
46 EC-Fasteners (AB) [370]. 47 Ibid [409]. 48 Ibid [365]. 49Ibid [366]. 50 Ibid [366]. 51 EC-Fasteners (AB) [289-290]. 52 Ibid [289-290].
53 Julia Ya Qin ‘Mind the Gap: Navigating between the WTO Agreement and Its Accession Protocols’ (2016) Wayne State University Law School Research Paper No. 2016-05, available at <https://ssrn.com/abstract=2727031>.
originating in China and the original investigation54 by arguing that the country-wide determination of the duty was not consistent with Articles 6.10 and 9.2 of the ADA. In this case, the Commission applied the non-market economy methodology and used country-wide dumping margins instead of individual ones.55 Not surprisingly, the Panel followed the interpretation taken by the AB in EC-Fasteners and considered that, according to Article 6.10 ADA, the investigating authority should calculate an individual margin for each producers, except when it is not materially feasible.56 Therefore, according to the Panel, Article 9(5) of the Regulation 1225/2009, in establishing a presumption that the State and the producers are a single producer and hence a single dumping margin should be calculated, was inconsistent with Article 6.10 ADA.57 The Panel also deemed Article 9(5) of the Regulation 1225/2009 inconsistent with Article 9.2 ADA for the same reasons set out in EC-Fasteners.58 The Panel even explained that there was a clear violation of Article 9.2 ADA for reasons that were explained “in more detail”59 by the Panel in EC-Fasteners.
Those two cases were thus victories for China concerning one part of the non-market economy treatment. These two cases are similar because their origin is the same. Until 2005, the EU had quotas applied to foreign footwear, specifically to China and Vietnam. In 2005, with the end of the quotas, there were more Chinese and Vietnamese footwear exported to the EU which raised concerns by the EU producers. They filed anti-dumping complaints. It is interesting to note that the Commission wanted to impose duties but there was an unusual opposition from certain Member States. In the end, duties were applied but for a much shorter period of time – two years instead of the usual five – and the vote to approve the decision was very close.60
54EU-Footwear [VII.115]. 55Ibid [VII.131]. 56Ibid [VII.88]. 57Ibid [VII.88]. 58Ibid [VII.92]. 59Ibid [VII.92].
60 Jeffrey L. Dunoff and Michael O. Moore ‘Footlose and duty-free? Reflections on European Union – Anti-Dumping Measures on Certain Footwear from China’ (2014) 13(2) World Trade Review 149.
Following these rulings, the EU announced the adoption of Regulation 765/201261 amending Regulation 1225/2009 which complied with the Panel’s decision.62 The inconsistent part of the Article was thus replaced by this Regulation.
As is clear when the comparison is made63, the first part of the amendment does not change the Article. A distinction is added which enables suppliers legally distinct from the State to have an individual margin dumping to be calculated. However, the Commission still has the faculty to impose country-wide duty to certain suppliers if the factors put out in the article are fulfilled. While Regulation 1225/2009 allowed the Commission to impose individual margin dumping when the five criteria cited were fulfilled, Regulation 765/2012 reverses the mechanism: the Commission should calculate individual dumping margin unless the factors cited, such as the control of the State on the suppliers or the economic structure of the supplying country, are present.
The Regulation 1225/2009 was once again amended in December 201264 following a ruling by the Court of Justice of the EU concerning the use of sampling in the case of NME countries.65 In this case, the CJEU decided that Article 17, about sampling, of Regulation 1225/2009 could not be applied when determining claims for market economy treatment pursuant to Article 2(7)(c). This case concerned the same anti-dumping regulation as the one in EU-Footwear, Regulation 1472/2006.66 The Court considered that the Commission ought to examine the individual treatment of each of the applicants even if they were not included in the sample.67 The Regulation 1225/2009 was amended accordingly.
Therefore, there are three major cases in 2011-2012 that ended up modifying the treatment of China by the Commission. In each of these cases, the non-market
61 Regulation (EU) No 765/2012 amending Regulation (EC) N) 1225/2009 on protection against dumped imports from countries not members of the European Community [2012] OJ L 237/1 (hereinafter Regulation 765/2012).
62 European Union – Anti-Dumping Measures on Certain Footwear from China: Status Report by the
European Union (7 December 2012) WT/DS405/9.
63 See Annex 1 – Comparison between Article 9(5) before and after the amendments.
64 Regulation (EU) No 1168/2012 amending Council Regulation (EC) No 1225/2009 on protection against dumped imports from countries not members of the European Community [2012] OJ L 344/12. 65 Case 249/10 P Brosmann Footwear (HK) Ltd and Others v Council of the European Union [2012] ECLI:EU:C:2012:53 (hereinafter Brosmann v Council).
66 Council Regulation (EC) No 1472/2006 imposing a definitive anti-dumping duty and collecting definitely the provisional duty imposed on imports of certain footwear with uppers of leather originating in the People’s Republic of China and Vietnam [2006] OJ L 275/1.
economy methodology was the issue. From 2011, China’s stance was more aggressive against the treatment and, while all the claims were not accepted by the AB, some of them were and forced the EU into changing its Regulation.
