2.5.1.EU industry

The EU industry is affected by trade defence action in three respects.

First, the most important EU sectors benefitting today from TD investigations and measures involving China are the steel industry, the chemical industry, but also more specialised sectors such as the ceramics industry, the solar panel industry or the bicycle industry, to name only a few. These sectors compete today with dumped and subsidized imports from China and they seek relief from the negative consequences of such imports by filing AD and AS complaints.

However, it is likely that further sectors, such as cement, aluminium, paper or glass, or high value added industries such as automotive or semi-conductors (as identified by stakeholders) become concerned, or more intensively affected, in the future. This is the case in particular for those sectors where, as in the case of steel, important overcapacities exist. Furthermore, China’s 13th five year plan focuses on changes in China’s society and the Chinese economy. Thus, nurturing strategic industries such as environmental, biotechnology, IT, smart manufacturing, high-tech equipment, and new energy industries together with support and upgrading of traditional industries are a priority. Regarding exports, the plan focuses on upgrading China’s position in global value chains by cultivating strengths in technology, standards, brands, quality and service. The potential for overcapacities developing in those sectors is therefore not negligible.

Second, trade defence investigations and measures also affect European industries that use the products subject to investigation/measures as an input for their own manufacturing activities. These downstream user industries are not very keen on AD/AS measures because they typically result in higher input prices (either because AD or AS duties have to be paid, or because the EU industry benefitting from measures has increased its prices, or because it is simply costly to switch to sources of supply in other third countries). Examples are users of coated steel, or installers of solar panels who, once a TD measure is in place, have to pay higher prices for the imported product they use, or switch to other sources of supply, which are also higher priced. However, in many cases actual price increases are significantly lower than the level of the duty imposed, either because the product is also available from other sources, or, because the share of input under duties represents a minor component of the product.

Third, in general, the industry upstream of the product under measures benefits from TD measures. Indeed, the EU industry benefitting from the measures will maintain or even increase their output and thus, the demand for the upstream product using EU inputs is preserved (e.g. kali mines benefit from AD measures on ammonium nitrate).

2.5.2.Importers, traders, wholesalers, retailers

This group of importers, traders, wholesalers and retailers represents the link between producers (in the EU or outside) and the industrial user or consumer. In fact, it is one of the EU’s largest non-financial business sectors creating 10 million jobs and accounting for over 22% of all turnover generated.

While traders typically source both abroad and domestically, importers only source abroad. However, their situation is similar as importers usually also have several sources of supply at their disposal, including some that are not subject to AD/AS duties. In general, this sector is against TD measures, as they claim that an AD/AS duty can often not be reflected in prices and thus reduces their margin. Furthermore, changing sources of supply (to avoid suppliers that are subject to AD/AS duties) is time consuming and costly.

However, in certain circumstances importers and traders are not against measures since they benefit from a continued source of supply in the EU. In particular in sectors such as metals, they trade both the EU manufactured and imported steel. The share of imported metals is however only about 13% (2015). These intermediate companies provide additional processing and services.    

2.5.3.SME’s

SME’s represent the back-bone of the EU’s economy accounting for 67% of total employment in the EU in 2014 15 . Almost all SMEs (93%) are micro enterprises employing less than ten people. Micro SME’s are normally not directly impacted by TD measures with the exception of some cases such as salmon from Norway or tableware from China.

However, micro SMEs are potential suppliers of industries that compete with the dumped imports or use the dumped imports as intermediate products. They may also themselves use the dumped imports or the EU produced product competing with the dumped imports.

2.5.4.EU citizens

EU workers in the sectors concerned benefit from TD measures, since such measures can help improve the situation of an industry or a sector concerned, or even ensure its survival, and thus help preserve or create jobs in the EU. The same is true with regard to workers in upstream sectors, i.e. the suppliers of the Union industry. By contrast, EU workers in downstream sectors may be impacted negatively, because higher input prices may also mean less growth (or even loss of turnover) in such downstream industries and hence also less employment opportunities in downstream sectors.

Potential consumers of the imported dumped products will in some cases have to pay higher prices. However, typically products subject to TD measures are rather destined for the industrial user. Often they cover semi-finished products that are further processed by the down-stream industry in the EU or serve as an input for the finished product. Therefore, in many cases any AD/AS duty imposed on one input product is absorbed in the total cost of production of the final product and not necessarily, or not fully reflected in the final price for the consumer (e.g. coated steel used to produce washing machines, stainless steel fasteners used in cars, machines, etc., aluminium wheels used for cars, motorbikes).

In rare cases consumer products such as shoes, tableware or bicycles are concerned by AD/AS measures, which might have an impact on the price for the end user. However, the effect of duties in such cases is rather felt at the level of importers and distributors and not by the final consumers. For example, in the case of the anti-dumping investigation on shoes, a duty of 1,60 € was imposed on the average import price of a pair of shoes of 10€. However, it was found in that investigation that the average sales prices of the shoes (including margins for importers, wholesalers and retailers and branding) was 30€ and more, and thus the duty became negligible at the consumer level.

Furthermore, as explained above, products covered by TD measures are narrowly defined and very specific. Therefore, any price increase as a result of a duty is limited to that specific product and does not affect the broader sector (e.g. the duty on tableware does not have an impact on other ceramics products such as tiles or sanitary ware).

The purpose of TD measures is to restore fair trading conditions and not limiting imports. Any issues regarding supply and consumer choice are dealt with in the Union interest test, where the interests of all interested parties are taken into account. Experience gathered in Union interest investigations, has confirmed that in the vast majority of cases, consumers are not or only marginally impacted by TD measures. Consumer safety issues are dealt with under other relevant EU legislation, not TDI.

2.6.What is the EU dimension of the problem?

One way of assessing the importance of trade defence for the EU as a whole, is looking at the trade volume affected by measures as compared to the total trade volume. Out of total EU – China trade, around 2% is subject to measures (or up to 5% when taking into account that trade flows typically decrease after imposition of measures). Given the value of trade affected, any impact of a change in methodology to calculate dumping would have very little or no impact in terms of EU GDP.

A possible overall impact of the existing TDI measures on Chinese products, maybe measured on employment: out of 50 million industrial jobs in the EU, 231 000 jobs (or 0,4%) are directly linked to products currently subject to TD measures regarding China 16 .

Yet, the full dimension of the impact of trade defence is not adequately reflected on a macro-economic level. AD and AS measures affect products that are precisely and narrowly defined, and are thus very specific. Hence, TDI have primarily a micro-economic dimension. However, they can be substantial for a specific industry or a specific sector at a certain point in time, and therefore effective TD measures could be essential to that industry's survival.

An illustrative example of a sector that relies on effective TDI in order to face unfair competition, particularly in the recent past, is the steel sector. The EU steel industry provides around 330,000 jobs in 500 production sites in 24 Member States and generates an annual turnover of around EUR 170 billion, which corresponds to around 1.3% of EU gross domestic product 17 . Therefore, in strategic sectors, unfairly traded imports can result in site closures and related job losses, and can be very detrimental to the sector concerned, and also, albeit to a lesser extent, to the EU economy as a whole. Effective TD measures can play role in addressing such situations.

Moreover, some industries benefitting from measures, such as the steel industry, are an important part of European value chains. In certain situations, without TD measures, the production of certain products in the chain could be put at risk. This would also have implications for the industry up- and downstream of these products, and ultimately also negatively affect the top of the chain, i.e. R&D and innovation. For example, the AD measure on coated steel is beneficial for the up-stream products, hot rolled flat steel and cold rolled flat steel, since it ensures its continued demand. In such situations, the AD measure also ensures reliable sources of supply in the EU for the downstream operators, e.g. automotive and white goods industries. More importantly, keeping production of high value added products in the EU, contributes to maintaining R&D and innovation in the EU.

3.WHY SHOULD THE EU ACT?

Under Article 5(3) TEU, the subsidiarity principle does not apply in areas of exclusive EU competence. According to Article 3.1(e) of the Treaty on the Functioning of the European Union (TFEU), the common commercial policy is an exclusive competence of the EU. Article 207 TFEU further states that “measures to protect trade such as those to be taken in the event of dumping or subsidies” shall be based on the uniform principles of the common commercial policy. The subsidiarity principle therefore does not apply. The EU is required to ensure compliance with EU international obligations.

4.OBJECTIVES: WHAT SHOULD BE ACHIEVED?

According to Article 3.5 of the Treaty of the European Union (TEU), in its relations with the wider world the Union shall contribute to free and fair trade 18 . According to Articles 2, 3(5), 21(1), 21(2) TEU and Article 216(2) TFEU, the EU is founded upon the rule of law and contributes to the observance and development of international law, which binds the EU institutions.

Trade is a key element in the EU’s efforts to reduce unemployment. It is a major driver for growth and jobs provided that any negative effects of unfair trade can be effectively counteracted.

4.1.General objectives

-promote free and fair trade (G1);

-increase EU competitiveness and create/preserve EU employment (G2).

4.2.Specific objectives

-deal adequately with the expiry of certain provisions of Section 15 of China’s Accession Protocol to the WTO, and taking into account other countries in a similar situation (S1);

-ensure continued effectiveness of the EU’s trade defence instruments (S2);

-provide an effective response to the persisting distortions in the Chinese economy and in other NME countries (S3);

-ensure an adequate remedy to offset injury caused by dumped/subsidised, i.e. unfairly traded, imports (S4);

-maintain strong ties with our trading partners and in particular with China, based on mutual interests (S5).

4.3.Consistency with other EU policies

The objectives are fully in line with the principles of the Treaty of the European Union which provide that the EU shall, amongst others, “promote free and fair trade” whilst contributing to the observance and development of international law.

There is also full compatibility with the goals of the Communication: Trade for all, which pleads for stronger enforcement of the EU’s rights 19  and that the EU also needs to stand firm against unfair trade practices through anti-dumping and anti-subsidy measures.

It is also in line with the goals of the EU’s 2020 Communication: A strategy for smart, sustainable and inclusive growth, and in particular with its priority to foster a high-employment economy delivering social and territorial cohesion 20 . Furthermore, it also contributes to one of its flagship initiatives: “An industrial policy for the globalisation era" to improve the business environment, notably for SMEs, and to support the development of a strong and sustainable industrial base able to compete globally 21 .

The objectives are also in line with the Communication on Trade, Growth, and World Affairs, which advocates with regard to China (the EU’s second largest trading partner after the US), for policies that are more in line with market economy rules and seek to address the sources of the current major imbalances 22 .

The objectives are also fully consistent with the first of the ten priorities of the current Commission: boosting, jobs, growth and investment 23 .

Moreover, the Steel Communication of 16 March 2016 24 calls for “Acting together to strengthen our defences against unfair trade practices.” It notably emphasises: "The Commission is imposing a record number of trade defence measures to offset the detrimental effect of dumping on Europe’s steel industry. The efficiency and effectiveness of our action can however be significantly enhanced, accelerated and further improved if Member States support the Commission’s efforts”.

Finally, the initiative is fully in line with the EU Strategy on China 25 that has as objectives: (i) to increase the effectiveness of the EU as a global actor, in line with the Commission's policy guidelines, as expressed via the EU-China strategic partnership at bilateral and multilateral level; (ii) to define the EU's own interests in its evolving relationship with China; (iii) to propose how those interests can best be promoted, and; (iv) to identify new areas of cooperation with China in an increasingly challenging world 26 .

5.POLICY OPTIONS: WHAT ARE THE VARIOUS OPTIONS TO ACHIEVE THE OBJECTIVES

5.1.Identifying the policy options

In light of the envisaged changes three policy options have been identified, which range from leaving the current legislation and practice unchanged to developing an alternative methodology and provisions to ensure the continued effectiveness of the EU’s TDI.

Policy Option 1: “Baseline”- no change, neither in legislation nor in practice;

Policy Option 2: Replacing the NME methodology by the standard methodology;

Policy Option 3: New methodology allowing to effectively capture the non-market distortions coupled with transition periods and a further strengthening of the trade defence instruments.

5.2.Description of the Policy Options

5.2.1.Policy Option 1 – “Baseline”

Option 1 would leave the current EU legislation and practice, regarding AD and AS investigations unchanged. The Commission would not make a legislative proposal.

This means that for the calculation of the dumping margin regarding China, the analogue country methodology would continue to be mandatory in all cases concerning China, i.e. data for normal value would continue to be based on prices and costs in a third country that is a market economy (the so-called analogue country). Furthermore, the LDR would continue to be used in all cases (unless the TDI modernisation proposal is adopted) and newly found AS schemes during an investigation would only be reflected in the level of the AS duty imposed if an extended complaint is lodged and a new notice of initiation is published.

