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International Relations, PUBLICATIONS

Recent EU-China trade frictions

This year, frictions between China and the EU on trade have come to a head. Growing Chinese export volumes to the EU have been affected by EU trade-defence instruments (TDIs), while China’s announcements of retaliatory measures have increasingly been followed by formal WTO complaints against the EU.

Recent EU use of TDIs against China

Copyright baur. Used under licence from Shutterstock.com

Copyright baur. Used under licence from Shutterstock.com

TDIs are based on WTO rules, and mainly take the form of anti-dumping (AD) or anti-subsidy (AS) measures. They are governed by Council Regulations No 1225/2009 and No 597/2009 respectively. TDIs are primarily intended to counterbalance unfair trade practices and thus to ensure a level playing field for EU companies. According to Commission figures, China is still the main target of TDIs, with four out of a total of nine new AD/AS investigations having been initiated against it during the first seven months of 2012 alone.

Two AD investigations were opened concerning ceramic tableware and threaded tube or pipe cast fittings, and two AS investigations relating to organic coated steel products and bicycles. In parallel, investi­gations into open mesh fabrics of glass fibres from Taiwan and Thailand and bicycles from Indonesia, Malaysia, Sri Lanka and Tunisia were launched for possible circumvention of payment by China of AD duties previously imposed against it. During the same period, provisional duties for organic coated steel products, aluminium foils in rolls, aluminium radiators and ceramic tableware as well as definitive duties for oxalic acid were imposed.

China has repeatedly accused the EU of misusing TDIs against Chinese companies, to hamper their access to the EU market. While Commission President Barroso recently stressed that TDIs affected only around 1% of all EU imports from China, China nonetheless has increasingly challenged TDIs both at the Court of Justice of the European Union (CJEU) and the WTO, on substantive and procedural grounds.

Key issues in recent WTO disputes

China’s first WTO complaint against the EU, case DS397, filed in 2009, concerned definitive anti-dumping measures on certain iron and steel fasteners. China successfully challenged the application of the “individual treatment (IT)” test pursuant to Article 9(5) of the anti-dumping regulation to non-market economies as regards duty calculation. To qualify for an individual duty, Chinese companies had to satisfy several criteria, inter alia the absence of significant state intervention concerning their business decisions. This test had often resulted in country-wide duties, rather than in much lower individual duties for Chinese companies.

In the related WTO dispute settlement process, terminated in July 2011, Article 9(5) was found to violate Article 6(10) of the WTO’s Anti-dumping Agreement, as it had created an additional trade barrier for non-market economies. Since then, the EU has amended Article 9(5), so that an individual duty for all suppliers has become the rule. However, if this is impracticable, a duty for the supplying country may be established. The ruling has required a review of several closed Commission investigations to avoid further WTO disputes.

The EU’s interest in filing a complaint against China with the WTO, case DS395, in 2009, by contrast, was to have China’s quantitative export restrictions on a number of raw materials be declared contrary to WTO rules, and eliminated. In January 2012, the EU was backed by the WTO Appellate Body, which dismissed the environmental grounds China invoked for having imposed quotas and export duties on certain raw materials. Moreover, it urged China to change its relevant rules.

Rare earths are crucial for a large number of EU high-tech industries, and China has a quasi-monopoly in their global supply. As they were not covered by this case, the EU, in March 2012, concurrently with the United States and Japan, filed a WTO complaint against China’s export regime for various forms of rare earths.

In June 2012, with no results from consultations with China, the EU requested the setting up of a WTO panel in case DS432 which is still pending.

Recent CJEU rulings on TDIs

China’s claims regarding the sampling and duty calculation methods applied by the EU to non-market economies were dismissed in its second defensive case with the WTO. This case, DS405, filed in February 2010 concerned anti-dumping measures imposed by the EU on certain footwear from China. However, the CJEU, in a judgment of 2 February 2012 on appeal (Case C-249/10) concerning the same matter, came to a different conclusion.

It held that the sampling technique, pursuant to Article 17 of the Anti-dumping Regulation, used inter alia for calculating the dumping margin when large numbers of economic operators are involved, may not be applied to examine claims of “market economy treatment” (MET) under Article 2(7)(c). This is vital for the choice of method used to establish dumping as such. According to the judgment, the MET claims ofcompanies not sampled operating in non-market economies, irrespective of their number, would have to be examined individually within the three-month timeframe. Amendments to the Regulation taking into account the two conflicting rulings and practical considerations were adopted on 6 December 2012.

The CJEU has also considered the interpretation of “state control” over companies from non-market economies. In a July 2012 judgment on appeal, in Case C-337/09 concerning anti-dumping duties on imports of glyphosates (a herbicide), it ruled that the Commission’s decision not to grant market economy treatment to Xiananchem was not warranted. The CJEU found that Article 2(7)(c) of the Anti-dumping Regulation did not exclude all types of State interference in companies, but only interference of a significant nature in decisions as regards prices, costs and inputs. Therefore, the CJEU argued that, in the present case, control by the Chinese State, as a minority shareholder, over the firm could not be equated, automatically, to significant State interference.

The current photovoltaic panels case

China filed WTO complaint, DS452, against the EU, and specifically Greece and Italy, in November 2012. It alleges that certain feed-in programmes in support of solar energy generation contain local content restrictions violating the GATT’s national treatment principle. In addition, China’s ongoing anti-dumping probe into imports of EU-made polysilicon have evidently been prompted by the anti-dumping and anti-subsidy investi­gations launched recently by the Commission into imports of Chinese photovoltaic panels. The Commission’s investigations are based on complaints by EU ProSun, an industry association of solar panel manufacturers. They coincide with the decision of the United States to impose heavy anti-dumping and counter­vailing tariffs on imported Chinese solar cells ranging between 31 to 249%. Owing to the huge import value of Chinese photovoltaic panels of roughly €21 billion in 2011, this high-profile case has triggered heated discussions among stakeholders on the usefulness of TDIs to fight unfair trade practices.

Stakeholders’ views

The US solar industry welcomed the Commission’s investigations as they increase the likelihood of China being found in violation of EU law and WTO rules, preventing it from circumventing duties by transhipping its solar panels through third countries like Taiwan. The Chinese private solar industry dismissed the Commission’s claims as protectionism, and stressed that due to the complementarity of the EU and Chinese solar industries both would suffer. Parts of the European solar industry representing the whole value chain, such as the Alliance for Affordable Solar Energy (AFASE), are firmly against TDIs, arguing that cheap imports make solar energy more affordable and are crucial for achieving the Europe 2020 goals.

Recent EP activities

In its resolution of 23 May 2012 on EU and China: imbalanced trade?, the EP urged the EU to make use of TDIs consistent with WTO rules and to resort more often to the WTO dispute-settlement mechanism when China engages in illegal trade practices.

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