These amendments were codified in the Regulation currently in force, Regulation 1036/2016. However, the changes brought by the new Regulation might not be in compliance with the DSB rulings in EU-Biodiesel (Argentina).
II.
EU-BIODIESEL (ARGENTINA)
In 2016, the DSB adopted the AB report in EU-Biodiesel (Argentina). This case concerned the EU Anti-dumping Regulation and challenged the determination of the normal value by the methodology found in Article 2(5).68 This article stipulates that:
Costs shall normally be calculated on the basis of records kept by the party under investigation, provided that such records are in accordance with the generally accepted accounting principles of the country concerned and that it is shown that the records reasonably reflect the costs associated with the production and sale of the product under consideration.
If costs associated with the production and sale of the product under investigation are not reasonably reflected in the records of the party concerned, they shall be adjusted or established on the basis of the costs of other producers or exporters in the same country or, where such information is not available or cannot be used, on any other reasonable basis, including information from other representative market.
The EU had imposed anti-dumping duties to biodiesel69 originating from Argentina and Indonesia in November 2013, following an investigation after a complaint submitted by the European Biodiesel Board.70 Argentina made two main claims. The first one is that Article 2(5) of Regulation 1225/2009 was inconsistent “as such” with Articles 2.2.1.1 and 2.2 of the ADA and Article VI:1(b)(ii) of the GATT 1994 by
68 This methodology is not the same as the non-market economy methodology but they share similarities.
69 Soybeans were the raw material used to produce biodiesel.
70 European Union – Anti-Dumping Measures on Biodiesel from Argentina: Report of the Panel (29 March 2016) WT/DS473/R (hereinafter EU-Biodiesel (Argentina) (Panel)) [2.3].
stipulating that, when the costs data of the producers do not reflect market prices or when they are affected by a distortion, the Commission was required to reject or adjust those costs. The second one is that the anti-dumping measures imposed by the EU are inconsistent with Articles 2.1, 2.2.1.1, 2.2, 2.2(iii), 2.4, 3.1, 3.4, 3.5 and 9.3 of the ADA because, inter alia, the Commission did not use the producers’ data to construct the normal value of the exports of biodiesel which thus affected the dumping margin.
a. PANEL REPORT
The Panel Report was circulated in March 2016. The Panel rejected the claim of inconsistency “as such” of Regulation 1225/2009. Argentina argued that the second paragraph of Article 2(5) requires the investigating authorities to determine that the producers’ records do not reasonably reflect the costs when the costs included in the records are artificially or abnormally low as a result of distortion.71 The Panel rejected that claim by considering that this provision was not a requirement for the Commission. It considered that this second paragraph provided what the investigation authority can do so only after having made the determination under the first paragraph that the producers’ records are not a reasonable representation of the costs.72 It is only when the two principles found in the first paragraph, i.e. that the records should be in accordance with the generally accepted accounting principles (GAAP) of the country concerned and that they reasonably reflect the costs associated with the production and sale of the product, are not respected in the ongoing investigation that the Commission may adjust the costs or construct the costs based on other producers. In other words, contrary to Argentina’s claim, it is not mandatory for the Commission to disregard the producers’ costs in every case.73 The Panel concluded that the fact that there is a certain pattern of disregarding these costs is not an indication that the Commission is obliged to do so in every case.
While it rejected Argentina’s claim, the Panel made an important distinction about the use of third country’s information to construct the costs of production. It distinguished
71 EU-Biodiesel (Argentina) (Panel) [7.129]. 72 Ibid [7.132-7.134].
between the use of information from a third country and the construction of the normal value based on the costs of production found in third countries. In the Panel’s view, the investigating authorities may use third country’s information but Article 2.2 of the ADA and Article VI:1(b)(ii) require that the “authority construct the normal value on the basis of the “cost of production” “in the country of origin””.74 It means that the construction of the normal value cannot be constructed on the basis of costs other than the ones found in the country of origin. The use of world prices or prices that are used in a third country is therefore not permitted under these Articles.75
However, concerning the claim of inconsistency of the anti-dumping measures themselves with the ADA and Article VI GATT 1994, the Panel agreed with Argentina. It considered, inter alia, that the EU acted inconsistently with Article 2.2.1.1 of the ADA by using costs that did not reasonably reflect the costs of soybeans in Argentina.76 The Panel made an important distinction towards the ‘Reasonably Reflecting Test’.77 It indeed explained that this test was about whether the costs found in the records reflected the costs that were actually incurred during the production and sale of the product.78 This test is not about whether the costs in themselves are reasonable for the production and the sale of the product. It is not about what the investigating authority considers as reasonable costs. The distinction between these two concepts is important and is at the heart of this dispute between the EU and Argentina.79
The Panel also decided that the fact that the prices were distorted because of the Argentinean tax system affecting soybeans was not a reasonable reason for not using those prices.80 For the Panel, the investigating authority should base the calculation of the normal value on the producers’ records, no matter what. Additionally, the Panel considered the EU anti-dumping measures were inconsistent with Article 2.2 of the ADA and Article VI:1(b)(ii) as the costs selected were selected specifically because
74 EU-Biodiesel (Argentina) (Panel) [7.171].
75 Jochem de Kok ‘The Future of EU Trade Defence Investigations against Imports from China’ (2016) 19 Journal of International Economic Law 515.