While a superficial reading of this option might suggest that it is tantamount to simply maintaining the status quo, this is however not the case. As described in the text of China’s Accession Protocol (annex 5), at least certain provisions of the Protocol will expire on 11 December 2016 in any event, and this expiry will ipso facto entail a number of changes, in particular in the legal and political environment as explained in detail in section 6.1.

5.2.2.Policy Option 2: Replacing the NME methodology by the standard methodology

Under current rules, for NME countries, the NME methodology is used for the calculation of the dumping margin (normal value is based on costs and prices in another market economy third country, the so-called ‘analogue country’). For NME countries, which are WTO members, such as China, the EU AD legislation provides that producers who can prove that they operate under market economy circumstances, their own costs and prices are used as a basis for the dumping margin calculation.

Under option 2, these rules would no longer apply. Instead, by default, the NME methodology would be replaced solely by the standard methodology for China. This means that Chinese producers’ own costs and prices, as found, would systematically be used as a basis for the dumping margin calculation.

This option corresponds to the “automatic granting of market economy status”, as it would mean treating China fully as any other WTO member market economy country. The Commission would make a legislative proposal.

The circumstances in which an exception to the standard methodology would be available on a case by case basis would be those set out in the WTO Anti-dumping Agreement and the EU Basic AD Regulation. There would have to be a particular market situation, and it would have to be demonstrated that Chinese costs should not be used, but rather replaced with data and evidence from a third country.    

5.2.3.Policy Option 3: New methodology allowing to capture the non-market distortions coupled with transition periods and further strengthening of the trade defence instruments

In order to ensure the continued effectiveness of the EU’s TDI on the one hand, and to adequately deal with the expiry of certain provisions of Section 15 of China’s Protocol of Accession to the WTO on the other hand, an alternative methodology would be developed, coupled with transition periods and substantial strengthening of the trade defence instruments.

Policy option 3 contains three elements. These elements aim at ensuring the continued effectiveness of the TDI, further strengthening them and improving the effectiveness in dealing with subsidies discovered in the course of AS investigations. The Commission would make a legislative proposal.

Dealing with distortions:    
Clarify provisions in the EU AD legislation designed to deal with significant distortions affecting prices and/or costs of the exporters in the country of export. These already foresee that, where such distortions create a ‘particular market situation’:

(a)    sales prices in the domestic market of the exporting country are rejected and normal value constructed on the basis of costs, and

(b)    costs of exporters affected by such a ‘particular market situation’ are replaced by costs in another representative market.

The situation that prevails in China, on the basis of the current Chinese socio-economic system, is characterised by economic distortions as compared with the normal functioning of a market economy such as the EU, which effect deeply and systematically the structure of costs and prices in the Chinese economy. It cannot be excluded, however, that a similar situation exists or develops in other countries.

The clarification would specify the basis for establishing situations where such deep economic distortions in the exporting country exist. For instance, relevant criteria could include government policies and involvement affecting costs of production (e.g. raw materials, labour); significant presence of state-owned enterprises distorting free market forces with respect to prices or costs; public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces; or access to finance granted by institutions implementing public policy objectives.

In order to identify such distortions in the exporting country, the Commission may issue a report describing the specific situation concerning these criteria in a certain country and/or sector. It is important to note that the TDI system would remain to be complaint based, i.e. investigations are normally only initiated on the basis of a valid and justified complaint by the EU industry.

All interested parties would have access to the report and have the possibility to comment on the findings therein. This report could become part of a particular investigation by the Commission and would become part of the file of each individual investigation. It could also be a public document. This mechanism would mean that the Commission would effectively assume the burden of proof in determining whether situations of deep distortions would exist.

Concretely, this would allow the EU investigating authority to investigate distortions existing in the whole Chinese economy and/or certain sectors – as well as in other countries in a similar situation. The EU investigating authority may then conclude that it would be necessary to calculate dumping not on the basis of domestic sales prices but on the basis of domestic costs of production (adjusted where necessary by using costs in a third country or international benchmarks).

In case of a finding of pervasive distortions, affecting the entire structure of costs throughout sectors or the economy as a whole, alternative cost sources than those in the exporting country would be used for the determination of normal value.

Many stakeholders have requested that we coordinate closely with our major international partners. While other main users of the instruments globally have different laws and practices, nevertheless this new methodology would bring the EU system closer to that of some of our international partners, including the US.

Transition periods:    
It is recalled that TDI measures are normally imposed for a duration of five years, unless they are modified as a result of an interim review before the end of the five year period. Interim reviews can only be carried out if there is a change in circumstances.

Under this option, it would be clarified that the expiry of certain provisions of Section 15 of China’s Protocol of Accession to the WTO does not constitute a change in circumstances, which would merit the initiation of an interim review. Expiry reviews and interim reviews would then be carried out applying the existing principle that, in the absence of a change in factual circumstances, the methodology of the initial investigation is applied. Indeed, in the likely event that circumstances in China have not changed since the original investigation, as China still does not function as a market economy, the analogue country methodology would be applied in interim reviews and expiry reviews.

Furthermore, existing provisions would be amended to foresee that the initiation of an interim (or newcomer) review linked to the expiry of Section 15 (a) (ii) of China’s Accession Protocol to the WTO, can be requested only at the time of initiation of an expiry review. Other interim reviews would not be affected by this constraint.

Amending the AS legislation:    
The AS legislation would be amended in order to allow for any new subsidy schemes found in the course of an AS investigation to be investigated, subject to due process. Consequently, new schemes would also be included in the calculation of the final AS duty imposed. Thus, the AS duty imposed would more accurately reflect the actual level of subsidisation benefiting the exporter in the export market. A study on subsidies in China is ongoing and will complement any legislative change.

6.IMPACT ANALYSIS

A thorough analysis was conducted to assess the impact of the different options identified. Then, options 2 and 3 were compared to option 1 – the baseline. The assessment is based on the Commission services’ own analysis and practical experience, on the results of the public consultation of stakeholders, the inputs received from a stakeholder conference specifically organised to that effect, and on an independent economic evaluation study.

Public consultation

A public consultation was held on line for ten weeks. In anticipation of a possible large number of replies and in order to ensure an objective and coherent evaluation of the responses received, the on-line consultation contained only closed questions. Furthermore, various stakeholders submitted position papers and comments, either in the framework of the public consultation or separately. In addition and in order to give stakeholders a further opportunity to present their views and have the broadest and most diverse feed-back, the Commission services organised a stakeholder conference, which was attended by around 300 participants. During the debate all stakeholders who so wished intervened. The views expressed represented the whole spectrum of opinions on the subject. The Commission services also organised, a dedicated meeting with the EU social partners.

In the context of the online consultation, almost 5300 replies were received. The analysis of these replies showed that a large number were identical and submitted on behalf of the same entity. These ranged from two to more than 900 identical replies for one entity. The report on the public consultation and the figures indicated in this report counted every reply as an individual one. Please see more details regarding procedure and the consultation strategy in annexes 1 and 2.

Quantitative Models

The quantitative analysis of options 2 and 3 was done by an external team of experts 27 . 

The European Commission provided the authors with estimates of AD tariffs, which would result from a dumping calculation under options 2 and 3 respectively. On this basis, the external experts calculated, for each option, the difference between the AD tariffs under the option at hand and the AD tariff under the baseline scenario, i.e. under the current methodology. This difference provided the input for the remainder of the quantitative analysis.

The external experts then proceeded in four steps:    

First, they calculated how a variation in AD tariffs affected the volume of Chinese imports into the EU, and how a change in import volume affected the level of employment in the EU in those industries, which manufacture the products under AD tariffs. On this basis a relationship between a variation in AD tariffs and a variation in employment in the EU was identified.

Secondly, they calculated the impact of a variation of AD tariffs on the EU industry as a whole. To this end, the authors estimated, which additional sectors could become subject to dumping by China in the future.

In a third and fourth step, the external experts calculated the impact of a variation in AD tariffs, not just for those products or sectors currently affected or possibly affected in the future, but also for the related upstream and downstream industries. This additional step gave an estimation of the indirect effects of a variation of AD tariffs on the entire EU economy.

As is the case with all economic analyses, the results are dependent on critical assumptions and are also otherwise subject to a degree of uncertainty. They indicate orders of magnitude to be expected with a reasonable confidence rather than precise predictions to be expected with certainty. For this reason, the external study worked with two sets of parameters throughout, allowing the results to be presented as ranges as opposed to point estimates. Where possible, these ranges of results are presented in sections 6.2 and 6.3. However, where results are broken down to individual sectors and Member States only the upper bound of the estimates is presented to avoid complicating the result tables 28 .

Overall impacts

Regarding the impact on the environment, the starting point is that TD measures affect only a small share of imports from China (less than 2% of total trade or less than 5% when taking into account the reduction of trade due to the measures imposed). Two areas can be distinguished, i.e. production and transport/distribution.

One may argue that while higher AD duties (option 3) may lead to slightly less production in China and slightly more production in the EU, the impact for the environment in the EU is negative. However, since environmental standards are often much higher in the EU than in China, one could also argue that the overall impact of AD duties on the environment is very likely to be positive as evidenced by the fact that 80% of China’s industry is still coal based, whereas in the EU 28%. In the public consultation, in relation to option 2, a number of stakeholders expressed the concern that higher production in China for exports to the EU, resulting possibly from lower anti-dumping measures, would have an overall negative impact on the environment, precisely because of the difference in emission standards between the EU and China. Significant imports from China may contribute to climate change, as more goods would be shipped from China to the EU, increasing CO2 output and thus carbon footprint.

According to some stakeholders, without any measures to reduce pollution from ships, by 2020 shipping will be the biggest single emitter of air pollution in Europe, even surpassing the emissions from all land-based sources together 29 . It is however very difficult to quantify, the impact of effective TDI on the environment.

As regards human rights, they are mainly discussed between the EU and China in the framework of both their political dialogue as well as a specific Human Rights Dialogue .

TD instruments are generally considered as technical instruments. Their scope is limited to restoring fair trading conditions, where these have been compromised by unfair practices such as dumping or subsidisation. The application and use of the instruments does not reach beyond this limited scope. The instruments are guided by technical and factual criteria and should, as far as possible, remain free of political considerations.

As far as the impact on SMEs is concerned, SMEs represent an important part of the EU’s economy. In 2014 SMEs accounted for 67% of employment (90 million people) and 99% of businesses in the non-financial sector. About three quarters of SMEs are active in five key sectors: wholesale and retail trade, manufacturing, construction, business services and accommodation and food services. SMEs are present at all levels of the value chain as producers, users or importers, retailers/traders.

Although, overall SMEs are recovering from the economic and financial crisis in 2008, their situation varies among Member States and sectors. A more detailed analysis at the Member States level shows that SMEs in only seven countries (AT, BE, DE, MT, LU, SE and UK) have fully recovered in terms of the number of SMEs, value added and employment.  In terms of sectors, employment in SMEs in construction and manufacturing were in 2014 still 17% and 11% below 2008 levels.

Employment creation was particularly strong from 2008 to 2014 in knowledge-intensive services. This was the case across all three SME size classes (i.e. micro, small, and medium-sized firms). In contrast, all of the four types of technology-intensive goods producing sectors (ranging from low technology to high technology) showed net job losses between 2008 and 2013. During this period the less technology-intensive SMEs lost a higher proportion of their jobs than the more technology-intensive SMEs. In 2014, in terms of employment, the goods-producing sectors stagnated.

This shows that the development of economic activities of SMEs reflects that of the EU industry as a whole, i.e. a move from low end to high end manufacturing and from manufacturing to services. Similarly, the SME sectors most likely to be targeted by dumping practices in the future are largely the same ones, as identified for the EU industry as a whole. However, due to their smaller size and fragmentation, SME’s tend to be more vulnerable to change than larger enterprises. Therefore, any weakening of the TDI (option 2) can be expected to impact SME’s more than larger companies.

Typically, as explained in section 2.5.3, SME’s and in particular micro SME’s are often not directly affected by TD measures. While, the macro economic impact of TDI is relatively small, TD measures can be crucial for a sector or a region, which is also true for SMEs. For example, the AD measures on bicycles helped maintaining a high end bicycle production in the EU with around 70.000 direct and indirect jobs in 20 Member States. The AD measures on tableware and ceramic tiles were essential for the sector and it is noted that many of the tableware producers are located in regions that are generally less thriving (Sassuolo, Stoke-on-Trent, Castellon, Limoges, Aveiro, Civita Castellana, Saarland). Around 100.000 direct jobs, of which the majority in SMEs, are benefitting directly from measures in the ceramics sector. These measures also helped securing jobs in the upstream (kaolin mines) and downstream industry (ceramics related machinery in Italy).

