In a previous post, I argued that the European Union would violate its WTO obligations under the WTO Anti-Dumping Agreement (ADA) if EU anti-dumping investigators will continue to apply ‘non-market economy’ (NME) treatment of Chinese exports in AD investigations under the EU Anti-Dumping Regulation (ADR) after December 11, 2016. It is on that day that Art.15(a)(ii) of China’s Accession Protocol (CAP) expires. Until that date, Art.15(a)(ii) provides WTO members with the right to use non-standard price comparison methodologies to determine whether and to what extent Chinese exports have been ‘dumped’ onto a third country market. The provision has served as a legal basis for a highly effective trade defense remedy that allows for the imposition of extraordinarily steep anti-dumping duties against Chinese exports, and Chinese exports of steel products and solar panels in particular. After the expiration of the said provision, the adoption of EU AD measures against China that are based on the use of non-standard price and cost comparison methodologies will be highly vulnerable to legal challenge in WTO Dispute Settlement (DS) proceedings in Geneva. This conclusion, however, does not prejudge the legality of AD measures that the EU has (or will have) adopted against Chinese producers prior to the December deadline. The question about the post-2016 legality of already existing EU AD measures that are “not based on a strict comparison with domestic prices or costs in China” (Art.15(a)(ii) CAP), is particularly relevant in context of the rising amount of new EU AD measures and investigations against Chinese producers of steel and solar panels that the EU has imposed and initiated in the last 18 months. It is this very question that is subject to analysis in this post.
On May 9 of this year, the German and French ministries responsible for trade and economic affairs posted a joint letter to EU Trade Commissioner Cecilia Malmström. The document outlines “Common Core Demands from Germany and France on modernizing Trade Defence Instruments (TDI) of the European Union”. Among others, it requests that “the EU must further explore and use the possibilities of China’s WTO Accession Protocol not to use the standard calculation methodology to the extent the producers under investigation can not clearly show that market economy conditions prevail in the industry producing the like product with regard to the manufacture, production and sale of that product [emphasis added].”
The phrase highlighted in this quote is identical to language contained in Art.15(a)(ii) of China’s Accession Protocol (CAP) to the WTO. The provision is set to expire on December 11, 2016. This very fact has generated fierce debates in Europe and the United States that increasingly conflate the legal with the political dimension of the issue. The purpose of this post, in this context, is to scrutinize the legal effect of the expiry of the said provision on EU anti-dumping law and practice vis-à-vis China.
Three days after the Franco-German initiative, the European Parliament (EP) passed a resolution on “China Market Economy Status” with broad inter-party support amidst manifestations of steel workers and trade union leaders outside the plenary in Strasbourg. “[A]s long as China does not meet all five EU criteria required to qualify as a market economy”, the resolution states, “the EU should use a non-standard methodology in antidumping and antisubsidy investigations on Chinese imports (…), in accordance with and giving full effect to those parts of Section 15 of China’s Accession Protocol which provides room for the application of the non-standard methodology”. In consequence, the EP “calls on the Commission to make a proposal in line with this principle”.
This post questions the legal assumptions that the political positions quoted above rely on. The remainder of this post demonstrates that Art.15 CAP does not, after December 11, 2016, allow for the use of non-standard methodologies for price comparisons in anti-dumping investigations that are inconsistent with the provisions of the WTO Anti-Dumping Agreement (ADA). Should the Union follow the path to protectionism recommended by Berlin, Paris, and the EP, the EU will unmistakably violate its obligations under the ADA. In order to comply with its WTO obligations after December 11, 2016, in contrast, EU institutions need to bring EU secondary legislation and future anti-dumping measures against Chinese producers into conformity with the ADA. It is beyond doubt otherwise that the EU will be subject to a larger number of unfavorable legal decisions adopted by the WTO Dispute Settlement Body (DSB). In the aftermath of these decisions, in case of non-compliance, the EU will be confronted with hefty retaliatory measures authored by China and authorized by the WTO DSB.