76 EU-Biodiesel (Argentina) (Panel) [7.249].
77It is the test set out in Article 2.2.1.1, first sentence: the records of the producers may be used when they reasonably reflect the costs associated with the production and sale of the product under consideration.
78 EU-Biodiesel (Argentina) (Panel) [7.242].
79 Weihuan Zhou ‘Appellate Body Report on EU-Biodiesel (Argentina): The Future of China’s State Capitalism under the WTO Anti-Dumping Agreement’ (2018) World Trade Review 1.
they were not the ones used in Argentina.81 Therefore, the Commission did not use the price in the “country of origin” as was prescribed by this Article.82
b. AB REPORT
Both the EU and Argentina decided to appeal the decision of the Panel. The Appellate Body Report was circulated in October 2016.83
Considering Argentina’s “as such” claim, the AB upheld the Panel’s findings that Article 2(5) of Regulation 1225/2009 was not inconsistent with Article 2.2.1.1 of the ADA.84 The Appellate Body interpreted the second paragraph of Article 2(5) of the Regulation as being used only after the EU authorities made the determination that the producer’s records could not be used, according to the first paragraph of the first provision.85 It confirmed the view that Article 2(5) is a “two-step structure”86 and that the investigating authorities may derogate from the requirement of using the producer’s data when the conditions set out in the first paragraph are not fulfilled. Furthermore, the AB upheld the Panel’s finding that Article 2(5) does not require the EU authorities to replace the producer’s data with out of country of origin’s data but merely allow them to use out of country information.87
The AB also agreed with the Panel’s findings about the use of out of the country’s information. It considered that Article 2.2 of the ADA did not indeed specify what type of information an authority may use.88 However, it made the decision that this does not mean that “the authority may simply substitute the costs from outside the country of origin for the “cost of production in the country of origin””.89 The investigating authority ought to make sure that the information it uses are adapted to correspond to the cost of production in the country of origin.90
81 EU-Biodiesel (Argentina) (Panel) [7.258]. 82 Ibid [7.260].
83 European Union – Anti-Dumping Measures on Biodiesel from Argentina: Report of the Appellate
Body (6 October 2016) WT/DS473/AB/R (hereinafter EU-Biodiesel (Argentina) (AB)).
84 EU-Biodiesel (Argentina) (AB) [6.180]. 85 Ibid [6.176]. 86 Ibid [6.193]. 87 Ibid [6.244]. 88 Ibid [6.173]. 89 Ibid. 90 Ibid.
The AB upheld the Panel’s findings towards the anti-dumping measures imposed to Argentina by the EU. It agreed with the Panel that the Reasonably Reflecting Test, present in Article 2.2.1.1 ADA, was about whether the costs present in the producer’s data reasonably represented the actual costs 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”.91 Consequently, the fact that the prices were distorted due to the Argentinean tax system was not a sufficient basis for casting aside those prices under Article 2.2.1.1.92
In conclusion, it means that, according to the ADA and the GATT 1994, the costs actually incurred during the production and sale process should be used, even if they are considered distorted due to state intervention. There is therefore no justification for the investigating authorities not to use the producers’ data when the records reflect the actual costs incurred. Practically, according to the AB, the distortions present in the country of origin of the dumped imports must be taken into account when determining the dumping margin.93
These rulings served as a basis in the dispute between the EU and Indonesia.94 This dispute was also about anti-dumping measures imposed by the EU on imports of biodiesel. The EU used the same rationale to disregard the domestic prices. Unsurprisingly, the Panel replicated the findings made by the Panel and the Appellate Body in EU-Biodiesel (Argentina). The costs used by the EU authorities were specifically chosen to remove the distortion caused by the Indonesian export tax system and the Panel considered that it was inconsistent with Article 2.2 of the ADA and Article VI:1(b)(ii) of the GATT 1994.95 The same conclusion was reached concerning Article 2.2.1.1. The Panel decided that the EU authorities should have
91 EU-Biodiesel (Argentina) (AB) [6.41]. 92 Ibid [6.55].
93 Weihuan Zhou, supra note 79.
94 European Union – Anti-Dumping Measures on Biodiesel from Indonesia: Report of the Panel (25 January 2018) WT/DS480/R (hereinafter EU-Biodiesel (Indonesia)).
used the records kept by the producers to calculate the cost of production of biodiesel.96
By confirming the AB’s approach in EU-Biodiesel (Argentina), the Panel in EU-Biodiesel (Indonesia) definitively endorsed the new approach. The interpretation concerning the use of out of country of origin’s information is more restrictive than it was before.97
III.