In general, TD measures affect businesses at various levels of the value chain in different ways. Typically, TDI are not easy instruments for SMEs. For producing SMEs who seek relief from the effects of dumped/subsidised imports, access to TDI is complicated, as data for the Union industry as a whole needs to be compiled. The compilation of meaningful data can be a difficult exercise given that a sector can consist of hundreds of companies spread over many Member States 30 .

For SMEs in the import, wholesale and retail business, TD measures represent other challenges. When provisional measures are imposed they might need to find new sources of supply either outside the EU (but not subject to the AD duty) or inside the EU because the imports might no longer be competitive once the injurious dumping or subsidization is offset by an AD/AS duty. This type of adaptation comes with a certain cost. Moreover, if this group of economic operators have been negligent in informing themselves about any on-going investigation they might be taken by surprise by the imposition of a duty in relation to goods that have already been ordered or are already being shipped. The companies concerned are obliged to pay the duty on those imports.

While TD measures primarily aim at remedying injury caused to the EU industry by unfair trading practices, user industries can also be confronted with the negative effects of TD measures. Note however that allegations made to this effect in investigations are, after examination, often unfounded overall.

To summarise, it appears that lower AD duties (option 2), are likely to impact SME’s more negatively than larger companies. This was confirmed by more than two thirds of respondents in the public consultation. At the same time more than two thirds of companies that responded were large companies with more than 250 employees.

The analysis regarding the economic and social impacts is based on an independent economic study (please see annex 8), which covers in particular impacts on employment. These are the economic effects that are best measurable and which also provide a good indication of the social dimension.

It is important to note that the TDI system is complaint based, i.e. investigations are normally only initiated on the basis of a valid and justified complaint by the EU industry, and that AD or AS duties can only be imposed if the findings of a thorough investigation show that the conditions to impose such duties are met. Therefore, it is difficult to predict with certainty what may happen in the future without knowing which complaints may be brought and what the result of the ensuing investigations might be.

In addition, it must be borne in mind that the central parameter in the estimation of the impacts is not the level of tariff that the EU may maintain overall in relation to any given third country. The central parameter is the level of additional duties, beyond the normal tariffs applicable, that may or may not be imposed following an AD/AS investigation.

Sources of Data

The data used in this analysis is based on a variety of sources. The employment data by case and Member State is internal Commission data, which is based on the data collected in the context of AD investigations. The employment currently covered by the measures in force is the one found during the investigations, to be linked to the production of the products under anti-dumping measures.

The data on duty rates is also based on internal Commission data, which is company specific and collected in the course of investigations. Some of this data has also been adjusted so that it can be used in a context, which is different from its original intended goal. Other important sources of data are Eurostat Structural Business Statistics, COMEXT, WIOD and UNSTATS.    

6.1.Impacts of Policy Option 1 – “Baseline”

It is important to note that option 1 is not equivalent to the status quo. Indeed, certain provisions of China’s Accession Protocol will definitely expire on 11 December 2016, which will undoubtedly have an impact, in particular on the legal and political environment.

The current system has the advantage of being well established and well known by all stakeholders concerned. However, the effectiveness of the current system has also shown important limitations.

Duties imposed by the EU, which are often based on the level of the injury margin, are often lower than those imposed by other WTO members, who often do not apply the LDR. This difference in the duty levels can result in trade deflection, the impact of which is however very difficult to quantify.

Regarding the analogue country methodology, in the public consultation, a vast majority of respondents claim that it has been effective in addressing situations where there are significant distortions in costs/prices in the exporting country. Other stakeholders consider that the analogue country methodology is in certain cases too rigid and in other cases it may lead to inflated dumping margins. The impact of both situations is however also very difficult to quantify.

It is recalled that China is the EU’s second biggest trading partner with a trade volume of 470 billion € in goods and 50 billion € in services in 2014. In terms of foreign direct investment, China is in 9th position, with 120 billion € EU investments in China in 2012. 3 million jobs are supported by EU exports to China.

China has already signalled on several official occasions that it expects that the EU and all other WTO members stop using of the analogue country methodology, in cases involving China as from December 2016.

Hence, option 1 would most likely be subject to litigation, both before the WTO and the European Court of Justice. The result and effects of such litigation cannot currently be known. In terms of procedure, it would most likely mean litigation before a WTO Panel and possibly in front of the Appellate Body. The duration of proceedings in the WTO would typically take three to five years. If the EU were found to be non-compliant in the implementation proceeding, China may then again respond by suspending trade concessions. The purpose of the suspension of concessions is to induce compliance and the level depends on the trade impact. Given the substantial volume of trade between the EU and China, the negative effect for EU companies could be considerable. No detailed analysis can be provided on the impact per Member State or industry as this would depend on the particular requests for suspension of concessions that China would make.

Litigation before the Courts in Luxembourg would depend on how a case is presented. If a case is lodged by one of the privileged applicants (Member States) or via a request for a preliminary ruling, it would go straight to the European Court of Justice and would normally take around 2 to 3 years. If a case arrives at the General Court, litigation via an application e.g. by an exporter seeking the annulment of a regulation imposing an anti-dumping duty, the litigation would last longer (around 4 years) because it would potentially include an appeal. It should also be noted that, in case of annulment by the ECJ, duties would have to be repaid retroactively.

In any event, it may take several years for the outcome of litigation to be known. However, the legal and political implications of option 1, in particular the uncertainties it will create and their negative impact on the effectiveness of the EU’s TDI, are likely to be felt almost immediately after December 2016.

In particular, due to the uncertain legal environment, the EU industry might be discouraged to file complaints, or the effectiveness of the duties imposed could be undermined. In addition, it cannot be excluded that China would decide to target certain important economic interests of the EU, for instance by conducting AD and/or AS investigations on sensitive products, as they have done in the past e.g. with the initiation of an AD/AS investigation concerning wine, in response to the EU’s trade defence measures imposed on solar panels. In this context, it is important to note that agricultural exports to China are on the rise. Although, they represent overall a relatively small share of around 6% (in 2015), of total EU agricultural exports 31 , many agricultural commodities are the first export item to China for certain Member States. Hardly any agricultural products originating in China are subject to TDI measures in the EU.

In terms of economic and social impact of the baseline option, at the end of 2015, there were 52 AD/AS measures in place on imports originating in China. About 250,000 direct jobs in EU industries benefit from these AD measures. The main industries affected by TDI in terms of employment are ceramics, iron and steel and other mechanical engineering. The main Member States affected by the measures are Italy, Germany, Spain, France, Portugal and Poland, which represent around 80% of total employment affected by AD/AS measures.

While, the baseline option, in the short term, would not as such have direct impacts on the employment and output of the products currently covered by measures, the continued application of the lesser duty rule is likely to have a negative impact on the effectiveness of the measures in the future due to the distorted functioning of the Chinese economy.

There is no consensus among stakeholders on the extent of the legal consequences of the expiry of certain provisions of Section 15 (a) (ii) of China’s Protocol of Accession to the WTO on the remainder of that section. Some stakeholders (mainly importers, traders and law firms representing them) are of the view that the remaining subparagraph has no legal effect on its own, and thus it would be prudent to apply the standard methodology in cases involving China. By contrast, the vast majority of stakeholders consider that the remaining subparagraph does not contain an obligation to use the standard methodology. There is no consensus among the latter, whether the analogue country methodology or any other methodology (except for the standard methodology) should be used.

However, many stakeholders have insisted that whatever option is taken in response to the expiry of certain provisions of Section 15 of China’s Protocol of Accession to the WTO, it needs to be legally sound.

As regards the political dimension, most industry stakeholders are aware of the problem and favour a solution that avoids a deterioration of the relationship with China, but at the same time ensures effective TDI.    

6.2.Impacts of Policy Option 2

As indicated above, this option would entail treating China as any other WTO market economy. It would consist in the automatic recognition that China operates under market economy conditions. Chinese prices and costs would be used, unless one of the exceptions (identified in section 5.2.2) would apply.

In the public consultation, many stakeholders considered that the expiry of certain provisions of Section 15 of China’s WTO Accession Protocol does not imply any automaticity in changing the calculation methodology. They consider that the EU methodology should not be changed until China has fulfilled all the five criteria.

An overwhelming majority of respondents considered that option 2 would result in fewer anti-dumping investigations and have a negative effect on the effectiveness of the EU TDI system. Except for importers, a vast majority of respondents considered using the standard methodology would have a negative impact on businesses and citizens. An overwhelming majority of respondents considered that this option would be very detrimental on the employment situation in the EU.

On the other hand, a number of categories of respondents to the public consultation, namely importers, wholesalers, retailers and downstream users are in favour of this option. They would pay lower prices for the imported product, which would be beneficial for their activity. Stakeholders concerned claim that, for example, the AD measures on solar panels have had a negative impact on the downstream industry, i.e. the installers of solar panels. Some stakeholders claim that in the stainless steel fasteners and in the satsumas cases, the dumping margins calculated were inflated because they were based on a normal value in an analogue country.

However, in terms of effectiveness, option 2 would significantly weaken the TDI. Using the standard methodology would result in lower duty levels and most likely also in fewer AD investigations. In addition, the significant negative economic and social impact of option 2 on the EU industry, as described below, would by far outweigh any gains for traders and downstream users.

To estimate the economic and social impact of option 2, DG Trade commissioned an external study, which assesses the possible impact on employment of using the standard methodology in AD cases against China, as opposed to the current NME methodology (based on an analogue country). In estimating the impact of this option, it is assumed that the standard methodology using Chinese prices and costs fully applies. The study focuses on employment effects. It uses econometric analysis on the basis of a representative sample of recent AD investigations concerning China (please find more details regarding the calculation model used in annex 4).

At the outset, it should be noted that it is very difficult to estimate the possible effects of a change in methodology on the results of future AD investigations. Indeed, dumping calculations are complex and are based on actual trade transactions or on a construction of a price on the basis of costs of production. Such data may vary across investigations and over time.

As mentioned in the beginning of section 6, to estimate the effects of a change in methodology, DG Trade recalculated in a representative sample of past AD cases, the dumping margins that would have been achieved when using the standard methodology. Such recalculation found that using the standard methodology in AD cases against China would reduce the level of AD measures on average by 30 percentage points as compared to the NME methodology. 32 As a result, based on the available empirical evidence, gross import prices of imported products from China that are currently subject to AD measures would on average be 20 percent lower, if the duty were calculated using the standard methodology.

It should be noted that this approach was exclusively based on Chinese prices or costs. It did not take into the account the possibility to use alternative data, should a “particular market situation” have been found. The lower AD duties on Chinese imports are estimated to result in lower prices of the imported Chinese products for EU users and consumers.

Chinese imports of the products concerned by AD investigations would be expected to increase between 18 and 28 percent if the standard methodology were used and would substitute for sales of the EU import-competing industries (and/or imports from competing third countries). These would therefore suffer both, in terms of employment and in terms of output.

The analysis was based on a step-by-step approach. It first examined the impact of lower tariffs on import levels for the products concerned. Then it examined the impact of these changing import levels on sectorial employment in the EU. The results are based on the observation and econometric analysis of import prices and quantities from China and employment in the related sectors in the past.

In subsequent steps, the disappearance of the deterring effect of the current NME methodology, on bilateral imports and sectorial employment, was assessed in the short and long term. Based on how sectors have been affected in the past by dumping in bilateral trade relations other than EU-China, probabilities of new economic sectors being subject to dumping in the future were established.

The results of the analysis show that the short term direct effects of using the standard methodology, on EU sectors currently affected by injurious dumping from China, could potentially put between 49,700 and 73,700 jobs at risk. This estimate is based on two important assumptions, (1) the same products as now are affected by TDI in the short term, (2) the share of Chinese imports affected by TDI is 2.5%, based on the historical average.

In the long term, potential losses could be in the range of 117,800 to 175,600 jobs. These are potential job losses that might result from a weaker AD instrument, which may not be able to protect industries suffering from Chinese dumping. This is based on the assumption that, in the future, dumping could also take place in sectors where the EU has currently no TD measures in force against imports from China. The corresponding sectorial distribution is inferred on current third country (US) cases against China and current EU cases against other countries, which seemed the most reliable approach. While existing overcapacities in China and sectors identified in the five year plans, may give an indication of products that may be dumped in the future, there are many other factors (such as evolution of regional demand, consumption patterns or price of raw materials), that have to be taken into account and that may lead to an AD/AS complaint. Therefore, industries’ behaviour as observed by AD/AS complaints seems more indicative as a basis for future TD action. A further assumption is that the long term share of Chinese imports affected by AD measures would be in the order of nearly 6%, which compares reasonably with a theoretical long term upper bound established in literature.

