EU questions its trade duties

Date: 28/11/1996

By Elizabeth Wise

THE European Commission, hoping to make the Union's anti-dumping defences more defensible, is now in the second stage of reforming its approach.

Last year, it separated the task of identifying cases of foreign dumping from that of determining the damage done to European firms by such practices - removing any temptation for investigators who uncover examples of dumping to conclude automatically that this has harmed European interests and duties must be levied.

Now Trade Commissioner Sir Leon Brittan is taking a good look at whether the EU is being over-protective of its industry when it levies import duties on a foreign producer who appears to be unfairly competing with a European manufacturer.

Accusations from consumer groups, importers, and even industry itself, that the Union is over-protectionist are increasing. Brittan and his staff are attempting to respond and to ensure that the Union is not violating the sacred rules of open trade.

The simple argument from an EU producer that competing imports displaced European jobs used to be adequate justification for the imposition of anti-dumping duties. But, say Brittan aides, “it is increasingly obvious that this is not terribly convincing”.

As more importers of foreign goods - including European industries which process imported materials - complain they are being hurt when the Union blocks imports of a particular product, the Commission must now, in the words of one official, “look more carefully than we have done in the past at the whole picture”.

But advocates of policy reform are aware that any attempt to dismantle the sacred cow of anti-dumping duties is bound to fail. Strong forces within the Commission and in France and other southern EU member states will fight to retain them as a means of protecting industry from outside rivals.

“If Brittan were to refuse all anti-dumping measures, the Commission would overturn him and the Council of Ministers would demand some sort of safeguard,” said a British economist.

The Union has always protected industry with anti-dumping measures. To apply them, governments had in the past to ask just three questions: whether foreign producers were “dumping” their goods in Europe (selling them at prices below cost to gain market share here); whether domestic producers were suffering; and whether the suffering was a direct result of the dumping.

To comply with the 1994 Uruguay Round's new rules aimed at opening world trade, the Union added a fourth criterion to its dumping test. From 1 January 1995, EU capitals and the Commission have also had to consider “Community interest” when debating new anti-dumping sanctions - ie the interests of all those affected, from consumers to importers of the goods concerned.

This addition, however, did not come without a bitter fight between member states over how to interpret the phrase.

The current regulation carries a bias in favour of the petitioning industry. It states that if the investigation does not come down clearly in favour of one side, anti-dumping measures should be implemented.

That bias could be weakened, however, under new guidelines being drawn up by Brittan urging more attention be paid to consumer interests, and campaigns in some northern EU capitals to make anti-dumping rules less protectionist.

Commission officials say that, under a strict interpretation of the current rule, “there are a few cases in which we would not have taken measures”.

At the chemical lobby CEFIC, anti-dumping specialist Fabrice Daprille argues producers' interests should prevail over those of consumers, “except in exceptional circumstances. If you put both on the same footing, you will never reach a decision,” he insists. “You will be paralysed.”

But Katrin Schweren, of the European consumer lobby BEUC, disagrees heartily. “Levying a duty will always increase the price, so it can never be in the interest of the consumer,” she says. For too long, argues Schweren, dumping officials have considered the supply side to the exclusion of the demand side.

Critics who argue that the current bias in favour of producers can actually put some European firms at a disadvantage point to the chemical industry as an example. While EU companies making base chemicals in competition with cheaper foreign products may clamour for protectionist measures, others which process such chemicals lose out when anti-dumping duties are levied on imports.

CEFIC, whose members are often on opposite sides of a dumping argument, only goes into battle on behalf of those calling for duties. Its success rate, says Daprille, is close to 100&percent;. Although he maintains that part of the reason for this success is that CEFIC only takes on strong cases, the real reason is clear - producers' interests win far more often than those of consumers.

Daprille sees nothing wrong with that. “In a competitive market, an anti-dumping instrument should be used with all its force,” he insists.

The procedure for levying duties is still fairly simple: a producer who feels he cannot compete with foreign imports may lodge a complaint with the Commission, which accepts or rejects the case after consulting member states. The Commission may single-handedly impose provisional duties on the import for up to nine months, but the approval of a simple majority of member states is required to make those duties 'definitive'.

Brittan and industry Director-General Stefano Micossi hope that if the Commission gives more weight to consumer interests when preparing its recommendations on anti-dumping cases in future, member states will give them greater consideration - whether they are aware of doing so or not.

“We have always had 'Community interest' as a checkpoint before imposing duties, but its definition has been a relatively unclear point” said a Commission official.

There are limits on the protection given to European producers under existing rules. Once duties are imposed, there is provision for a policy reversal. A company or association adversely affected by the decreased supply of imports may apply for a review.

Another EU provision is the 'sunset proceeding', under which duties automatically expire after five years unless a European company complains that it will suffer if that happens and asks for them to be reviewed. More sunset reviews end in duties being dismantled than renewed.

The US has no sunset clause, but trade officials say it will be obliged to install one in the year 2000.

Despite these safeguards, critics say there are several weaknesses in the Union policy. One is that consumers may not apply for a dumping case to be reviewed, since consumer groups are considered not to be directly affected. Instead, an importers' association must apply.

Another is that it takes an industry petition before a damaging dumping policy can be reversed.

Brittan's staff are not proposing to change that rule. But one official commented: “If we impose measures, we must at least monitor what happens after we impose them.”