THE COMPLIANCE OF THE NEW GUIDELINES WITH THE
EU-BIODIESEL RULINGS
The methodology used by the Commission in the EU-Biodiesel (Argentina) case is similar to the methodology used for non-market economy countries. Indeed, with the NME methodology, the normal value is constructed using the prices in a market economy country. In the dispute with Argentina, the Commission used Article 2(5) of Regulation 1225/200998 to effectively construct the normal value using prices that were not in the country of origin. It did not use Article 2(7) – the basis of the NME methodology – as Argentina is not considered a non-market economy in the Regulation. The two methodologies are similar as they both use costs that are from outside of the country of origin of the product under investigation. In the EU-Biodiesel dispute, for both Argentina and Indonesia, the Commission did not use the domestic prices as it considered there were local distortions.
The new Anti-Dumping Guidelines has deleted the non-market economy methodology to replace it with a ‘significant distortions’ methodology. It does not differentiate between certain members of the WTO anymore. Practically, it means that this methodology may be applied to WTO Members if significant distortions affect the domestic prices of the exporting country. In this case, the normal value will be constructed exclusively on the basis of, inter alia, undistorted international prices, costs or benchmarks and undistorted domestic costs.99
96 EU-Biodiesel (Indonesia) [7.26].
97 For more details about this change, see Jochem de Kok, supra note 75.
98 The corresponding article in Regulation 2016/1036 is the exact replica of Article 2(5) of Regulation 1225/2009.
The methodology that was used by the Commission in those two disputes is therefore similar to the new methodology.100 But both the Panel and the AB considered that the presence of a distortion was not a sufficient basis for not using the country of origin’s costs. It means that the new methodology is likely to be inconsistent with Article 2.2.1.1 of the ADA. Indeed, it is only in the case that the costs actually incurred are not reasonably reflected in the producer’s records that the investigating authority has the possibility to use another basis to construct the cost of production that will be used to construct the normal value. By using costs such as international prices, costs or benchmarks to construct the normal value in case of significant distortions, the new methodology is also inconsistent with Article 2.2 of the ADA, according to which the costs prevailing in the country of origin must be used. Furthermore, under this methodology, if domestic prices are used, it is only when they are “positively established not to be distorted”.101
Distortions that are the result of government intervention are not a sufficient reason to not use the producers’ data as the EU-Biodiesel dispute has shown. But the new methodology is supposed to be used when there are government interventions that impede free market forces. Following the same interpretation and rationale of the Panel and AB, the new methodology is likely to be found inconsistent with both Articles 2.2 and 2.2.1.1 of the ADA.102 The question that arises then is whether this inconsistency will be “as such”, “as applied” or both.
Concerning the inconsistency “as applied”, it is difficult to say yet as no investigation using the new methodology has been finished yet. However, it is likely that if the same scenario as the one in EU-Biodiesel happens, the findings will be the same. In practice, if the Commission uses exclusively out-of-country or international costs instead of the producers’ costs to construct the normal value, it will not be consistent with Articles 2.2 and 2.2.1.1.103
Concerning the inconsistency “as such”, the answer is less straightforward. Suse argues that it is doubtful the new methodology is inconsistent as such with WTO
100 Andrei Suse ‘Old Wine in a New Bottle: the EU’s Response to the Expiry of Section 15(a)(ii) of China’s WTO Protocol of Accession’ (2017), available at
<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2952015>.
101 Regulation 2016/1036 as amended by Regulation 2017/2321 art 2(6a)(a).
102 Weihuan Zhou ‘China’s Litigation on Non-Market Economy Treatment at the WTO: A Preliminary Assessment’ (2017) Chinese Journal of Comparative Law 5(2) 345.
law.104 She considers that Article 2(6a) gives the investigating authority discretion on whether or not it should be apply to a certain country. As seen in the Biodiesel dispute, the Panel and the AB did not find Article 2(5) of Regulation 1225/2009 to be inconsistent as such with Articles 2.2 and 2.2.1.1 of the ADA. The main reason was that Article 2(5) does not require the EU authorities to replace the costs but merely give them the opportunity to do so. The outcome of an eventual “as such” claim for Article 2(6a) will likely be the same as the EU authorities have the option to apply this methodology. Zhou disagrees on this part.105 He considers that the EU-Biodiesel dispute clearly established that the constructed normal value should represent the situation in the country of origin, including the possible distortions resulting from state intervention. Article 2(6a)(a) and (b) mandate the Commission to use undistorted benchmarks or costs to construct the normal value. Therefore, it is not consistent with Articles 2.2 and 2.2.1.1 as interpreted by the Panel and the AB in EU-Biodiesel (Argentina).
One may notice that Article 2(6a) is not inconsistent “as such” with Articles 2.2 and 2.2.1.1 of the ADA. It is a two-step process: if there are distortions that are deemed significant by the Commission, then it has to apply the methodology and construct the normal value on undistorted costs. However, if the distortions are not significant, the Commission does not have to apply the methodology. Once this has been established, the “normal value shall be constructed exclusively” on the basis of undistorted costs. There is no other choice for the Commission, as it is made apparent by the use of the mandatory verb ‘shall’. So if the producers’ costs are distorted, the Commission cannot use them to construct the normal value. The two-step process ensures that the new methodology will not be applied in every cases. It is likely that the same rationale as the one in EU-Biodiesel (Argentina) applies; the first condition - the presence of significant distortions - has to be fulfilled for the Commission to disregard the producers’ data. In other words, the Commission has a certain margin of appreciation and the use of undistorted costs is not supposed to be automatic.