In a final step the consultants investigated indirect effects on upstream and downstream sectors. Calculating upstream and downstream effects for the lower of their two estimates on long-run direct effects lead to an overall indirect effect of 8,500 to 26,200 potential job losses. Thus, the overall potential job losses would range between 126,300 and 201,800 in the long run.

The following table summarizes the potential long-term effects on EU employment of using the standard methodology that the external study found:

Table 1: Range of the number of jobs potentially put at risk in the EU as a result of a change in the calculation methodology regarding China towards the standard method, long-run

Source: Assessment of the economic impact of changing the methodology for calculating normal value in trade defence investigations against China. 21 December 2015

In an additional part of the study, the results are broken down by Member State (‘MS’) and by sector to detect possible concentrations in certain industries and regions. To this end, again two scenarios, short-run and long-run, are run using two alternative sets of parameter estimates which sketch a lower and upper bound. The results are fully consistent with the aggregate analysis, i.e. adding up over MS or sectors will yield the overall results discussed above.

Although the breakdown calculations have been performed for all combinations, this report only presents and discusses those of the most far reaching scenario, i.e. the long-term upper bound. Although the effects in the different scenarios and under the different parameters are not proportional, the ranking of MS is not strongly affected over the scenarios. 33  

Table 2 below shows the breakdown of these scenario effects by MS. Unsurprisingly, the most strongly affected MS in terms of total job losses is Germany, it being the largest MS in terms of employment in general and industrial employment in particular. The country is simulated to be affected by up to 45.000 potential job losses, 42,000 of which would be in firms directly affected by Chinese dumping.

In order to put the total effects into perspective the right hand column of Table 2 relates them to overall employment in the MS. Under this relative view, the MS most strongly affected would be the Czech Republic, with potential jobs at risk corresponding to 0.15% of the country's total employment. Other MS relatively strongly affected are Poland, Romania, Slovenia and Slovakia with potential jobs at risk equivalent to 0.12 – 0.14% of the overall employment in these MS.

Table 2: Upper-bound, long-run estimates of jobs potentially put at risk by EU MS as a result of a change in method towards the standard methodology

Source: Consultants' simulations, Eurostat [lfsi_grt_a], own calculations.

Results for Croatia, for which there are no individual data available in the World Input Output Database, could not be quantified in the analysis.

Employment in the industrial sector, which may serve as a rough indicator of vulnerability is about 27% of total employment and is somewhat higher than the EU 28 average with about 22%. It is however significantly lower than industrial employment in the Czech Republic (37%) where the above analysis found the strongest effects.

Under the simplifying assumption of a linear relationship between employment in the manufacturing sector and impacts in terms of jobs potentially at risk, about 1 700 persons or 0.11% of total employment could be affected by option 2 in Croatia.    

Table 3: Share of employment in the manufacturing sector in Croatia and selected EU MS, 1 000 persons and share of total, 2014.

Source: Eurostat [lfsi_grt_a], own calculations.    

Table 4 below shows a breakdown of the effects of the most far-reaching scenario by sector of the WIOD 34 classification. The most strongly affected sector would be the "basic and fabricated metals" sector, of which the steel sector forms an important part. This position, as the sector where jobs would be potentially most at risk is stable over all simulations. Potential jobs at risk would reach about 43.000, equivalent to about 3.7% of total employment in the sector in 2015. 35 The second and third most affected sectors are the "manufacturing nec" sectors covering manufacturing activities not covered in the other rows of table 4 and the "electrical and optical machinery" sectors with about 21,000 jobs potentially at risk in each one of these sectors.

Table 4 displays only the effect on tradable goods sectors. That does not mean that the non-tradable sectors have been ignored and with them a potential source for significant employment effects. The negative upstream effect found for those was, however, by an order of magnitude smaller than those for even the least affected tradable sectors, which is why the non-tradable sector has eventually been excluded from the analysis.    

Table 4: Upper-bound, long-run estimates of jobs potentially put at risk by WIOD sector as a result of a change in method towards the standard methodology

Source: Consultants' simulations, Eurostat [lfsi_grt_a], own calculations.

With regards to the wider macro-economic impacts, no sufficiently meaningful economic forecast is possible. First of all, there is considerable dispute in the economic literature as to the knock-on effects that any job lost would have on the wider economy. Secondly, the impact will vary widely across Member States and sectors, not only depending on their exposure to dumping, which has been discussed above, but also on the current macroeconomic climate of the Member State.

Therefore, under the current circumstances, it is not possible to draw conclusions on the effect of a change in the methodology of the calculation of the dumping margin on GDP or other main macro-economic multipliers.

It is also noted that a study (Scott and Jiang, 2015) 36 found employment effects amounting to between 1.7 and 3.5 million job losses. The study is, however, based on the underlying assumption that the entirety of imported goods from China will be affected by dumping behaviour and would be entering the EU market at prices 30% below their current level. This assumption is not realistic and leads to an over-inflated effect on employment.

6.3.Impacts of Policy Option 3

Option 3 consists of three elements which aim at ensuring the continued effectiveness of the TDI and further strengthening them.

The first element of option 3 is a new calculation methodology that would allow for alternative approaches in order to effectively deal with distortions, as a replacement of the analogue country methodology. Such approach would also remedy any limitations experienced with the analogue country methodology in certain cases, such as its rigidity.

An additional element is transition periods, which would ensure the continued effectiveness of measures already in place, in the short and medium term. AD measures would be maintained at their current level and hence the current jobs preserved. Its impact essentially depends on the length of the transition period and/or the expiration of the measure.

Finally, a third element would look at improving the effectiveness in dealing with subsidies discovered in the course of AS investigations.

The economic and social impact of option 3 was assessed on the basis of the same methodology as for option 2. Hence, the starting point was a recalculation of the dumping margins that would have been achieved, when using the alternative calculation methodology proposed under option 3 in a representative sample of past AD cases.

The recalculation assumed that in all circumstances prices or costs in the exporting country could not be used, given the significant distortions present. Such recalculation found that using this alternative methodology, the level of AD measures would, on average, be 3.86 percentage points lower as compared to the NME methodology i.e. 35% vs. 39% respectively.

On the basis of this finding, the same four step approach as for the estimate of option 2 was followed. The results are shown in table 5 below. As a consequence of a much smaller difference in AD duties compared to the current methodology – which can actually be considered as almost negligible - , the associated number of jobs potentially put at risk is significantly smaller. In the long run, the number of jobs which may potentially put at risk would be about 15,000 to 25,000.

Table 5: Range of the number of jobs potentially put at risk in the EU as a result of changing the calculation methodology regarding China, long-run (first element of option 3)

Source: Assessment of the economic impact of changing the methodology for calculating normal value in trade defence investigations against China. 21 December 2015

Table 6 below shows the breakdown of the results for the upper-bound by Member State. The order in which employment in the MS is affected in relative terms is almost identical to option 2.

Table 6: Upper-bound, long-run estimates of jobs potentially put at risk by EU MS as a result of a change in method towards a new methodology (first element of option 3)

Source: Consultants' simulations, Eurostat [lfsi_grt_a], own calculations.

A rough approximation of the results to Croatia yields about 200 jobs potentially at risk in the country under option 3.1, corresponding to about 0.01% of total employment.

Regarding the second element of option 3, the transition periods, their impact needs to be assessed from a timing point of view. The actual impact on potential jobs at stake is very difficult to quantify. Currently, there are around 50 AD/AS measures in place with regard to Chinese imports. Option 3 would ensure that these measures stay in force for the remainder of the duration initially foreseen and at the duty levels initially imposed. Option 3 would thus help avoiding that any change in the calculation methodology affects measures in place.

Without this element a significant number of interim reviews may be requested by exporters concerned after December 2016 on the sole grounds that the new calculation methodology could yield a different mathematical result and therefore duty level. Although, any economic or social impact is difficult to quantify, as the outcome of such interim reviews is unpredictable, the industries/sectors concerned would definitely be impacted by the uncertainty created in the market.

The complementary importance of this element is significant, as in the public consultation stakeholders specified that 60% of their measures in force had an average remaining duration of 3 to 5 years and 32% an average remaining duration of 1 to 3 years.

Regarding the third element of option 3, the AS element, it is recalled that due to the complexity and opacity of the Chinese AS schemes, it is very difficult for complainants to identify the relevant schemes at complaints stage and thus AS investigations and AS duties are much less frequent than AD investigations and AD measures. Furthermore, for the same reasons, AS duty levels are typically much lower than AD duty levels.

Therefore, any impact of this element is expected to be rather small and impossible to quantify. AS investigations (as AD investigations) are complaint driven and it is thus impossible to predict how many AS complaints will be lodged in the future. It is even more difficult to predict, what schemes and how many would be discovered during those investigations.

Hence, even though the impact of the anti-subsidy element, when analysed in isolation maybe of little consequence, the importance of this element lies in its complementarity with the other elements of this option. In the public consultation a large majority of respondents considered that an AS investigation should cover all subsidies found in an ongoing investigation.

However, a vast majority of stakeholders also claimed, on the basis of the information available at the time of the public consultation, that the elements presented under option 3 are in their view insufficient to ensure the continued effectiveness of the EU’s TDI. In the public consultation a large majority of stakeholders considered that the elements presented under option 3 would not be effective, neither in adequately tackling the distortions in China, nor, a fortiori, in reducing any negative impact of a change in the calculation methodology. However, following the results of the public consultation and the work on the impact assessment, option 3 has evolved and has been strengthened in many respects.

Some stakeholders referred to other options that should be explored such as a sectorial approach or price baskets. While, the reports on the Chinese economy foreseen under option 3 (section 5.2.3) may identify different levels of State interference or distortions in various sectors, any amendment to the EU TDI legislation would apply horizontally to all sectors and industries. Thus the continued effectiveness of the TDI is ensured, as it is impossible to predict in which sectors AD/AS complaints maybe lodged in the future. This approach is also in line with the WTO principle of non-discrimination.

In cases where significant distortions are found, option 3 would allow for the full adjustment of costs on the basis of costs in a third country or international benchmarks.

Many stakeholders are also sceptical as to how to deal in practice with distortions (other than by applying the analogue country methodology) and as to the feasibility of the AS element, given the opacity of Chinese subsidy schemes and lack of cooperation. Therefore, many stakeholders insisted that any alternative calculation methodology must provide for the possibility of not using Chinese prices and costs as a basis.

In this context it is highlighted, that of the various individual elements of option 3, each address different specific problems of an alternative calculation methodology, and each one contributes its share to the overall effectiveness of the TDI. Thus, the effectiveness of option 3 needs to be assessed on the basis of all elements of this option in combination.

Therefore, any potential negative effects on jobs of option 3 should normally be limited, given the fact that the AD duties calculated under option 3 are roughly at the same level as those reached under the current methodology. Whereas, it has been demonstrated that lower anti-dumping duties (option 2) may put a significant number of jobs at risk.

On this basis, it should be concluded that option 3, i.e. a change in methodology, transition periods and strengthened anti-subsidy provisions, should normally have a neutral effect on jobs, i.e. maintain the existing employment levels

7.COMPARISON OF POLICY OPTIONS

7.1.How do policy options compare?

In light of the findings of the impact assessment process, the policy options have been compared in order to evaluate, which option best contributes to address the problems identified and best meets the objectives set out. The various options have been compared in terms of their effectiveness, efficiency and coherence with overarching policy objectives, while taking into account any positive and negative impacts.

Policy option 1

Policy option 1 is the “no change” option, meaning that the current system would remain in place. It would partially meet the general objectives and also partially the specific objectives except for S1. The impact on effectiveness and the economic and social impact of the option itself would not be so significant. However, even though, option 1 is the no change option, the legal environment will definitely change (Section 15 (a) (ii) included in the Protocol of Accession of China will expire in December 2016). Due to this “outside” change, the legal and political implications are likely to be considerable. As a consequence, there may be economic implications too (e.g. from measures taken by China), which are impossible to predict, let alone quantify at this stage.

Therefore, policy option 1 cannot be considered as a “classic” baseline option. No change, would in this case not mean status quo, but a likely deterioration of the situation in many respects. This is reflected in the rating in the table below as “-“ (and not 0, as is more commonly used for the base line option).

