Towards a robust trade policy for the EU
COMMUNICATION FROM THE COMMISSION
Towards a robust trade policy for the EU in the interest of jobs and growth
In the modern global economy, trade is essential for growth, jobs and competiveness, and the EU is committed to an open rules-based trading system. Exports now support almost one in seven manufacturing jobs in Europe (i.e. more than 30 million jobs – two thirds more than 15 years ago), while imports are a major source of productivity gains and allow consumers to benefit from access to more choice and lower cost products. Production in the EU is dependent not only on energy and raw material imports, but also on parts, components and capital goods like machinery. Together, these products make up 80% of EU imports.
However, we are not naïve. Free trade must also be fair, and unfair trading practices, such as dumping and subsidisation by foreign producers and governments cause serious harm to EU industry and workers, undermining support for free trade, which is already under attack from many directions. For the Commission, this issue is about making globalisation work fairly for the benefit of all.
The challenge of unfair trade practices by third countries is getting more acute. Government intervention, massive subsidies and policies that distort prices have resulted in huge overcapacities and ultimately in dumped exports on the EU market. This year has seen massive overcapacities harm the EU steel sector. The steel overcapacity in China alone has been estimated at around 350 million tonnes, almost the double of the Union's annual production. Steel imports from China to the EU have surged in the last three years. Market prices for some steel products fell by up to 40% due to the surge of volumes, particularly damaging in the steel sector which has seen 40.000 jobs lost since the beginning of the financial crisis.Overcapacities are also developing very fast in other sectors, for instance aluminium. China has almost 10 million tons of excess aluminium capacity, doubled from five years ago, boosted by subsidised energy (which represents up to 40% of the aluminium production cost).
In addition, the higher duties imposed by other major World Trade Organisation members can lead to trade diversion of dumped products into the EU market, further exacerbating the problem.
Faced with massive overcapacities flooding the EU market, the European Commission has taken an unprecedented number of anti-dumping and anti-subsidies measures. Around 315,000 jobs in Europe have been protected, primarily in the iron and steel, chemical and allied industries, ceramics and mechanical engineering sectors. In the steel sector alone, the EU already has 39 anti-dumping and anti-subsidy measures in place to protect our steel industry from unfair competition, 17 of those concern China. Within the limits of existing EU law, the Commission has been deploying the full force of the existing Trade Defence Instruments, including registration of imports, increased transparency, faster imposition of measures, as well as – exceptionally - initiating cases on the basis of threat of injury.
However, we have reached the limit of what is feasible under the existing EU trade defence legislation to rein in external overcapacities and dumping. In order to preserve European jobs and ensure fair competition in open markets it is of crucial importance that the EU's trade defence instruments are effective in the face of these global challenges. This is why the 2013 Commission proposal to modernise trade defence instruments must be adopted as a matter of urgency.
In addition, the international legal framework is changing as certain provisions on dumping calculations in the Accession Protocols of China, Vietnam and Tajikistan to the World Trade Organisation will shortly expire. The Commission envisages further amendments to the current EU Trade Defence legislation, including a new methodology for calculating dumping, allowing for action on newly revealed subsidies and ensuring an orderly transition to the new situation.
The Commission believes it is now imperative for the EU's Trade Defence Instruments to be updated, strengthened and made legally more robust.
1. The 2013 Commission proposal on the Modernisation of Trade Defence Instruments
In April 2013, the Commission adopted an ambitious proposal to modernise Trade Defence Instruments, including better transparency, faster procedures and more effective enforcement. The Commission notably proposed no longer to apply the lesser duty rule in certain well defined, narrow circumstances, i.e. for exports which benefit from significant raw material distortions (such as through dual pricing, export taxes etc.). The European Parliament adopted its position on the proposal in 2014.
Given the challenges currently faced by EU industry, finding an agreement on this proposal has become critical.
2. The Commission's forthcoming proposal: addressing situations where market prices do not prevail
In a world of global and complex supply chains, the traditional calculation of dumping does not capture all the factors and distortions that exist in some emerging and transition economies. The EU cannot remain defenceless against massive subsidies, government interference, lack of transparency and non-independent financial sector providing unfair advantages to exporters in some countries.
In response to these new challenges and transitions in some world economies, the Commission intends to propose further amendments to the EU Trade Defence legislation. The proposal will not grant 'market economy status' to any country but ensure that the EU's Trade Defence Instruments are adapted to face the new challenges and legal and economic realities, while maintaining an equivalent level of protection.
The Commission will propose a new anti-dumping methodology to capture market distortions linked to state intervention in third countries that mask the true extent of dumping practices. In determining distortions, several criteria will be considered, such as inter alia, state policies and influence, the widespread presence of state - owned enterprises, discrimination in favour of domestic companies and the independence of the financial sector. This new methodology will be country neutral as it can be applied equally to all members of the World Trade Organisation. It will involve the removal of the list of non-market economy countries in the anti-dumping legislation. It would bring EU legislation and practice closer to that of some other international partners such as the US and Canada.
Where distortions are found, prices and cost will be disregarded for calculating dumping and the Commission will use other available benchmarks, including costs and prices in other economies. The Commission will draft specific reports for countries or sectors where it will identify distortions. As is the case today, it will be for the EU industry to file complaints, but they can rely on such reports by the Commission to make their case.
There is lack of transparency in many third countries regarding subsidies. Subsidies manifestly contribute to distortions and overcapacities. The EU's Trade Defence Instruments should be strengthened by allowing the Commission to take action on new subsidies which are only revealed in the course of an investigation.
In implementing its new methodology, the Commission will ensure an orderly and transparent transition to the new system ("grandfathering"). The Commission therefore intends to propose that the new system will only apply to investigations initiated after the legislative change enters into force.
The 2013 Commission proposal, coupled with this new methodology, will ensure that the EU's Trade Defence Instruments remain economically effective, legally robust and politically sustainable in safeguarding the principles of free and fair trade, on which the EU's trade policy is built.
The Commission invites the European Council to support its efforts in line with the approach outlined in this Communication. In particular, the Commission invites the European Council:
·to ensure a political agreement on the 2013 Commission proposal at the Council meeting of 11 November, including the adaptation of the lesser duty rule in well-targeted and specific circumstances of overcapacities and/or raw material distortions (for example in the case of energy), and
·to support the approach outlined in this Communication to address situations where market prices do not prevail and deal with forthcoming changes in various World Trade Organisation Accession Protocols.
See: COM(2016) 690 final
Discuss this theme
- 30 October 2016
When complaints are considered by the European Commission, it is essential for China to continue to have the burden of proof that it operates as a market economy, rather than European SMEs fighting for their existence to have to demonstrate distortions in China.