The Commission has also a choice in the sources it may use. The list present in the Article is not exhaustive. The Commission “may use” the sources that are included but is not forbidden to use others. This argument is supported by the language itself:
104 Ibid.
the use of the verb ‘may’ translates a possibility. The formulation in French also translates a possibility for the Commission and the sources detailed as an inspiration.106 The sources listed are an indication of what the Commission may use to construct the normal value.
The different methodologies used by the EU to calculate the normal value when the costs in the exporting country are not used were found inconsistent with the covered agreements of the WTO. These findings of inconsistency have forced the EU to change its regulations to comply. The NME methodology was concerned for the two cases against China in 2011 but the use of the methodology itself was not found inconsistent. The methodology to determine the normal value when the domestic prices do not respect certain conditions was challenged as well, this time by Argentina. This methodology is similar to the new one disregarding domestic prices when there are significant distortions, notably through the use of international costs or undistorted domestic prices. It is then likely that the new methodology is not consistent with WTO law.
The second part will focus on whether the Regulation continues to be discriminating.
106 “Les sources d’information que la Commission peut utiliser sont notamment”: the use of “peut utiliser” which translates a possibility and not a mandatory action. The use of the adverb “notamment” translates the fact that these sources are an example of what may be used but does not restrict the use of other sources, outside this list.
CHAPTER II: THE DISCRIMINATORY
TREATMENT OF NON-MARKET ECONOMY
COUNTRIES
Non-market economies have always been treated differently. This difference in treatment was clearly discriminating and was considered inconsistent with the Most-Favoured Nation (MFN) obligation resulting from Article I:1 of the GATT 1994. The EU may however grant the status of market economy (ME) to NMEs if the latter fulfill certain criteria. The new methodology removed the notion of NME but the discrimination against certain countries is still present. Considering this, the question arises on whether the new methodology is consistent with the EU’s MFN obligation.
I.
THE TREATMENT OF NON-MARKET ECONOMY BY THE
EU IN ANTI-DUMPING CASES
Non-market economies may be granted the status of market economy if they satisfy five criteria. China is an example of a country that has tried to get this status but has been denied at numerous occasion by the EU. The new Regulation is supposed to be different than the NME methodology; however, the comparison does not hold that affirmation.
a. THE EU REFUSAL TO GRANT MARKET ECONOMY
STATUS - THE EXAMPLE OF CHINA
To be granted the status of market economy (MES), a country has to fulfill each of five criteria. These criteria are the following:
- A low degree of government influence over the allocation of resources and decisions of enterprises, whether directly or indirectly;
- An absence of state-induced distortions in the operation of enterprises linked to privatization and the use of non-market trading or compensation system; - The existence and implementation of a transparent and non-discriminatory
- 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; and
- The existence of a genuine financial sector which operated independently from the state and which in law and practice is subject to sufficient guarantee provisions and adequate supervisions.107
As early as 2003, China has requested to be granted the status of Market Economy and produced documents supporting its claim.108 A working group was formed and the Commission promised to give the Chinese authorities a preliminary assessment in June 2004, which was respected. In this assessment109, the Commission concluded that, out of the five criteria considered, only the second one was fulfilled. While acknowledging the progress accomplished by China to change its economy, the Commission still considered that it was not legitimate to grant China a market economy status at this period of time. However, it insisted that “the EU is committee to granting China MES as soon as”110 the other criteria are fulfilled.
In 2008, the Commission published the result of the works that the Working Group had accomplished in four years.111 In this report, the Commission analysed each criterion to conclude that China did not fulfill the criteria to present to the MES.112 The conclusion of this report is that China has greatly improved its framework in every category related to the criteria and now disposes of the necessary legal background to pretend to the status of market economy. The issue is that the legal framework is still relatively new and there is therefore a lack of qualified experts that would allow China to both enforce and respect this new framework. The implementation is thus not complete and will likely take some time. Consequently, the Commission considered it was too early to grant China the Market Economy Status.
107 European Commission, ‘China – Market Economy Status in Trade Defence Investigations’ (28
June 2004) MEMO/04/163, available at
<http://europa.eu/rapid/press-release_MEMO-04-163_en.htm?locale=en>. 108 Ibid.
109 Ibid. 110 Ibid.
111 European Commission, ‘Commission Staff Working Document on Progress by the People’s Republic of China Towards Graduation to Market Economy Status in Trade Defence Investigations’ (19 September 2008) SEC(2008).