Policy option 2

Policy option 2 would contribute to free trade, but at conditions less fair than today (G1). It would not increase EU competitiveness, but put a significant number of jobs in the EU at risk (G2). It would deal with the expiry of certain provisions of Section 15 (S1) and not compromise the relationship with China (S5). However, it would fare very negatively with regard to S2, S3 and S4, as it would not provide an effective response to the many distortions in China (or other NME countries), resulting in insufficient duty levels to offset injury, and thus weaken the EU’s TDI.

In terms of overall efficiency, option 2 would mean in-effective results in many TD investigations, with the same resources employed and very little coherence with overarching EU policy objectives.

Policy option 3

Policy option 3 (all three elements combined) would meet the general objectives and also provide significant contributions to the specific objectives.

It would contribute significantly to promoting free and fair trade (G1) and to increasing competitiveness and creating/preserving jobs in the EU (G2). It would adequately deal with the expiry of certain provisions of Section 15 (S1) and appropriately take into consideration the relationship with China (S5). It would also ensure the continued effectiveness of the EU’s TDI (S2). The new calculation methodology would provide effective response to the many distortions in China (S3) and thus be able to adequately offset injury caused by dumped (subsidised imports) (S4). The economic and social impact is estimated to be neutral overall as explained in Tables 5-8.

In terms of effectiveness of the TD measures imposed, policy option 3 would achieve similar results as the current system in place

7.2.Preferred Option

In summary, option 3 (the three elements combined) appears best placed in adequately addressing the problems identified and meeting the objectives set out.

As compared to the baseline option, it ensures that the expiry of certain provisions of Section 15 of China’s Accession Protocol to the WTO is adequately dealt with, while at the same time ensuring the continued effectiveness of the EU’s TDI and also further strengthening them. Its social and economic impacts are considered neutral.

In terms of overall efficiency, option 3 is by far the best placed of the three options, as the baseline option would certainly suffer significantly from legal uncertainty and/or legal action, which will be unlikely with option 3. The resources employed would be comparable to those of the current system. In case of a positive outcome of the modernisation the EU’s TDI would be further improved (more effective TDI measures with the same resources employed). Furthermore, option 3 contributes significantly to the overarching EU policy objectives, in particular it contributes to preserving jobs in the EU and to helping EU industry to remain competitive.

In the table below the various options are rated according to how they meet the objectives and compare to the baseline option. The baseline option is rated “-“, because it is not a classic no change option (as explained above). “- -“ means that the score is worse than that of the base line option. Positive scores range from + to +++, the latter being the best score.    

* Please see more details regarding overall effectiveness in annex 3.

8.MONITORING AND EVALUATION: How would actual impacts be monitored and evaluated?

The effectiveness of the changes introduced to the current EU’s TDI by this initiative should be subject to monitoring and evaluation.

8.1.Monitoring

The table below gives an overview of the objectives tackled and a set of indicators to monitor the effectiveness of the proposed changes. They may be supplemented by other indicators found suitable for monitoring the changes introduced.

8.2.Evaluation

The Commission should undertake an intermediate evaluation of its new initiative five years after its entry into force. This evaluation should assess the actual economic, social, and environmental impacts and evaluate its efficiency and effectiveness, and the extent to which its results are consistent with the objectives. The evaluation results will be used for decision-making needs on the future policy, and for amendments to the regulatory framework, if appropriate. The Commission will communicate the evaluation results to the European Parliament and the Council.

Annex 1

PROCEDURAL INFORMATION

DG Chef de file: SecGen/ DG TRADE

Agenda planning/work program reference: 2016/TRADE/002

Organisation and timing:

The first meeting of the inter service steering group (ISG) took place on 4 February 2016. The following DGs participate in the ISG: TRADE, AGRI, SJ, BUDG, COMP, ECFINF, EMPL, ENER, ENV, GROW, OLAF, TAXUD, EEAS, JUST.

In the first meeting the inception impact assessment (IIA), the questionnaire for the public consultation and the consultation strategy were finalised. The IIA was published on 10 February 2016 and the public consultation (PC) was launched on the same day. The PC was on line for ten weeks until 20 April 2016.

In total, three meetings of the ISG were held.

The meeting with the Regulatory Scrutiny Board (RSB) was held on 8 June 2016 (reference number: 2015/TRADE/027. The main comments received from the board (as indicated in the table below) were assessed and the IAR modified accordingly.

Evidence and sources of information:

As a starting point, information and experience of DG TRADE in trade defence matters was used in order to identify the problems, set the objectives and define the various options. This can be information that has been collected in the framework of trade defence investigations and/or received from stakeholders. Information and data from other DGs such as AGRI or GROW have also been used. Statistical data from Commissions internal data bases, from EUROSTAT, Eurostat Structural Business Statistics, COMEXT, UNSTATS,WIOD and NACE have also been consulted.

Furthermore, an important additional source of information provided the stakeholder consultation (annex 2).

As regards the economic and social impacts, an external study has been commissioned by the Commission (annex 8).

Annex 2

Results of the open public consultation regarding the possible change in the methodology to establish dumping/subsidisation in trade defence investigations concerning the Peoples’ Republic of China 37

I. Introduction

In the framework of the present Impact Assessment, the Commission consulted stakeholders in line with the consultation strategy published together with the Inception Impact Assessment ( http://trade.ec.europa.eu/doclib/docs/2016/february/tradoc_154259.pdf ).

More specifically, stakeholders were consulted as follows:

-    by means of an online consultation, open from 12 February to 20 April 2016 and in which any person/entity could participate;

-    .in a stakeholder conference organized on 17 March 2016, to which approximately 300 participants attended;

-    in a consultation meeting with social partners on 15 April 2016, i.e. with the representatives of Trade Unions and Employers' associations which are members of the European Social Dialogue).

II. Stakeholder conference

The report of the Stakeholder conference is attached as Annex 2.1.

III. Consultation meeting with social partners

The report of the Consultation meeting is attached as Annex 2.2.

IV. Online consultation

The online consultation was based on a questionnaire published on the EUSurvey platform ( https://ec.europa.eu/eusurvey/home/welcome ).

In addition to replying to the online questionnaire, a number of stakeholders provided the Commission with additional submissions, directly or indirectly related to the online consultations. These submissions also fed into the Impact Assessment process and are reflected below.  

The following categories of submissions can be distinguished:

-    replies to the online questionnaire: in total, 5273 responses were submitted,

-    e-mails and letters expressing concerns about certain aspects of the online consultation: in total, 116 such submissions were registered 38 ; to a significant number of such submissions the online questionnaire was attached in a format where the respective respondents added their comments to the questions contained in the questionnaire,

-    e-mails and letters commenting on various substantive aspects of a possible change of methodology to establish dumping/subsidisation in trade defence investigations concerning China. In total, 48 such submissions were registered 39 ,

-    position papers (a number of stakeholders submitted more elaborate comments on various substantive aspects of a possible change of methodology; even though a number of such papers was submitted well before the beginning of the public consultation, the Commission takes the views expressed in these submissions into account. In total, 19 submissions of this type were registered.

IV.1 Replies to the online questionnaire

As for the replies to the online questionnaire, it should be noted that a number of entities provided more than one reply. More specifically, the following entities, all of which indicated production of steel products as their main area of activity, submitted each more than 100 replies:    

The following entities, all of which indicated production of steel products as their main area of activity, submitted each between 50 and 99 replies:

Approximately 200 additional respondents provided between 2 and 49 replies on behalf of their respective entities.

In view of the above, it is pointed out that among the 5273 replies received, some 3960 (approximately 75%) were not unique but were delivered together with one or more – typically identical – replies submitted on behalf of the same legal entity. The following types of stakeholders participated in the online consultation:

The EU producers and their trade associations therefore represent 88,5% of all replies (including the abovementioned duplications). The user of manufactured products or raw materials submitted 4,36% of all replies, followed by non-EU producers with 2,39% of replies 40 . The number of replies submitted by other types of stakeholders remained below 1% of the total sum of replies.

The respondents indicated the following as their main areas of activity 41 :

Among respondents which indicated to be a company, the participation to the consultation in terms of size of undertakings is as follows 42 :

A very large majority of respondents (89,9%) indicated that they have previously participated in an EU trade defence procedure 43 and virtually all respondents (97,5%) confirm that they are familiar with the provisions of Section 15 of China's protocol of accession to the WTO.

IV.1.1. Application of the “standard dumping methodology” (option 2)

Virtually all respondents (98,8%) confirmed that they are aware that a change in the EU legislation may result in applying the "standard dumping methodology" for the calculation of dumping margins and no longer the analogue country methodology.

(95,3% of respondents takes the view that using the "standard dumping methodology would result in fewer anti-dumping investigations. The breakdown among respondents is as follows: 98% of EU producers and their associations, 50% of importers to the EU and their associations, 60% of non-EU producers, 96% of users of manufactured products, 82% of citizens, 84% of other respondents.

Similarly, almost all respondents (96,5% in total; 99% of EU producers and their associations, 50% of importers to the EU and their associations, 61% of non-EU producers, 97% of users of manufactured products, 90% of citizens, 61% of other respondents) consider that using the "standard dumping methodology" would have impact on the effectiveness of EU' trade defence instrument.

Among respondents replying on behalf of a business enterprise, a large majority considers that the use of the "standard dumping methodology" would have a negative impact on their activity (95% in total; 98% of EU producers and their associations, 53% of importers to the EU and their associations, 60% of non-EU producers, 96% of users of manufactured products, 75% of citizens, 58% of other respondents).

Similarly, 94% of all respondents consider that such change in methodology would put jobs at risk (97% of EU producers and their associations, 59% of non-EU producers, 95% of users of manufactured products, 72% of citizens and 80% of other respondents).

However, among importers to the EU and their associations 38% take the view that such change would put jobs as risk whereas 36% consider jobs could be created 44 . Extending the question on the job situation in the entire EU, 94,2% of all respondents 45 consider a possible change to using the "standard dumping methodology" as very detrimental. However, while an overwhelming majority (97%) of EU producers and their associations see such change as potentially very detrimental, 46% of importers to the EU and their association assess such change as beneficial, with 41% of importers considering the change detrimental to the job situation in Europe.

In order to get a better understanding of the stakeholders' view with respect to option 2, the Commission further enquired about the perceived effects of using the "standard dumping methodology"

-    on business in Europe: this option would be very detrimental according to 94,2% of all respondents, 97% of EU producers and their associations, 57% of non-EU producers, 94% of users of manufactured products, 78% of citizens and 56% of other respondents. On the other hand, 57% of EU importers and their associations consider the effect beneficial with 42% seeing it as detrimental;

-    on industrial users and consumers in the EU of products potentially subject to anti-dumping measures: this option would be very detrimental according to 93% of all respondents, 96% of EU producers and their associations, 56% of non-EU producers, 95% of users of manufactured products, 73% of citizens; on the other hand, 55% of EU importers and their associations consider the effect beneficial with 38% seeing it as detrimental, among other respondents, 52% see the effect as detrimental and 41% as beneficial);

-    on the EU economy as a whole. This would be very detrimental according to 93,4% of all respondents, 97% of EU producers and their associations, 56% of non-EU producers, 94% of users of manufactured products, 80% of citizens and 60% of other respondents; on the other hand, 50% of EU importers and their associations consider the effect beneficial with 42% seeing it as detrimental);

-     on the environment. This option would be negative according to 95,6% of all respondents, 98% of EU producers and their associations, 59% of non-EU producers, 96% of users of manufactured products, 90% of citizens and 57% of other respondents; among EU importers and their associations, the largest portion of 43% does not know whether the effects would be positive or negative);

-    on investment decisions by the respective respondent: this option would have a negative effect according to 95% of all respondents, 98% of EU producers and their associations, 58% of non-EU producers, 96% of users of manufactured products; among EU importers and their associations, 50% consider such effect as positive and 41% as negative;

-    on effects on SME's: the impact of this option would be negative according to 95% of all respondents, 98% of EU producers and their associations, 60% of non-EU producers, 97% of users of manufactured products, 87% of citizens and 60% of other respondents; among EU importers and their associations, 50% consider the effect as potentially positive, with 45% seeing it as negative).

-    Finally, a clear majority of respondents considered that SME's would be affected more than large companies by such change in methodology. This view was held by 71,1% of all respondents 46 , 71% of EU producers and their associations, 72% of EU importers and their associations, 56% of non-EU producers, 96% of users of manufactured products, 77% of citizens and 55% of other respondents).

