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					An Introduction to the
European Union’s Trade
Defence Instruments

                       Dr. Joe Bugeja
                 Ms. Natasha Barbara
  International Economic Relations Directorate
                     Economic Policy Division
                           Ministry of Finance

                          7th March 2007
      Ministry of Foreign Affairs, Valletta
The EU’s Common Commercial

   The common commercial policy is based on uniform
    principles, in regard to changes in tariff rates, the
    conclusion of tariff and trade agreements, the achievement
    of uniformity in measures of liberalisation, export policy
    and measures to protect trade such as those to be taken in
    the event of dumping and subsidies.

   DG Trade within the EU Commission submits proposals
    to the Council to implement the Common Commercial

   Member States exercise control over common
    commercial policy through involvement in Article 133
    committees and through the Council.
The EU Common Commercial

   By having a common trade policy, the 27 Members States can
    speak with one voice at an international level.

   In today’s ever more globalised world, this is of paramount
    importance, given that economies tend to cluster together in
    large regional groups.

   It covers all the main aspects of trade in goods and services,
    including trade defence instruments (TDIs).
EU Trade Defence

There are 3 main instruments of
commercial defence:

(1)   Anti-dumping Regulation (EC/384/96 )
(2)   Anti-Subsidy Regulation (EC/2026/97)
(3)   Safeguards Regulation   (EC/3285/94)
    A Comparison of the EU Trade
         Defence Instruments
Instrument   % of    Target         Scope              Practice
             cases                                     Concerned

Anti-        85      Unfair Trade   Country specific
                                    imports from
                                                       Dumping =
                                                       prices below

Dumping                             companies          normal level in
                                                       third country

Anti-        14      Unfair Trade   Country specific
                                    imports from
                                                       Actionable or

Subsidy                             companies          subsidy

Safeguards   1       Fair Trade     All imports from Sudden and
                                    all countries    massive surge
                                                     of imports
Anti-Subsidy Instrument
   The WTO Agreement on Subsidies and
    Countervailing Measures

   negotiated as part of the Uruguay Round back in 1994

   legal basis for the EU’s Anti-Subsidy Regulation

   The EU Anti-subsidy Regulation only targets those
    subsidised products which originate from third
Anti-Subsidy Instrument
     A subsidy is deemed to exist:

(1)   if there is a financial contribution by a
      government in the country of origin or export; or

(2)   there is any form of income or price support
      within the meaning of Article XVI of the GATT

And benefit is thereby conferred.
There is a financial
contribution where:
   a government practice involves a direct transfer of funds
    (grants, loans, equity infusion) or potential direct transfers of
    funds or liabilities (loan guarantees);

   government revenue which is otherwise due is not collected
    (tax credits);

   a government provides goods or services other than general
    infrastructure, or purchases goods;

   a government makes payments to a funding organisation or
    entrusts a private body to carry out one or more of the
    functions which are normally its responsibility.
3 Criteria that have to be
met before countervailing
duties be imposed:
   (1) the subsidy must be specific

   (2) There is material injury to Community

   (3) the imposition of the countervailing
    measures are in the interest of the
    Community as a whole
   Free trade may also in rare circumstances
    have negative repercussions on Community

   In such cases the EU has to intervene to
    mitigate the effects

   Safeguards may be applied to imports that
    increase in such quantities and under such
    conditions, as to cause or threaten to cause
    serious injury to Community producers

   A Safeguards investigation may only be
    initiated at the request of a Member State
    or at the Commission’s own initiative

   Industry may not request the introduction of
    safeguards in a direct manner

   Safeguards are rarely implemented

   only account to 1% of TDI cases.
    What is dumping?
   Dumping is the sale of a product for export at less than
    its normal value

         Dumping => sale price < Normal Value

   normal value = profitable domestic sale prices OR cost
    of manufacture plus a small allowance for selling,
    general and administrative costs and profit margin, in
    the market where it is produced
Why does dumping take place?