The Commission decided to conduct an additional study on the accounting principles and their implementation in cooperation with the Chinese authorities.113
Considering all the criteria evaluated and the results, it appears comprehensible that China would still have to wait until its effort at modernization and harmonization with international standards yield significant result. However, in 2011, the Commission refused once again to grant China its market economy status.114 The Commission explained that the result of the study on the accounting practices in China was finalised in 2011 but the results were not sufficient as the Chinese authority did not cooperate. As a consequence, the Commission said that it could not make any conclusions regarding this criterion and refused to grant the status.
After 2011 and until 2014, the Commission reported the same situation to the European Parliament: China did not reach out to discuss its status and did not provide further proofs of its market economy functioning.115 In 2016, the Commission concluded that China was simply waiting for the EU to change its methodology after December 2016.116 It added that it was working on an Impact Assessment and public consultations regarding the expiry of certain provisions of Section 15 of China’s Accession Protocol. In 2016, discussions on China’s status were put on hold due to the adoption of the Regulation 2016/1036 and the proposal for a new anti-dumping methodology that would remove the discrimination between market economy WTO Members and non-market economy WTO Members.117
In conclusion, while it could be said that the EU refused to negotiate or to even consider a change of China’s status, these annual reports tell a different story of China refusing to cooperate. In the end, the result is the same: China was not granted a market economy status.
113 European Commission, 2008 Report, supra note 111.
114 European Commission, Commission Staff Working Document ‘Report from the Commission to the European Parliament - 30thAnnual Report from the Commission to the European Parliament on the EU’s Anti-Dumping, Anti-Subsidy and Safeguard activities (2011)’ (19 October 2012) SWD(2012) 346 final.
115 Annual Reports of 2011, 2012, 2013 and 2014.
116 European Commission, Commission Staff Working Document ‘Report from the Commission to the European Parliament - 34thAnnual Report from the Commission to the European Parliament and the Council on the EU’s Anti-Dumping, Anti-Subsidy and Safeguard activities (2015)’ (18 October 2016) SWD(2016) 330 final.
117 European Commission, Commission Staff Working Document ‘Report from the Commission to the European Parliament - 35thAnnual Report from the Commission to the European Parliament and the Council on the EU’s Anti-Dumping, Anti-Subsidy and Safeguard activities (2016)’ (17 October 2017) SWD(2017) 342 final.
b. The clear similarities between the criteria for the
market economy status and the indicators of
significant distortions
Looking superficially at the new Regulation, it appears that the concept of non-market economy has effectively been removed and is indeed country-neutral as announced. However, looking closely, the factors that may be used under the new methodology to determine whether or not there are significant distortions are similar to the five criteria used to determine whether or not a country is a non-market economy.
As seen above, the Commission examines five criteria when it is looking at the economy of a country to decide whether or not it is a market economy. In the new Regulation, Article 2(6a)(b) stipulates that significant distortions are present when the prices are not the result of free market forces and then exposes six elements that are an indication of such distortions. This list in non-exhaustive, as can be deduced from the wording of this provision; the article stipulates that "in assessing the existence of significant distortions regard shall be had, inter alia, to the potential impact of one or more of the following elements". The six factors are the following:
- The market in question is served to a significant extent by enterprises which operates under the ownership, control or policy supervision or guidance of the authorities of the exporting country;
- The State is present in firms which allows the state to interfere with respect to prices or costs;
- There are public policies or measures discriminating in favour of domestic suppliers or otherwise free market forces;
- There is a lack, discriminatory application or inadequate enforcement of bankruptcy, corporate or property laws:
- Wage costs are distorted;
- The access to finance is granted by institutions which implement public policy objectives or otherwise not acting independently of the state.
These factors are not worded the same way as the criteria for the market economy status are but the similarities are definitely there. For example, the first criteria of the MES is a low degree of government influence over the allocation of resources and decision of enterprises, directly or through a public body. The prime example of this practice is the use of state-fixed prices. The first two factors used in Article 2(6a)(b) are also about state interference in the enterprises and in the fixing of prices. The second criteria of the MES is about state-induced distortions in the operation of private enterprises, which is similar to the presence of the state in firms. The fourth criteria of MES concerns the existence and implementation of a coherent, transparent and effective sets of laws ensuring the respect of property rights and the operation of a functioning bankruptcy regime. This corresponds exactly to the fourth element put in the new Regulation.
Each of these factors can be linked to one or more of the criteria used in the determination of the market economy status.118 It is a clear sign that the new regulation is, as Suse put it, an "old wine in a new bottle".119 The methodology changed names but the foundation of the difference is still there. Additionally, the new Regulation considers there are distortions when the prices are not the result of free market forces. The definition in itself of a non-market economy is an economy where the state has the monopoly over its trade and control the prices. In this situation, the prices could not be further from the result of free market forces.
The new regulation is ‘country neutral’ which in practice means that no country is specifically named as being a non-market economy. There is no more obligation of the Commission to apply the NME methodology to certain countries. Instead, the investigating authority will be able to apply this methodology to any countries that show such distortions. It means practically that countries that were not branded as NME before now potentially face the possibility of having this methodology applied to them if such distortions are found.