IV.1.2 Alternative methods to calculate dumping – option 3

With regard to the possibility to “grandfather” existing measures (option 3.1.), 93,5% of the respondents considers that exempting existing measures from the application of the "standard dumping methodology" would not be effective in lessening its negative impact on the EU economy, on the job situation in the EU, as well as on users and consumers.

With regard to the strengthening of the existing rules, 95,6% supported this idea, which is based on the possibility to reject costs or prices in case of significant distortions.

However, at the same time, a vast majority of respondents (88,3%) takes the position that strengthening of existing rules or introducing new rules would not allow the EU to effectively deal with distortions in anti-dumping investigations and dumping margin calculations. In that respect, 92,8% of respondents submit that strengthening of existing rules or introducing new rules would not be effective in reducing any negative impact resulting from significant distortions of costs/prices in the exporting market on the on the EU economy, on the job situation in the EU, as well as on users and consumers.

Concerning the application of the lesser duty rule, an issue falling in the remit of the TDI modernisation proposal, 95,3% of respondents express the view that the lesser duty rule should no longer be applied in anti-dumping/anti-subsidy investigations where there are significant cost/price distortions in the exporting country. At the same time, 94% of the respondents submits that the non-application of the lesser duty rule in situations of significant distortions of costs/prices in the exporting market would not be an effective way of reducing any negative impact on the on the EU economy, on the job situation in the EU, as well as on users and consumers.

Finally, 95,4% of all respondents takes the position that anti-subsidy investigation should in future cover all subsidies found in the course of an ongoing investigation. However, 60% of respondents consider that inclusion of subsidy schemes found in the course of an investigation would not reduce the negative effects of a possible change of methodology in a parallel anti-dumping investigation. At the same time, 35,5% consider that such inclusion would partially help to reduce the negative effect.

IV.2. E-mails and letters expressing concerns about certain aspects of the online consultation

A number of stakeholders submitted their position by means of an identical template e-mail, enclosing the reply to the on-line questionnaire and additional comments. There were 116 such documents.

In these replies, stakeholders took a negative stance with regard to a possible change in the methodology of dumping calculation towards the application of the “standard methodology”, emphasising the high stakes for the respective industries as well as expressing concerns that the EU's anti-dumping system would be rendered ineffective by such a change of methodology. In turn, this would result in a negative impact on EU jobs, growth, investments, innovations and SMEs.

The stakeholders also expressed criticism with regard to the public consultation. They objected to the fact that the online questionnaire only contains closed-end questions. They alleged that the baseline option – is presented in the questionnaire in a way that it leads to its rejection upfront. They also objected to the fact that there are only three options for consideration in the questionnaire and that stakeholders cannot comment on the results and underlying methodology of the economic study which is being carried out by independent economic experts. In view of the above alleged shortcomings of the online consultation, a number of stakeholders chose to include additional comments in their questionnaire submissions to illustrate their points of view.

These additional comments noted amongst others that unfair trade practices could result in China gaining a dominant position in the EU, increasing EU dependency on imports and worsening the trade balance with China. This would create product shortages and a consequent lack of competitive choice for EU consumers and fewer alternative sources for EU importers. There would also be price increases for consumers. They also put forward that there would be a risk of losing know-how, erosion of research and innovation and a decline in quality products available on the market, whilst prices would rise. Furthermore, a continuation in the outsourcing of production of goods outside the EU could threaten the compliance with EU standards on quality, safety, labour rights, intellectual property rights, as well as with specific legislation such as the REACH framework.

It was also noted that the significant imports from China would contribute to climate change, as more goods would be shipped from China to the EU, increasing CO2 output. The increasing imports would thus increase carbon footprint. Chinese environmental legislation is not yet as strict as in the EU, causing further damage to the environment. Finally, fewer investments would be made by the EU industry as that there would be no longer any sufficient protection from unfair competition, and SMEs would find it even harder to make use of the EU's trade defence system. SMEs are not well-equipped with resources to face unfair trade and many would be forced to shut down in the face of increased unfair trade.

The stakeholders further submit that the "standard methodology" would be disastrous for the effectiveness of the trade defence system. In their view, the anti-dumping instrument is the only efficient trade defence tool that is readily available. The anti-subsidy instrument is not viable given the lack of transparency on the Chinese side. Moreover, the anti-subsidy instrument is already hard to access for SMEs and they will be even less likely to make use of the trade defence instrument if the methodology was to be changed.

IV.3. E-mails and letters commenting on various substantive aspects

A number of stakeholders chose to present their views on specific aspects of the issue by submitting additional e-mails and letters going beyond the structure of the online questionnaire. There were 48 such documents.

Among these stakeholders, 12 expressed themselves in favour of changing the methodology. They took the view that new jobs would be created in the EU and that the change would have a beneficial effect on SME's and the EU industry in general. Others submitted that it was important to avoid a strain in trade relations with China and that, consequently, the change in methodology would be the right course of action. One submission noted that the situation in each sector needs to be assessed on its own merit rather than on a country-wide basis and noted that a change in methodology on a sectorial basis could achieve this.

36 stakeholders took a negative stance towards a possible change of methodology highlighted that several hundreds of thousands or millions of jobs would be at risk if the EU would change the methodology, some indicating that China cannot be considered a market economy given the five technical criteria and that a change in methodology could have adverse consequences for the EU industry and economy as a whole, as there would be no level playing field. A number of stakeholders expressed their concern about the survival of their particular industry in the face of a surge of cheap imports on the EU market if the methodology was to be changed. According to these stakeholders, EU producers would face unfair conditions and their market shares would be severely reduced.

IV.4. Position papers

A number of stakeholders expressed their views on the possible change of methodology in dedicated position papers. There were 19 such submissions. Whilst many voice their concerns on the potential effect of a change towards the “standard methodology” could have on the industry and the future effectiveness of trade defence instruments, others also point out that not changing the methodology could have a negative effect on the relationship between the EU and China.

Those in favour of changing the methodology argue there is a clear commitment to grant MES in China's Accession Protocol to the WTO. According to these stakeholders, good trade relations with China are necessary for the EU's economy. The potential damage resulting from not changing the methodology needs to be taken into account. Changing the methodology would not lead to the EU not being in position to defend itself against unfair trading practices from China.

Those taking a more neutral position call for legal clarification on whether the EU is legally bound by international law to change the methodology. If there is no binding obligation, they note, the EU's decision should be linked to the fulfilment of the technical criteria for market economy as currently laid down in the relevant trade defence legislation.

The majority of position papers take a stand against a possible change in methodology. A number of stakeholders argue that Article 15(a)(ii) of the China's Accession Protocol to the WTO does not entail an automatic acknowledgement of market economy status and that the EU should not do so until China can prove beyond reasonable doubt that it fulfils the necessary criteria to be considered a market economy. Some point out the fact that China has not provided any new information since 2011 on its progress toward becoming a market economy and call for an assessment by the EU of the current status of these five criteria in China.

Many contend a unilateral decision of the EU to change the methodology would have severe consequences for growth, employment, investment, job creation and manufacturing. It would render trade defence instruments less effective, leaving the EU industry defenceless, its survival threatened. Some note that a decision on this issue should be taken with the EU's key trading partners and point out that among those partners there is no agreement to the end that Article 15(a)(ii) of China's Accession Protocol to the WTO would automatically entails granting of market economy status.

Annex 2.1

Stakeholder Conference - report

Executive summary

DG Trade organised a stakeholder conference in the framework of the Impact Assessment being carried out by the European Commission regarding a possible change in the methodology to establish dumping in trade defence investigations concerning the People’s Republic of China (‘China’).

The aim of the conference was to allow stakeholders to be heard and exchange views on this important issue of the EU’s trade defence system. All the elements brought forward during the conference will serve the Commission services as an important additional source of information to be taken into account in the Impact Assessment.

The conference was attended by around 300 participants and around 30 speakers, representing a large variety of stakeholders, intervened. Commissioner Malmström gave an introductory speech followed by questions and answers. The conference was chaired by L. Rubinacci (Director, Directorate H, DG Trade).

The stakeholder representation was overall balanced and included EU producers and producer associations, EU importers, traders, users and their associations, MEPs, trade unions, the Chinese mission and chamber of commerce, and lawyers. The views expressed were balanced and covered the most relevant issues at stake in view of a possible change of methodology, in particular:

Some stakeholders were of the opinion that following the expiry of certain provisions of Section 15 of China’s Protocol of Accession to the WTO, the EU had a legal obligation to change the methodology, when calculating the dumping margin in cases involving China (mainly the Chinese mission, lawyers, traders). By not changing the methodology the EU would be in breach of its WTO obligations and thus liable to legal challenges. Other stakeholders (mostly Union producers and some lawyers) did not think that that was the case.

Some stakeholders were of the opinion that the current EU TDI system worked well and nothing should be changed in order to ensure its continued effectiveness. Others, however, claimed that due to the lesser duty rule, duty levels currently applied were insufficient in certain cases, and put EU industry at a competitive disadvantage, as compared to competitors in other countries, who do not apply the lesser duty rule.

Some stakeholders claimed that applying the standard methodology would create significant problems especially for Union producers. Dumping margins and duty levels calculated on the basis of prices and costs in China would be too low in order to offset the injury caused to the EU industry by dumped imports from China, in particular due to the various distortions existing in the Chinese market. A very concrete threat of injury, due to the significant overcapacities of Chinese industries in many sectors, was also highlighted in this context.

Other stakeholders were of the opinion that the current methodology (based on an analogue country) was inappropriate, as depending on which analogue country is used, dumping margins can vary significantly. Furthermore, in many cases, the proxy used is one producer in one country, which often does not reflect the situation in the export market concerned and leads to inflated dumping margins.

Regarding the various elements of option three (grandfathering, dealing with distortions, anti-subsidy element) many stakeholders needed clarification and were concerned about its legality and feasibility in practice.

The Commission listened to all the arguments, replied to questions and clarified certain issues. However, many questions could not be answered at this stage, because the Impact Assessment, to which the conference provides important input, is still ongoing. Only at the end of that process, the answers to all the questions will be available and the best possible way forward will be defined.

individual interventions

Commissioner Malmström’s speech focused on the need for the EU to take a decision as to how to react to the expiry of certain provisions of Section 15 of China’s Protocol of Accession to the WTO. She recalled the main options: (i) do nothing, (ii) change the calculation methodology, or, (iii) change the methodology in combination with accompanying measures. She reminded participants that every option has consequences and costs. Doing nothing could lead to friction with China, disputes and resulting uncertainty. By doing nothing the EU would hand over its democratic rights to act to a Panel in Geneva. Changing the methodology would have costs for producers but also benefits for importers and users.

Questions put to Commissioner Malmström centred around the legal consequences of options 1 and 3, the consequences of the Biodiesel ruling, the EU should coordinate with other WTO members (e.g. US) before taking a decision, the link between TDI modernisation and market economy status (‘MES’) China, if any, and the steel communication, the very low AD measures imposed by the EU as compared to other users (e.g. US).

Industry and industry associations

AEGIS Europe explained that AEGIS represents 30 EU manufacturers and associations with a turnover of around 500 billion. Granting MES would render the TDI ineffective and result in job losses in the range of 300.000. China does not play by the rules since, of the five MES criteria, only one has been fulfilled. This is reflected in the high number of measures (80% of measures in force worldwide concern China). The burden of proof to show that it is a market economy is on China. There is no legal obligation to grant MES because article 15(d) remains in force. The EU needs to coordinate with the US. Any methodology using Chinese prices and costs would result in no dumping margins. AS will not solve the problem as subsidy schemes are not transparent and often not specific.

BUSINESSEUROPE recalled the position paper of December 2015 and that Businesseurope’s position is balanced given the various interests it represents. Businesseurope highlighted that WTO and EU rules must be respected and that the expiry of certain sections of China’s Accession Protocol does not lead to an automatic granting of MES. The Impact Assessment needs to take into account the real situation in China. The EU should coordinate with the US and Japan to avoid any trade divergence. The TDI in place are effective mechanisms to defend the competitiveness of EU industry, MES has a great potential to negatively affect this. The relationship with China is complex and a balanced approach is necessary.

EUROFER advocated for a general move to increase the effectiveness of trade defence. Eurofer underlined the massive overcapacities in China (in steel 400 mill tonnes, which correspond to twice EU consumption) and that Chinese prices are below variable costs. This is the direct result of the Chinese planned economy and subsidisation. The EU is suffering most from this development as imports from China increased by 140% since 2013 and prices decreased by 50%. Other partners have steel import tariffs and minimum import prices in place (India) or very high trade defence measures (US). Consequently, these factors combined with the lesser duty rule and the little impact of AS cases, the EU industry suffers from a significant competitive disadvantage. If MES were granted dumping margins would be very low and often lower than the injury margin, thus the removal of the lesser duty rule (‘LDR’) would become irrelevant.

