Since December 11th last year, the EU’s trade defence instruments have been in illegal territory. On that day, a section of China’s accession protocol to the WTO expired that said other trading partners could calculate antidumping duties by simply looking at prices in third, so called analogue countries. The European Commission understood the problem and proposed a new country-neutral methodology. But when the Parliament’s international trade committee today voted on the new methodology, it unfortunately replaced one problem with another. Now, Member States must stand their ground so that our new rules pass the test of WTO dispute settlement in Geneva.
I have been a fierce opponent of the analogue country method in anti-dumping investigations. The fact that the United States is the most commonly used country used in anti-dumping investigations against China should be case in point that a lot of the dumping margins found against China in fact only stems from different cost structures in a country with six times higher GDP per capita. Therefore, I was positive when the Commission proposed that we replace prices in third countries in cases of real state-induced distortions. Rightly applied by the Commission, the proposal could have put our trade defence instruments on the right side of the WTO rules while at the same time addressing legitimate concerns about state distortions in third countries putting European producers at harm.
But today, the European Parliament replace the problem of using the analogue country method with another problem. Member States have taken the reasonable position that the Commission should use prices not affected by significant state distortions in exporting countries in investigations when they conclude them not to be. But Parliament requires exporters to prove this on a case by case basis effectively putting all burden of proof on exporters and not on the Commission, something very problematic from a WTO perspective. Parliament also says social, environmental and tax conditions should count as significant distortions. That is clearly not compatible with WTO rules as we are bound by the General Agreement on Tariffs and Trade, GATT, to give equal (most favoured nation) treatment to all trading partners in the WTO.
Furthermore, the committee’s position say that overcapacity should be treated as a significant distortion. That is simply wrong. It is true that overcapacity as compared to a domestic demand can be the result from distortions. However, it can equally be the consequence of pure comparative advantage or changes in the business cycle.
The position also removes the condition proposed by the Commission that whenever third country prices are used in anti-dumping investigations, these must come from countries of a similar level of economic development. In this case, we would still run the risk that dumping margins are synthetically inflated and not the result of true dumping.
Let’s make one thing clear. This is not a question whether or not China is a market economy. We all agree China is not market economy. No one, perhaps with the exception of the Chinese Communist Party is arguing that. The question is whether or not Europe will abide by the multilateral trading rules in the WTO when other major world players are starting to question them. Rule-based trade has served Europe well and will continue to do so. But we need to defend the rules. If we abandon them, how can we expect others to abide to them?
Today’s vote is a missed opportunity. Nothing is written in stone as Member States must also approve the new methodology. The key is that we must not replace one methodology that violates the WTO rules with another that does the same. I hope for a swift and balanced agreement in trilogues on new rules that the lawyers of all institutions conclude to be WTO compatible. A long and costly trade dispute with China would come with a high price in terms of jobs and growth, should our rules not stand the test.