To its face, the Regulation does not discriminate against China particularly. China is indeed not mentioned anymore. The burden of proof also changed because it is not supposed that China is a distorted economy. To avoid complicating the process of depositing a complaint for EU producers, the Commission has announced working on
118 See Annex 2 for the comparison by criteria/factors. 119 Suse, supra note 100.
country reports in which an assessment of either the entire economy or certain sectors will be examined.120 The first country report is unsurprisingly on China.121
II.
FIRST REPORT OF THE COMMISSION ON CHINA – DOES
IT ESTABLISH A REBUTTABLE PRESUMPTION?
a. THE CONTENT OF THE FIRST REPORT
This report was circulated immediately after the adoption of the amendments in December 2017. It is a long document of more than 400 pages that is divided in three parts. The first part is about cross-cutting distortions, in which the Commission explains why the Chinese economy is in this current structure. The second part concerns distortions in the factors of production and the third part is about distortions in selected sectors.
The first part focuses on the structure of China. In this part, the Commission detailed the history of China and its evolution from a state-planned economy to the socialist market economy. This notion is hybrid and has no current equivalent.122 The result is that the State is still in control of a part of the economy. Its rapid economic growth was possible because of government intervention and this interventionism policy is still very much present in various areas such as banking, investment, allocation of factors of production, etc. The State has a decisive role in the economy which leads to the resource allocations that are not the result of free market forces. The Communist Party has a wide control over the policy which in turn translate to control over business decisions. Additionally, the Chinese economy continues to rely on plans for the following years as a tool to shape the economy and the future domains in which China wants to become a leader. SOEs still have a predominant role and are present in a number of key areas such as finance, telecommunication, manufacturing industries, i.e. steel and chemicals. The financial system is also distorted. Overall, this part
120 European Commission, ‘The EU is changing its anti-dumping and anti-subsidy legislation to
address induced market distortions’ (4 October 2017) Fact Sheet, available at
<http://europa.eu/rapid/press-release_MEMO-17-3703_en.htm>.
121 European Commission, ‘Commission Staff Working Document on Significant Distortions in the Economy of the People’s Republic of China for the purposes of Trade Defence Investigations’ (20 December 2017) SWD(2017) 483 final/2 (hereinafter the Report on China).
analyses the structure of China, including criteria that were part of the MES evaluation. It appears clear from the report that the issues that were pointed out in the evaluation in 2008 remain the same in 2017. There are still significant distortions due to the presence of the State on the market, through SOEs, regulations, etc.
The second part concerns factors of production, especially concerning the provision of land, capital, raw materials and labour. The problem with land is that there is no private land ownership, as is stipulated in the Constitution. There are laws to put in place to regulate land used for commercial purposes but these laws are often not completely implemented. There has been evolution in the energy market but, according to the Commission, the prices are not market-based and still controlled by the state. This control goes beyond what is normal for the regulation of this sector. The same may be said for the other areas described in this part. The State still controls or has a strong say in the pricing which results in market distortions.
The third part looks into specific sectors that have been chosen because there were often the ones under investigation in anti-dumping proceedings. These sectors are steel, chemicals, aluminium and ceramic. The steel sector is a key industry in China and has been the subject to plenty of plans and policies. The Commission concluded that every aspect of the development and production of steel is controlled by the Chinese government. China is the largest producer of aluminium.123 The situation is pretty much the same in this sector than in the steel sector with significant distortions but there are the result of export-related measures more than controlling every aspect of the production. The chemical sector is susceptible to change to become auto-sufficient. For now, as is the case for other sectors, China must import some materials to arrive at the end product. Interventionism is thus likely to happen in the future even more than currently for this sector. This sector is also oriented towards a quality supply more than a quantity like it had been so far. The goal is to become more specialised and produce high quality products instead of large quantities. The ceramic sector, due to its historical importance, is closely monitored by the State as well.
Overall, this report paints a picture of all the Chines economy being supervised by the State. The traditional planning of the economy is still present and the government targets specific sectors to achieve this goal.
b. Does it establish a presumption?
These reports will be used by EU producers as evidence of the presence of distortions which will warrant the use of the new methodology. Even though the Commission has said that it may be contested and discussed by all the parties, it may be difficult for a Chinese exporter of an investigated sector to rebut the conclusion attained by the Commission. The report, as said above, is very detailed and had scrutinised every part of the Chinese economy. It also appears fair and unbiased. Faced with such evidence, it may be difficult for individual Chinese producers to prove that they are effectively operating under in a market without significant distortions.
Considering the detailed analysis of this report, it appears difficult to prove otherwise. The Commission used not only the Chinese laws and their actual effects but also anti-dumping investigations done by other countries such as the US to justify its claims.