Cerame-Unie explained that Cerame-Unie represents around 200.000 direct jobs of which around 100.000 relate to products currently covered by AD measures. Around one third of the EU production is exported. 80% of producing companies are SMEs. Main products are sanitary ware, tableware, wall and floor tiles and refractories. Ceram-Unie said that it is not only the direct jobs that have to be taken into account but also indirect jobs and the whole EU value chain, e.g. there are 6000 jobs in Italy related only to ceramic machinery. In the table ware case, the AD duties also helped saving the kaolin producers (raw material in the ceramics production) in Portugal. Between 2004 and 2011 the Chinese market share of tableware in the EU had increased from 22% to 67%. Following the imposition of the AD duty, import volumes decreased from 60 million to 20 million. The ceramics industry has still important clusters in the EU, in particular in Italy, the UK and France. Research and design are very important in the sector as the EU is the world leader in quality and durable ceramic products. Cerame-Unie urged not to weaken the instruments.

Federation of German Industries BDI considered that MES China is a tricky issue since the interests of all need to be taken into account. BDI asked that the Commission share its legal assessment with stakeholders. In case there is no legal obligation to grant MES in December 2016, it should be granted on the basis of the five criteria. China should urgently deal with its overcapacities. Close cooperation with the US is important and a common position should be reached in the context of the G7. BDI is working on a position paper. Regarding the various options, in their view option 1 bears a high risk of a trade conflict and option 2 would weaken TDI. The WTO compatibility of option 3 is doubtful and it also contains several practical problems, i.e. grandfathering is a short term solution, the LDR will become irrelevant and concerning AS, cooperation from China would be needed. BDI asked the Commission to look for more ideas than those on the table, e.g. sector solutions or a price basket instead of the analogue country methodology.

Confederation of the European Bicycle Industry highlighted that in 2015 total EU consumption was 20 million bicycles, 12 million of which were produced in the EU. The bicycle industry is the largest employer of the green industries in the EU with around 70.000 direct and indirect jobs in 20 Member States. In this context the Confederation recalled that according to an Italian study a bicycle produced in China generates up to 123 kg more CO2 than a bicycle produced in the EU. This is due to the combined effect of the CO2 emissions of the aluminium and steel production and maritime transport. Due to the EU’s deficit in the trade balance with China, 60% of containers go back to China empty. Furthermore, the Confederation reminded that TDI aim at restoring a level playing field and not at protecting an industry. In China the bicycle industry benefits from 5 year plans, which leads to huge overcapacity. Without AD duties there would be no more bicycle production in the EU. Once the industry disappears, R&D and high value added activities will also disappear.

ESTA European Steel Tube Association pointed to the problem of the enormous over capacities in China. Capacity utilisation rate of 66% in China is not viable. China agrees to tackle overcapacity on crude steel but not downstream. The five MES criteria remain relevant. Duties in the EU are too low due to the LDR and the too low target profit (3 to 5%). AS duties are largely insufficient.

Fedil Business Federation Luxembourg underlined that MES is a very important issue for the LU steel industry, which is the largest employer in LU (2000 jobs). MES should be granted in accordance with WTO and EU rules, i.e. on the basis of the five MES criteria. The Impact Assessment should not only analyse the economic impact but also the social and environmental impacts. It is estimated that CO2 emissions would increase by 43% if MES were granted. Coordination with US and others is important. If EU were to grant MES unilaterally TTIP may be put in danger.

Eurometaux represents the non-ferrous metal industry, which accounts for around 500.000 jobs and which is part of a strong value chain covering 3 million jobs in total. Eurometaux pointed to China’s overcapacities in many sectors (aluminium, copper, tin) due to State industrial policy. Granting MES would mean a license to dump. Eurometaux considered the “mitigating” measures of option 3 a smoke screen. Euromataux called for free, but fair, trade and for the modernisation of TDI in order to ensure adequate measures.

A3M, alliance of minerals, ores and metals defended similar interests as Eurometaux. A3M represents 400 companies and 80.000 jobs (SMEs and international companies). A3M explained that the French Minister Macron launched a strong initiative and welcomes the steel communication. A3M hoped that the Commission and Member States will find a solution soon and invited the Commission to liaise with the EP. The steel industry is not an industry from the past but for the future.

Polish Steel Association considered that there is no legal obligation to grant MES. Final interpretation is up to the WTO DSB. The Polish steel industry has made significant investments and restructured, which would be wasted if MES were granted. The granting of MES should be rules based, but it should not be granted for political reasons. Competiveness vis-à-vis US, Japan or Canada needs to be taken into account. Granting MES unilaterally would result in significant trade deflection from these countries to the EU. The Association was critical regarding the public consultation because it only suggests 3 options and sceptical about the effectiveness of option 3. In particular, the relevance of the LDR depends on whether it is considered in relation to MES or not. The Association reminded that AS margins in past AS cases were almost always lower than the injury margin.

DE Steel, German Steel Federation agreed with Eurofer and AEGIS. DE Steel is the biggest steel producer in the EU with 25% of total production and an important link to different value chains in various countries. German exports are steel intensive goods and represent more than half of the jobs in Germany. An export oriented industry as this is in favour of open and fair markets. Therefore, affective TDI is important. There is no legal obligation to grant MES. Coordination with US is important as granting MES unilaterally would mean significant disadvantages for the EU industry.

Czech Steel Association is a member of Eurofer and fully supports Eurofer. MES should only be granted if China meets the five criteria. Steel consumption is at the top of the list of products consumed. The Association reminded that the EU was founded on “coal and steel”.

EMPA, European Melamine Producers Association explained that melamine is a chemical used e.g. in laminate flooring or worktops. The AD duty of 65% will expire in May 2016. The US has an AD duty of 500% in place. The Association emphasised the overcapacity in China which results in a capacity utilisation rate of 55%. Furthermore, the production in China is still coal based. The Association considered that the 3 options suggested by the Commission were very narrow and further options should be provided. Regarding option 3, using Chinese prices and costs would lead to very low or 0 dumping margins and huge import volumes. The distortions are so widespread that it would be impossible to tackle them with cost adjustments.

Fertilizers Europe fully supports AEGIS. Fertilizers Europe reminded that trade defence is about international trade justice. It was created in order to protect EU industry and to avoid another 1930's situation. If no solution is found now, there will be more problems in the future. The analogue country methodology or cost adjustments seek to establish a ‘normal’ value. Cost adjustments are also applied in market economy countries. The burden of proof that it is a market economy lies with China. Fertilizers Europe reminded of TDI modernisation, is in favour of faster measures and a higher target profit. The LDR proposal would have no significance if MES were granted.

Importers, traders, users and their associations

Foreign Trade Association reminded that retailers, importers and distributors in the EU rely on imports, inter alia, from China. The use of the analogue country methodology leads to artificially high dumping margins and AD duties. The international obligation regarding MES China is clear and must lead to the abolition of the analogue country methodology. While referring to concerns raised by some stakeholders in this regard, he reminded that there are options to offset any negative consequences of granting MES (some of which could be affected by the Biodiesel report). Treating China as a market economy will not result in a flood of imports and the impact on jobs and the social impact will be much lower than claimed by some.

EuroCommerce explained that EuroCommerce represents 30 million people, 6 million companies, one job out of seven in the EU. In a rules-based trading system the legal obligation is clear. The intent of China’s Protocol of Accession to the WTO is to use the market economy methodology as of December 2016. The five MES criteria become irrelevant. The EU has means to ensure effective TDI. A proposal should be adopted as soon as possible in order to avoid WTO disputes. The analogue country methodology leads to distorted dumping margins. Free trade must work in both directions and a trade war must be avoided. TDI severely affect downstream industry and have negative effects on welfare (users and consumers), which must be taken into account.

FRUCOM recalled the experience of the canned mandarins case of 2007. Due to the analogue country methodology the duties were artificially high (higher than in the complaint). The calculation was not transparent and the process unpredictable. FRUCOM is in favour of granting MES.

WACKER Chemie AG explained that Wacker produces polysilicon, a key raw material in the solar supply chain. It is a company with global presence (around 80% of its sales are outside Germany, and around 17.000 employees). Wacker considered that trade disputes are hurdles that cause damage to all involved. Confrontation is not the way forward. The EU can still apply TDI after granting MES. The analogue country methodology results in highly inflated dumping margins. MES will not destroy jobs in the EU. Not granting MES will increase prices for users and tax payers. Good relations with China are essential. How can we expect China to play by the rules if the EU does not? The steel issue needs to be dealt with separately and should not cloud the issue of MES. Wacker called for de-escalation of the situation in view of the big progress that China has already made.

Solar Power Europe recalled that Solar Power Europe has been promoting solar energy for the past 30 years. It represents 137 members of which 8 are Chinese. Solar Power Europe referred to the solar panel case and reminded that, by using India (one small non-competitive company) as analogue country, the normal value was inflated. The whole value chain needs to be looked at. The fear of the consequences of granting MES is exaggerated. Jobs would not be lost, but to the contrary, in the solar sector 54.000 jobs could be created by 2020. The EU has already granted MES to Russia and there was no flood of imports then. Solar Power Europe called for a robust Union interest test, as 95% of the EU solar industry is hostage of a tiny part of upstream industry.

European Fastener Distributors Association (EFDA) considered that the analogue country methodology leads to unreasonable results. The duty of 85% was based on India as analogue country and was repealed following a WTO ruling. Such high duties close the market to Chinese imports, which goes against the EU’s plea for a level playing field. Granting MES would avoid inappropriate measures.

NEVIB, Dutch Association of importers of fasteners recalled that 7 years ago the sector was taken by surprise with the imposition of a very high duty, and later again, when the duty was repealed. These ups and downs create too much uncertainty in the market. NEVIB agrees that when there is dumping it needs to be tackled. NEVIB is in favour of change, in order to improve transparency, predictability and appropriateness of measures.

Lawyers

NTCM strongly criticised the consultation process as not being in line with the Commission’s better regulation rules, calling it a charade. The current methodology has to be changed. The Commission’s proposed package is incoherent and inconsistent. It cannot grant MES on one hand and move away from Chinese costs and prices on the other.

Van Bael & Bellis recalled that it was always clear that certain provisions of Section 15 would expire after 15 years. Option 3 has many WTO problems: grandfathering is incompatible with the prospective system, which is based on an investigation period in the past. That is why there is the possibility of refund and review. Regarding cost adjustments, the answer will be provided by the report in the case Biodiesel Argentina. The LDR is about injury and not about dumping and removing it can therefore not substitute for low dumping margins. The LDR is a sound feature of the EU TDI system in order not to impose duties in excess of injury. The proposal to investigate unidentified subsidies is WTO inconsistent.

Fieldfisher LLP reminded that MES is about a change in the methodology when calculating dumping in relation to China. Fieldfisher considered that the public consultation is oriented towards option 3. Fieldfisher asked what the legal obligation is, regarding the expiry of certain provisions of Section 15, if any. The US has negotiated this position in 1999 and full meaning should be given to the remains of section 15. If the EU were to grant MES, what would be the relevance of the five MES criteria?

HFW recalled the Commission position in this regard in the Fasteners dispute (2010) and expressed by Commissioner De Gucht ( 2013), where it was made clear that MES would be granted in 2016. HFW recalled that there are no clear criteria of what is a market economy and evoked that under certain circumstances the Netherlands and Belgium could also be considered as non-market economies.

DS Avocats who represents Chinese exporters in Canadian investigations recalled the Canadian system, where the domestic industry has to make an allegation of distortions in the complaint. Once the complaint is accepted the burden shifts to the exporter. The determination whether non-market conditions prevail, or not, depends on the product. The approach is an industry by industry approach on a micro and not a macro level (e.g. the aluminium sector is considered to operate under non-market economy conditions).

Philippe&Partners considered that the legal obligation is clear and cannot be subject to stakeholders’ vote. The EU cannot give in to commercial protectionism. The Commission needs to do more work in order to be able to use adjusted costs in case of distortions. Not granting MES equals inadmissible discrimination vis-à-vis China.

