Industrialised countries began to put in place defences against unfair trade practices in the 1960s and 1970s, as the Kennedy and Tokyo rounds of trade liberalisation within the General Agreement on Tariffs and Trade (GATT) resulted in a significant reduction in the tariffs levied on foreign trade. The European Community – which was given exclusive competence for external trade policy, in the form of a Common Commercial Policy (CCP), by the 1957 Treaty of Rome – first adopted a regulation against the ‘dumping’ by third countries of goods on its markets in 1968. The successful conclusion of the GATT Uruguay Round in Marrakesh in April 1994, which led to the creation of the World Trade Organisation (WTO), prompted an updating of the EU anti-dumping régime the following year. The Uruguay deal also included agreements on anti-subsidy and ‘safeguard’ measures, with a view to enabling WTO member states to protect themselves, on the basis of agreed principles, from other unfair or problematic trade practices by third countries. These measures are collectively known as ‘trade defence instruments’.
WTO rules define dumping as the selling of products on export markets at a price lower than the cost of production in the domestic market, in a way that causes demonstrable ‘injury’ to competitors in the importing jurisdiction. The EU’s anti-dumping regulation, most recently amended in 2009, transposes the WTO rules on dumping into Union law. It covers all goods imported from any third country, whether or not it is a WTO member state. An anti-dumping procedure can only be brought if the complaint is supported by companies representing at least half the total EU output of the product in question. Once the procedure is initiated, the European Commission undertakes an in-depth investigation of the case, usually within a 15-month period; this results in either the dismissal of the complaint, the offering of price undertakings by the offending exporter(s) or the imposition of anti-dumping duties. In urgent cases, where significant injury would be caused by any delay in action, ‘provisional’ anti-dumping duties may be imposed by the Commission, pending the outcome of the full investigation. The Council of Ministers is responsible for adopting or rescinding anti-dumping duties, on a proposal by the Commission, with simple or qualified majority voting (QMV) being used respectively for such decisions in the Council. Anti-dumping duties normally expire after five years, but may be suspended earlier if the dumping disappears.
At a technical level, difficulties can arise in calculating the cost of producing a good if the exporting country does not have a free-market economy and/or if the producer enjoys a domestic monopoly. Here, EU rules provide for the assessment to be made on the basis of a calculation of the ‘normal value’ of a product. Equally, the assessment of ‘injury’ to EU producers – in terms of sales, profitability or market share – can be both complex and controversial. Disagreements about the calculation of ‘normal value’ and ‘injury’ frequently lead to cases that are brought before the WTO dispute settlement process for adjudication. At the end of 2010, a total of 124 anti-dumping duties were in place – affecting about 0.5 per cent of the EU’s external trade – with 14 new investigations launched during that year, the majority against China. In October 2011, a definitive anti-dumping duty of 48.5 per cent was imposed on Chinese bicycles.
Measures against subsidies operate in much the same way as those against dumping, but their incidence is much less frequent. A subsidy is defined by the WTO as being a ‘financial contribution’ by a government that confers a ‘benefit’ on the recipient company. Caught by this definition are grants, loans, loan guarantees, equity, tax credits and other forms of direct and indirect public support, so long as the subsidies are specific to the export concerned. (Certain subsidies for research and the pursuit of regional and environmental policy are exempt). An EU anti-subsidy regulation, adopted in 1994 and amended in 2009, allows the imposition of ‘countervailing duties’ against imports in cases where foreign governments have provided subsidies, directly or indirectly, for the ‘manufacture, production, export or transport of products’, in a way that causes injury to European producers. However, anti-subsidy policy is a more complex and controversial area of policy than anti-dumping, and WTO cases flowing from it can be more difficult to resolve, as the long-running dispute between Boeing and Airbus demonstrates. At the end of 2010, 11 countervailing duties were in place, with four new investigations launched during that year.
‘Safeguard’ measures, unlike anti-dumping and anti-subsidy measures, are not necessarily a response to unfair trade practices. Rather they allow the Union to limit an unforeseen, sudden and sharp increase in imports of a product, causing or threatening to cause ‘serious injury’ (rather than just injury) to a sector within the Union. A separate test as to whether action is in the ‘European interest’ is also applied. The current safeguard regulations – one for exports from WTO members, another for exports from countries outside the WTO – were introduced in 1994 and amended in 2009. They allow for a Commission investigation of an import surge, followed by measures, normally in the form of quotas (applying to all third countries), backed by restructuring moves in the affected industry within the Union. Provisional measures may be applied, if necessary, in the interim. Safeguard measures do not apply to textiles, which are still outside the WTO arrangements on the subject.
A further component of the EU trade defence armoury pre-dates the creation of the WTO. A ‘trade barriers regulation’ – first introduced in 1984 as the ‘illicit trade practices regulation’ – offers individual companies or industries the opportunity to submit complaints to the Commission about barriers to entry, in defiance of international trade rules, by third countries. The regulation was originally adopted as a response to Section 301 of the 1974 US Trade Act, which provides a comparable mechanism for US producers. Updated in 1994, following the Uruguay Round, the EU regulation applies to both goods and the provision of cross-border services. If an investigation by the Commission concludes that WTO rules have been infringed, it may propose to the Council one of several sanctions, including suspension of trade concessions, reinstitution or raising of tariffs, or the imposition of quantitative restrictions. Since 1996, the regulation has been used 27 times, on issues as diverse as the importation of finished leather (Argentina) and ‘retreaded’ tyres (Brazil), the trans-shipment of swordfish (Chile), the designation of Bordeaux wines and Parma ham (Canada), and access to internet gambling (United States).
A new issue involves so-called ‘eco-dumping’, when firms move offshore to avoid EU environmental standards and then re-export into the Union products manufactured without having to meet those obligations. A prominent example of eco-dumping is so-called ‘carbon leakage’, whereby production of energy-intensive products moves outside the Union in order to avoid the latter’s emissions trading scheme (ETS). Under certain conditions, EU rules permit the Commission to propose ‘border tax adjustments’ to offset carbon leakage. However, in the absence of international agreement on eco-dumping, border tax adjustments are vulnerable to accusations of ‘green protectionism’ and may yet be rejected by the WTO in any dispute in this field.
Copyright: Anthony Teasdale, 2012
Citation: The Penguin Companion to European Union (2012), additional website entry