The report on China compromises the case-by-case approach that is supposed to represent the new guidelines. Indeed, if China is already branded a distorted economy, there is no reason to put too much effort for the EU producers and the Commission to use the normal methodology. The assessment on each case investigating products originating from China, that will determine whether or not the ‘significant distortion’ methodology is applied, will likely be biased if it is already established that China is a distorted economy. It is unlikely that the Commission’s Report will result in a country-wide presumption. Country-wide presumption was indeed considered inconsistent regarding other issues of the AD Regulation.124 However, the Report might make the proof of the presence of significant distortions significantly easier. The presumption is more pronounced when the investigation will concern products in the sectors that were investigated. For China, each of the four sectors were thoroughly
investigated. A product coming from any of those will likely be subject to the same distortions. It is doubtful that the Commission, which investigated itself for this report, will question these conclusions. The issue is that the Commission is both the investigating authority and the one who published the report. To rebut this presumption, it is needed that the producers show that they are operating without the distortions but also that the Commission is willing to go against its own report.
This analysis is nevertheless prospective as no cases against China has been made public yet. The consequences of this report and the new methodology are for now uncertain. However, based on the past conduct of the Commission that has often been considered inconsistent with WTO law125, it is likely that this report serves as a basis to not apply the normal methodology for alleged dumped imports from China.
III.
THE DISCRIMINATORY TREATMENT OF NON-MARKET
ECONOMY, INCONSISTENT WITH ARTICLE I:1 OF THE
GATT 1994
The previous regulation was considered inconsistent with the ADA as was explained in the previous chapter. It is also likely that the new Regulation is going to be considered inconsistent with some provisions of this agreement. The NME methodology had also been considered inconsistent with WTO provisions, notably Article I:1 of the GATT 1994. This provision is “one of the cornerstones” of the WTO as it provides for the most-favoured nation treatment, also called the MFN treatment. This treatment is of interest for the new Regulation. The previous Regulations had been the object of complaints. The question that arises is whether the new Regulation violates the MFN clause or not.
a. THE PREVIOUS REGULATION IN VIOLATION OF THE
MFN CLAUSE
i. Regulation 1225/2009 – EC-Fasteners and
EU-Footwear
As seen previously, EC-Fasteners and EU-Footwear are important cases. Additionally, the Panels also considered whether the Basic Regulation, and more precisely Article 9(5) of this Regulation, was inconsistent with Article I:1 GATT 1994. In both cases, it was decided that this article, providing for the possibility to apply country-wide dumping margin to producers from NME countries, was inconsistent with the MFN clause.
In EC-Fasteners, the inconsistency of Article 9(5) with Article I:1 was one of the complaints from China. The Panel considered first that this article was within the scope of Article I:1 as it affected imports from certain countries.126 Anti-dumping is indeed related to importation. It agreed with China in considering that having an individual margin calculated was an advantage compared to a country-wide duty.127 The Panel did not consider the “likeness” condition as the comparison between anti-dumping duties can only be made between like products. It then considered that Article 9(5) contained a list of countries in which producers did not have the right to have automatically an individual dumping margin calculated.128 For those producers, this right was conditioned to the fulfilment of the conditions set out in the Article. The application of this article would have as a result that the same imported product would not be treated similarly depending on the origin of said product. It is clear that Article 9(5) was inconsistent with the MFN obligation contained in Article I:1 of the GATT 1994.129
Furthermore, the Panel rejected the EU’s argument that imports from NMEs and imports from market economy countries were different in nature and that it warranted
126 EC-Fasteners (Panel) [VII.124]. 127 Ibid.
128 Ibid. 129 Ibid.
a difference in treatment.130 The EU indeed did not provide an explicit authorization or a sufficient factual basis to explain the difference in treatment. The Panel also remarked that the Regulation “explicitly lists the countries” for which a request for individual treatment shall be made to pretend at individual dumping margin.131 Consequently, the Regulation in itself separates a group of WTO Members for which the condition will not be the same.132
For EU-Footwear, the Panel had a rationale similar to the one in EC-Fasteners.133 It similarly concluded that Article 9(5) was inconsistent with Article I:1 as the same product from different WTO Members would not be treated in the same manner. The automatic individual treatment was conditioned on the origin of the products.134 It agreed that imports from NMEs may be treated differently but only as it is authorized by the ADA or other WTO agreements.135 The EU was not able to demonstrate any differences in the nature of the imported product itself between a product from a NME and from a market economy.136
These two cases therefore concluded that Article 9(5) of Regulation 1225/2009 discriminated against NME countries.
ii. Regulation 2016/1036 – Complaint by China
On the 12th December 2016, China requested consultation with the EU for its treatment of China in anti-dumping cases.137 The consultations failed and China requested the establishment of a Panel.138 The measures concerned by this proceeding are Article 2(1) to 2(7) of Regulation 2016/1036.139 The NME methodology is
130 EC-Fasteners (Panel) [VII.125]. 131 EC-Fasteners (Panel) [VII.126].
132 The AB did not address this issue on appeal: EC-Fasteners (AB) [398]. 133 EU-Footwear [VII.100 – VII.103].
134 EU-Footwear [VII.100]. 135 EU-Footwear [VII.101]. 136 EU-Footwear [VII.102].
137 European Union – Measures Related to Price Comparison Methodologies: Request for
consultations by China (15 December 2016) WT/DS516/1.
138 European Union – Measures Related to Price Comparison Methodologies: Request for the
establishment of a Panel by China (9 March 2017) WT/DS516/9.
