the EU’s Trade Defence Instruments: Mission Impossible?
© Springer International Publishing Switzerland 2015Christoph Herrmann, Bruno Simma and Rudolf Streinz (eds.)Trade Policy between Law, Diplomacy and ScholarshipEuropean Yearbook of International Economic Law10.1007/978-3-319-15690-3_20
Modernising the EU’s Trade Defence Instruments: Mission Impossible?
European Commission, CHAR 4/130, Rue de la Loi 200, 1049 Brussels, Belgium
The views expressed in this article are personal and cannot be attributed to the European Commission.
Next to his many professional and academic achievements, Horst Günter Krenzler left his foot print also in the political world. He co-founded the European Liberal Democrat Party (ELDR)—renamed in 2012 Alliance of Liberals and Democrats for Europe Party (ALDE)—and the European branch of the German Free Democratic Party (Auslandsgruppe Europa der FDP—AGE) in 1969. Being the latter’s first President since 1975, his advice on European integration matters was sought by the party and often heard. Still a long time after retirement as Director-General in the European Commission, Krenzler attended the Federal Expert Committee on Foreign Policy of the German liberals on behalf of AGE. The present author had the privilege to accompany him for several years at bi-annual meetings in Berlin, as representative of the Brussels-based German liberals. I remember with great admiration the thoughtfulness of his interventions in the Committee: whenever he took the floor, the other members recognised the great insight and logic of his positions, making it hard to contradict or even outvote his proposals. He brought the European political context into the debate and kept his passionate plea for more integration. As long as he was active, Krenzler’s authority guaranteed that the FDP would remain the most Europe-friendly party in Germany.
When he left us in July 2012, I was assigned the impossible task to replace him in the FDP Committee. As the leader of the delegation of German Members of the European Parliament (MEPs), Alexander Graf Lambsdorff, noted in his obituary for the party journal, Krenzler liked to cite Goethe as much as Adam Smith.1 I am afraid that I cannot live up to this great humanist standard. However, I dare to intervene on matters of European policy in the great tradition of Krenzler. One of the topics, for sure, is the EU’s trade policy, one of his old loves. The field, however, produces in itself a wide array of interesting legal questions.2 Hence, for the purpose of this Gedächtnisschrift, I chose to write about a rather specialised sub-set, namely the modernisation of the trade defence instruments. I hope that going at the same time into the politics and the technical details of this topic would have pleased the great European liberal, Horst Günter Krenzler.
The Need for Modernisation
When Commissioner De Gucht assumed office as the EU’s Trade Commissioner in February 2010, he received a mission statement from President Barroso. It contained a number of tasks, such as furthering the negotiations in the Doha Round, and bringing about deep and comprehensive free trade agreements (DCFTAs) bilaterally.3 Interestingly, Barroso also expected De Gucht to modernise the EU’s trade defence instruments (TDI). The Belgian liberal looked at this idea with some caution for a variety of reasons. First, the appetite for a TDI reform was not great among industry, trade associations, Member States and the European Parliament. In the January 2010 parliamentary hearing preceding his nomination, De Gucht was certainly not pressed to deliver such a reform early in his mandate. On the relevant question, he replied that the operation of TDI should be reviewed after the conclusion of the Doha Round. Moreover, many stakeholders had strong and mostly negative memories of the Commission Green paper issued in December 2006.4 That reform proposal had soon got stuck in the Council as it was conceived as favouring import interests over producing interests.5 Second, under the new Article 207 (2) TFEU of the Lisbon Treaty, any legislative change to basic trade rules fell hitherto into the ordinary legislative procedure. Starting one’s work with the Parliament on such a controversial topic would not seem advisable. Third, as in many other policy fields, the gaining of practical experience with the implementation of the existing rules would give a better clue where a modernisation would make sense. Against that backdrop, the Commissioner decided to first build trust with the Parliament and Council through an even-handed application of the present rules. He thus wished to correct the image sometimes attributed to Commission practice under his predecessor Lord Mandelson (not counting the short interval with Lady Ashton and Mrs. Ferrero-Waldner at the helm of DG Trade) that TDI decisions in the European Union had become increasingly politicised.6
Accordingly, the years 2010–2013 were characterised by a steady handling of the incoming cases, where the Commissioner followed in almost all cases the proposals from the case-handlers, exercising political scrutiny mostly with respect to some very old cases. Noteworthy was, in this respect, his decision to terminate an expiry review on imports of Chinese lighters—against strong pressure from the French producer, BIC, to carry on the protection despite record profits of the company in the sector. The measures then expired.7 De Gucht equally resisted pressure from huge import and downstream industry interests in the solar panel case. Here, despite a large number of opposing Member States led by Germany, he decided to impose provisional anti-dumping duties on Chinese solar panels in early June 2013.8 Based on a Chinese offer for an undertaking presented in August, he was then able to lift the duties for those companies who respected a minimum export price within a certain numerical ceiling. That solution was accepted by the Council when imposing definitive measures in December that year.9 In addition, there was no generous use of the Union interest test under Article 21 of the Basic Regulation10 to strike cases down altogether. For example, De Gucht imposed provisional measures on consumer goods such as ceramic tableware11 (the Council also confirmed this at definitive stage with a lower duty based on a revised Commission proposal)12 even if this meant higher prices for consumers. Only in the Termphos case, concerning the import of white phosphorus from Kazakhstan, did he terminate the case on Union interest grounds.13 In that case, an overwhelming majority of Member States had already voted against provisional measures in the Anti-Dumping Committee, because they would have been clearly disproportionate for the users in a number of East European member States, whereas the sole EU producer in the Netherlands had already become bankrupt. Finally, De Gucht was absolutely neutral when it came to judging the origin of the alleged unfair practices. He did away with an informal moratorium not to bring anti-subsidy cases against China. Starting with the coated fine paper case in May 2011,14 a number of subsidy cases against Beijing were accepted under his reign. Similarly, the United States could not expect special treatment, as witnessed by the decision to countervail US bioethanol exports15 which was highly criticised on the other side of the Atlantic.
