The EU threatens to impose extra import duties on Chinese products

Karel De Gucht, Member of the European Commission in charge of Trade, gave a press conference yesterday on the proposal that aims at adapting the EU's rulebook to tackle unfair competition from dumped and subsidised imports to the contemporary challenges facing the EU's economy. (EC Audiovisual Services).

Karel De Gucht, Member of the European Commission in charge of Trade, gave a press conference yesterday on the proposal that aims at adapting the EU’s rulebook to tackle unfair competition from dumped and subsidised imports to the contemporary challenges facing the EU’s economy. (EC Audiovisual Services).

The powerful EU’s executive arm, the European Commission, announced yesterday its proposal for a new legislation targeted at strengthening the protection of home businesses and products from external competition. It’s a clear effort to help the Union’s economy overcome a deepening recession. The new legislations will be in force early in 2014, after being approved by the Parliament and the Council.

The Commission powers apart from drafting and proposing any trade legislation include monitoring and application of these instruments. The EC’s mandate also comprises the follow-up and the enforcement of all those measures along with the negotiations of future international rules with EU’s trading partners. In short the Commission is about to undertake single-handed a ground-breaking reform of the Union’s international trade relations. The question is if such a huge bet can be wan. Let’s follow the facts.

Targeting China

There are two indications however, apart the fact that China is the largest exporter to the EU, that this strengthening of the European defences against international competition, is aimed mainly against Beijing. Let’s start from the most crucial points set to change under this initiative. According to yesterday’s announcement the new legislation will permit to the European Union to apply the “Choice of an ‘analogue country’, which is used to determine existence of dumping for products coming from a country without “market economy status”.

In plain English this means the EU will be able to substantiate its allegations, that a foreign producer uses price dumping practices or that receives state subsidies, by using this instrument of the ‘analogue country’. In this procedure the Commission will find a producer from ‘an analogue country’ selling similar products at a higher price than the targeted and under investigation seller originating from a country “without market economy status”. Theoretically the difference between the two prices will be the allegedly dumping or state aid margin.

China, despite having jointed the World Trade Organisation for more than eleven years now is still a country without market economy status recognition. As a result the European Union will consider itself legitimised, according to the World Trade Organisation rules, to impose an extra import duty on products coming from a no market economy, which is be China, because its products are being sold at prices lower than the selling prices of similar products coming from an ‘analogue country’.

Understandably the extra import levy to be imposed on products coming from this no market economy producer will be so high as to equalise the selling prices of those goods with the selling prices of the analogue country producer. In any case the comparison between the ‘analogue country’ producer’s higher selling price with the ‘no market economy’ producer’s lower price, will establish the alleged dumping or state subsidy margin.

There is however another indication that the products to be targeted by the new EU legislation will be of Chinese origin. According to the Press release issued by the EU Commission yesterday: home “Producers will also benefit from higher levels of protection in certain circumstances where the EU proposes not to apply its usual ‘lesser duty rule’. The EU would now use its right under WTO law to impose additional duties that are equal to the dumping/subsidy margin and not only sufficient to remove the injury caused to the Union industry, as it currently does. Increasing subsidisation of imports as well as the manipulation of raw material supplies and prices by exporting countries would be covered by this proposal”.

This last reform will permit to the European Union to actually punish the producers of ‘no market economies’. The idea is that once the Commission has established the dumping or the state subsidy margin, the duty to be imposed will cover not only the alleged unfair completion damage suffered by the home producer of the same product but the EU will be able to impose a duty equal to the entire dumping/subsidy margin established as above.

La raison d’État

Apart from all that, the EU under the new legislation will use ‘The Union interest test’. This means the Commission will be able to determine whether a trade defence measure would serve the overall economic interests in the EU – including interests of the domestic industry concerned, importers, industries that use the imported product and, where relevant, consumers. In reality this close will give the Commission the powers to arbitrarily impose a trade defence measure of any kind, without explaining the reasons. It’s like “La raison d’État” prevailing in the EU’s international trade.

It is interesting noting the Commission insistence that, “The proposed changes would make the EU trade defence work better for all stakeholders, including both EU producers and importers. Anti-dumping and anti-subsidy instruments will be more efficient and better enforced to shield EU producers from unfair practices of foreign firms and from any risk of retaliation”.

What about retaliation?

Is it possible that those people in the European Commission truly believe the new tools to protect the EU markets and producers will pass unanswered? Are they forgetting in Brussels, that Beijing just imposed extra duties on European and American products? The European Sting wrote on January 28 this year: “Last week the Chinese Ministry of Commerce announced the imposition of anti-dumping duties on two products originating from the EU and the US. Imports into China of the widely used solvents ethylene glycol monobutyl and diethylene glycol monobutyl ethers, produced by a number of European and American companies, will be penalised with anti-dumping duties ranging from 9.3% to 18.8%. This is obviously a reaction to the recent anti-dumping investigations and measures introduced by the EU and the US against very important Chinese products and companies”.

Solar panels and Huawei

Currently the European Union is at odds with China on two very important issues. Firstly the Commission has until June to decide, if the EU will impose punitive import duties on Chinese solar panels imports. Secondly Europe has also to decide if it will open an investigation against Huawei Technologies Co. and ZTE Corporation for allegedly using dumping practices. Both those international companies are of Chinese origin. The European Sting has covered very extensively those issues.

All in all, if the Commission wants to follow the opinion of those in Europe who want to alienate Europe from China then the Old Continent must be ready to face the certain to follow retaliation measures from the other side. In this respect Brussels know very well that Beijing doesn’t use time-consuming procedures to impose reciprocal measures, let alone start a trade war.

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