   As a short-term predatory pricing
    strategy to drive competitors out of
    the market

   As a result of market intervention or
    state subsidies that enable companies
    to artificially lower their prices
Launching an Anti-
dumping investigation
     Investigations can be initiated on the
      basis of a complaint lodged:

(1)   by EU industry
(2)   A Member State
(3)   Commission’s own initiative
Nature of Complaints


             must represent at least
 Complainants
 25% of EU production

 Opponents must not represent a
 proportion of EC production higher
 than the complainants
Nature of Complaints


must contain prima face evidence of:

(1)   dumping, subsidy or upsurge
(2)   Injury / threat of injury (e.g.: drop in sales, drop in
      profitability, job-losses, loss of market share, decrease in productivity)

(3)   Causality (dumping must be main cause of injury)
                                                Lodging of
          45 days         Analysis of          complaint
                        Preparation and
                           sending of
                         questionnaires        Sending of
                           Analysis of         questionnaires
                 9          responses

                                                                         Steps in an
          months     On-spot verification

                      Internal decision +
                     consultation of MS +       Imposition of
                          translation          provisional measures

                                               if warranted and
                     Analysis of disclosure    disclosure of
                                               decision to interested
                      Additional on-spot       parties
      AD 6 months
                      verification visits if
      AS 4 months            needed

                       Internal decision
                       + consultation of       Final disclosure to
                       MS + translation        interested parties
                                                Imposition of
Total Duration          Measures
                      Measures are             definitive measures
AS 13 months            normally
                        normally               if warranted
AD 15 months          imposed for 5
                     imposed for 5
What can happen after measure imposition.

   Reviews:                           May result in:

                                        continuation,
    expiry reviews                     amendment or
                                        repeal of
    interim reviews                     measures

    newcomer reviews

   Anti-circumvention investigation
   Anti-absorption investigation
     The decision-making process

   European Commission:
     conducts investigations and
     decides to commence initiations, provisional measures,
      proposals for definitive measures, terminations,
      acceptances of undertakings

   Member States:
     give their opinion on any decision or action by the
      Commission within the advisory committee
     decide by simple majority within the Council
      regarding the imposition of definitive measures
      (special provisions for safeguard measures, including
      necessity to obtain qualified majority)
 Examples & Figures

                                                    Textiles   Mechan.
 •   Yearly initiation of 40 investigations          10%        engin.   Other
     on average                                                  9%       9%
 •   60% of investigations result in          8%
 •   Yearly adoption of 85 Regulations                                              33%
     imposing, continuing, or modifying        Chemical
     measures on average                         31%

 •   Half of measures expire after 5 years

 •   Countries mainly affected by EU
                                          • Sectors mostly concerned:
     measures: China, India, Russia         chemicals, steel, textile,
                                          • Example of investigations:
                                            heavy industry (steel bars,
                                            fertilizers) and SMEs (textiles,
Source: EU Commission 2006
                                            shoes, bicycles, salmon)
AD measures are not protectionist

    The ‘lesser duty’ rule used by the EU (not by the
     US) means that EU measures either:

    Close the margin of dumping                        (the value by which the
     normal value exceeds the export price)


    Close the margin of injury                    (which is the difference
     between the export price of the dumped item and the sales price for the
     equivalent EU product)

 Whichever is the smallest

 . :. An anti-dumping duty can still leave the imported product price cheaper than
      the European one.
Are anti-dumping
measures necessary ?
   A general consensus exists that cheaper goods do not justify the
    tolerance of abusive labour standards / damaging environmental

    .:. The same rationale should be used for dumping

   Dumping is generally the result of state intervention in a free and fair
    competition context

   This leads to unfair trade and an unbalanced playing field

   .:. Acting to limit the damaging effects of dumping is a right of the
    importing state and not protectionism

   Anti-dumping measures use a tariff to raise the price of illegally
    under-priced imports to better reflect their true value according to
    rules agreed upon at an international level (WTO)

   Dumping is illegal as it goes against
    WTO legislation

   Dumped goods are cheap because they
    are produced or traded contrary to
    international rules about what is fair
TDIs and Small and
Medium Sized Enterprises
   To get a quick reply to essential questions, please first look at
    Frequently asked questions (FAQs) on anti-dumping, anti-
    subsidy and safeguards.
   Contact the SME Trade Defence Helpdesk to obtain explanations
    and technical assistance on issues such as how to start trade defence
    actions or what kind of remedies may be obtained.

   If you wish to lodge a complaint, contact the Office of Complaints.
    A guide on how to draft anti-dumping complaints, translated into
    all EU official languages explains to you step by step how to proceed.
    Equally, a guide on how to draft anti-subsidy complaints helps
    you for queries regarding anti-subsidy complaints.


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