Finally, on the procedural side, Commissioner De Gucht revisited the role of the Hearing Officer in DG Trade. That post had been created in 2007 to facilitate communication between interested parties and Commission services in trade proceedings, and to offer mediation—on procedural issues—between interested parties and Directorate-General for Trade.16 However, in administrative terms, he had been attached to the Director-General. In order to strengthen his independence and weight, Commissioner De Gucht decided to bring the Hearing Officer under the auspices of his Cabinet.
The Commission Proposal of April 2013
After roughly 2 years preparatory work, including an evaluation study, a public consultation of stakeholders and an impact assessment of different options, the Commission presented its modernisation package on 10 April 2013. It consisted of a Communication,17 a legislative proposal to amend the two Basic Regulations,18 and a DG Trade working paper with a set of four draft guidelines to clarify existing practice with respect to the choice of the analogue country, injury margin, expiry review and length of measures and Union interest.19
The Communication explained the rationale for modernisation by pointing to a number of economic challenges that have occurred since the last codification of the basic rules roughly 20 years ago. There was a need to respond to the growing practice of State-capitalist countries to distort international trade by way of subsidies, distortion of raw material prices by way of state interferences and the threat of retaliation. At the same time, the foreseeability and legal security for importers could be improved by procedural means. The basic idea behind this was to provide for a pragmatic, modest change of the rules which would be balanced and offer interest for both the EU industry (and Member States with predominant producer interests) and importers (and Member States with predominant trading interests).20
In the legislative proposals, these political ideas were put into draft legal language. As both Basic Regulations have many provisions in common, the proposed changes concerned, as a rule, both instruments. The main elements thereof were grouped under five sections, namely transparency and predictability, fight against retaliation, effectiveness and enforcement, optimising review practice and codification.
Transparency and Predictability
The first item aimed at increasing transparency and predictability in particular before the imposition of provisional measures. Mainly responding to importer’s interests, there would be an advance notice, pre-disclosure, and information about the activities of the anti-dumping and anti-subsidy advisory committee. The Commission also proposed introducing a 2-week21 shipping clause. These are reasonable proposals as they allow EU importers not to be caught by surprise, having to pay duties on goods that were sourced from a country when it was not yet clear whether such products are actually unfairly priced.
Fight Against Retaliation
With the second item, the Commission drew lessons from the increasing practice of retaliation. As Commissioner De Gucht had opined in the TDI-modernisation workshop of October 2012 already, he was wary that companies would not dare to bring TDI cases to the Commission for fear of losing their business in the targeted third country. In order to counter-act such retaliation threat it was important for the Commission to activate its power to bring ex officio cases without a formal complaint from the industry. While this possibility already existed under the lex lata 22 in special circumstances, there would be a difficulty for the Commission to collect all the relevant data in the absence of cooperation by EU companies fearing retaliation. Hence, in order to make an ex officio case successful, companies should be required to cooperate with the Commission in such a scenario. Such a duty of cooperation is missing in the present law.
Effectiveness and Enforcement
A main point of interest for EU producers was the third item on effectiveness and enforcement. Here, the Commission touched on the so-called lesser duty rule (LDR), an important “WTO-plus feature” of the EU’s TDI system.23 Under LDR, the EU compares the anti-dumping margin and the injury margin, and will always use the lesser one to determine the duty. This rule is not a concession to third countries, but serves as a safety belt that anti-dumping duties do not get excessively high and provide for overprotection. If, for example, EU only needs the prices of dumped imports to increase by 10 % to compete on fair terms with imports that were found to be dumped by some 50 %, the anti-dumping duty will nevertheless be set at 10 % as this is sufficient to re-establish fair competition between the EU industry and the exporters. While reaffirming this basic point, the modernisation proposal would nevertheless introduce two exceptions. LDR would not apply in anti-subsidy cases and in anti-dumping cases involving structural raw material distortions. The Commission argued that in those two scenarios, the active third country government involvement to help their own companies to outcompete EU producers with unfair means deserves a more principled reaction, i.e. the imposition of higher duties. The removal of LDR in these types of serious market distortions should also dissuade third countries from allowing or engaging in such trade distortive conduct.