Others

Ms. Inmaculada Rodríuez-Piñero (MEP) criticised the public consultation as being biased towards granting MES and that it did not contain any open questions. S&D is opposed to granting MES unilaterally. The EU should coordinate with other WTO members as they all face the same issue. China is not a market economy and MES should be granted only on the basis of compliance with the five MES criteria. Furthermore, she iterated that in EU AD investigations it takes too long to impose provisional measures (unlike e. g. in the US or Brazil). The LDR should be eliminated as it puts EU industry at a competitive disadvantage as compared to other users of TDI who impose higher duties. She urged the Commission and the Member States to conclude the modernisation process.

Mr. Andres Barceló (EESC/UNESID) considered that granting MES would have a serious impact on EU jobs. He pointed to the significant Chinese overcapacities in many sectors such as glass, paper or steel, which China has acknowledged and which can, in the short term, only be addressed with effective TDI. He highlighted that the EU market was very open with the lowest duty levels (e.g. on the same product EU 16%, US 266%). He warned against trading goods for jobs. An industry exiting a market takes also other high value added activities such as R&D with it. He expressed his disappointment over the lack of transparency regarding the economic study commissioned by the EU. He concluded by inviting stakeholders to a hearing in the EESC on 5 April 2016.

IndustrieALL European Trade Union made a distinction between modernising and dismantling TDI. He welcomed the Steel Communication but highlighted that without a dumping margin, TDI becomes meaningless. IndustrieALL was very concerned about the future of the EU industry. The EU should avoid losing its industrial base to China. After granting MES, sectors such as steel, aluminium, glass or cement could be lost to China, which would reach a monopoly position and then impose its prices and standards. This would also have significant negative consequences for the environment (Chinese industry being much more polluting than the EU industry). The employment impact can be estimated between the maximalist Scott study and the minimalist Commission study, but would, in any event, be significant, with consequences for the EU social model. In this context, IndustrieALL mentioned that China signed up to only four of the eight International Labour Organisation (ILO) conventions. Moreover, if MES were granted, China would have no incentive to further reform its economy.

Chinese Mission to the EU considered that granting MES, following the expiry of certain provisions of Section 15, is a separate issue from whether China is a market economy or not. The EU must fulfil its obligations and terminate the analogue country methodology by December 2016; otherwise the EU would be in breach of WTO rules. Not granting MES would be a step back in the EU’s promotion of free trade.

China Council for the Promotion of International Trade insisted that MES is a purely technical issue related to the determination of normal value. There are no WTO rules how to determine a market economy. Certain provisions of Section 15 will expire in December 2016 and that has clear consequences. The EU has to comply with its WTO obligations and not use the analogue country methodology after December 2016. China should not be discriminated against, otherwise China will go to the WTO. By not changing the methodology the EU will endanger the EU/China relationship in particular regarding investments (e.g. in the car industry) or EU/China negotiations. The expiry of certain provisions of Section 15 is the right time to change the methodology.

China Chamber of International Commerce EU Representative office explained that the legal obligation arising from the expiry of certain provisions of Section 15 is clear. The EU can no longer apply the analogue country methodology after December 2016. The Fasteners ruling is decisive.

Annex 2.2

Consultation meeting with social partners - report

On 15 April 2016, the Commission services organised a consultation meeting with social partners in the framework of the Impact Assessment currently carried out on a possible change in the methodology to establish dumping in trade defence investigations concerning the peoples’ Republic of China.

The aim of the meeting was to provide social partners with an additional opportunity (in addition to the ongoing online consultation and the stakeholder conference which took place on 17 March) to express their views on the issue. On the employers side, the meeting was attended by representatives of BusinessEurope, UEAPME (European Association of Craft, Small and Medium-Sized Enterprises), CEEP (European Centre of Employers and Enterprises providing Public Services), EUROFER, Euromines, ECEG (European Chemical Employers Group), CEC (European Confederation of the Footwear Industry) and Sea Europe (European Ships and Maritime Equipment Association). Cross-sectoral as well as sectoral associations were therefore represented. For trade unions, ETUC, industrieAll, CGIL (Italian Labour Confederation), GSEE (General Confederation of Greek Workers) and IG Metall participated.

The interventions of the social partners as well as the subsequent discussion in the plenary meeting confirmed that the social partners follow the topic were closely and are willing to actively engage with the Commission in a constructive solution-oriented discussion. The social partners generally acknowledged in the meeting that the expiry of the relevant provisions of the Protocol in December 2016 will have to be reflected in the trade defence proceedings (i.e. the current system of calculating dumping based on an obligation to use the analogue country method cannot be continued unchanged). From this starting point, a convergence of views among the social partners emerged on the following points:

-under the Protocol, there is no automatic obligation to apply the standard method for dumping calculation, and therefore treat China like any other market economy country, post 11 December 2016;

-it is only one part of Section 15 of the Protocol that expires in December; the unions as well as the employers emphasized strongly that in their view the surviving provisions of the Protocol need to be given meaning a purpose when designing a solution;

-the EU should coordinate its approach with other major trading partners;

-the social partners are willing to actively engage in searching for solutions (they acknowledge that the current methodology also has its shortcomings, in particular in can be considered too rigid).

A number of additional points were raised, ranging from the possible impacts on trade relations with China (in particular investment) to China's role as both competitor to the EU industry as well as an important supplier.

Annex 3: Who is affected by the initiative and how?

This annex aims at:

setting out the practical implications (such as key obligations or timescale) of the initiative for a representative enterprise and/or public administration (or particular groups or individuals if directly regulated),

describing the actions that the enterprise or public authority might need to take in order to comply with the obligations under the proposed intervention and indicate wherever possible the likely costs to be incurred in meeting those obligations.

On the basis of the preferred option – Option 3 - the current anti-dumping (AD) and anti-subsidy (AS) legislation would be changed in order to provide for:

(1)an alternative calculation methodology,

(2)transition periods for existing measures,

(3)and AS schemes found in the course of the investigation would be covered by the investigation.

The enterprises affected by TDI are typically EU producers, importers, downstream industrial users, or exporting producers in third countries.

The possible changes proposed to the anti-dumping methodology do not imply any additional obligations or specific actions that the parties concerned by investigations would have to comply with. They do not impact on the investigative process as such, or on the collection of information on the basis of questionnaires. There would thus not be additional costs for parties cooperating in investigations.

The public authority carrying out TD investigations is the Commission. The proposed changes will mainly effect how the information collected during investigations is used. This will not have any major implications regarding resources or costs.

Any additional work that may occur in relation to an alternative calculation methodology will be offset by not having to investigate a producer in an analogue country (analysis of questionnaire replies, verification visit in the analogue country). The transition periods would avoid a flood of interim reviews after December 2016 which might be difficult to handle. The changes 3 and 4 do not impact on workload as they are part of investigations under current rules already (3) or would be part of the on-spot verification visit as currently carried out (4).

Annex 4    

Analytical Models Used in Preparing the Impact Assessment

The models used for this Impact Assessment is a tailor-made development for the specific purpose of the MES China analysis. It has been established by Hylke Vandenbussche and Jo Van Biesebroeck from the Catholic University of Leuven in Belgium. Both are renowned economic experts and in particular Ms. Vandenbussche is one of the world's leading researchers in the field on economic analysis of TDI.

The main indicator that the analysis produces is the employment in the firms that are directly and, via input-output relationships indirectly, affected by dumped imports from China. Other indicators, in particular GDP have not been addressed on account of the rather limited magnitude of the trade at stake compared to overall EU trade.

Below, a brief technical description of the quantitative model which is excerpted from the study informing this impact assessment:

The analysis proceeds in four consecutive steps with a natural progression, as each step takes the output of the previous step as input. The objective is to obtain an estimate for the differential employment effects on the EU if it were to grant China MES in AD investigations.

Step 1: Revisiting the expected employment effects in the 10 selected AD cases

We start with an independent assessment of the direct employment effects in the 10 anti-dumping cases the Commission selected for the purpose of this study which allowed us to use detailed (confidential) information. The reduction in AD duties under the new methodology, as calculated by the Commission, is an important input to this analysis. Our approach consists in the estimation of a partial equilibrium model that relies on two separate sets of elasticities used to construct multipliers. It involves the estimation of i) import-demand elasticities of Chinese imports on Chinese prices and ii) EU employment elasticities with respect to Chinese imports. In combination they generate an elasticity of EU employment with respect to import tariffs (percentage change in EU jobs/percentage change in tariffs on Chinese products).

Simply rescaling the estimated effects for the 10 cases to all TDI-sensitive sectors, we obtain the expected effects under Scenario 1.

Step 2: Assessing the likelihood each EU sector will face dumping by Chinese firms

To estimate the impact on the entire tradable goods sector of granting MES to China, we need to resolve two issues. The first issue is to assess for each sector in the EU how likely a random product is to suffer from Chinese dumping. We assign all current AD cases to a 4-digit HS product category and calculate what share of trade in the category is affected in these cases. We then aggregate these shares to the sectoral level of the World Input-Output Database (WIOD) to obtain a sector-specific probability that a product is subject to dumping by Chinese firms. 47

We calculate these probabilities under two scenarios. Scenario 2 represents the current situation. It relies on all existing AD measures of the EU against China. The aggregate results of Scenario 2 capture the short-term effects of the change in methodology, where we only consider the same Chinese products are dumped as before but now the assessment of anti-dumping duties by the EU will be according to market economy methodology. As it assumes that product coverage remains the same, we label this scenario as “short-run”. Scenario 3 additionally considers a possible expansion in the range of dumped products by Chinese firms. We refer to this as “long-run” effects because we now allow for the possibility of new AD-cases in the future in products that thus far have not occurred under EU TDI cases.

Step 3: Generalizing the direct employment effects of Chinese MES status for the entire economy

The second issue we need to resolve is to develop a methodology to predict employment effects that can be applied without observing the same detailed information available in the 10 cases (in step 1). We use a sector-specific semi-elasticity that measures the percentage reduction in employment for each percentage point reduction in AD duty to quantify the effect of the new methodology on EU employment. We use the average of these semi-elasticities estimated in step 1 as starting point, but adjust them for the import penetration from China and the Rest-of-the-World to allow for heterogeneous effects across sectors.

We obtain the aggregate effects by multiplying these adjusted semi-elasticities (from step 1) with the predicted reduction in AD duties (from the Commission) and the probability each sector is affected (from step 2). Using two sets of estimates for two scenarios, we obtain 4 estimates.

Step 4: Adding indirect employment effects

Finally, we estimate the indirect effects, or the effects in upstream and downstream sectors. We first discuss at a theoretical level which effects we expect and whether they are likely to magnify or cushion the direct effects. We next illustrate that the sectors where anti-dumping action against China is likely are relatively upstream, which means positive effects will be relatively important. Finally we quantify the indirect employment effects upstream and downstream exploiting the detailed information in the World Input-Output Database.

The choice of an external expert rather than an internal analysis has been made deliberately so as to provide a maximum of specific analytical expertise. As the model has been developed for this very exercise, peer-review and validation by third experts are not yet available by definition.

Uncertainties in the economic analysis are addressed by working with two alternative, complementary datasets from which to perform the first step of the analysis as described above. This allows presenting a confidence range for all quantitative results.

The analysis does not have a time dimension and therefore no baseline in the traditional sense. The reference scenario, referred to as option 1 in this impact assessment is the status quo in both legislation and practice. (For further qualifications please cf. section 5.2.1).

Annex 5

ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA

Decision of 10 November 2001

   The Ministerial Conference,

   Having regard to paragraph 2 of Article XII and paragraph 1 of Article IX of the Marrakesh Agreement Establishing the World Trade Organization, and the Decision-Making Procedures under Articles IX and XII of the Marrakesh Agreement Establishing the World Trade Organization agreed by the General Council (WT/L/93),

   Taking note of the application of the People's Republic of China for accession to the Marrakesh Agreement Establishing the World Trade Organization dated 7 December 1995,

   Noting the results of the negotiations directed toward the establishment of the terms of accession of the People's Republic of China to the Marrakesh Agreement Establishing the World Trade Organization and having prepared a Protocol on the Accession of the People's Republic of China,

   Decides as follows:

   The People's Republic of China may accede to the Marrakesh Agreement Establishing the World Trade Organization on the terms and conditions set out in the Protocol annexed to this decision.

__________

PROTOCOL ON THE ACCESSION OF

THE PEOPLE'S REPUBLIC OF CHINA

Preamble

   The World Trade Organization ("WTO"), pursuant to the approval of the Ministerial Conference of the WTO accorded under Article XII of the Marrakesh Agreement Establishing the World Trade Organization ("WTO Agreement"), and the People's Republic of China ("China"),

   Recalling that China was an original contracting party to the General Agreement on Tariffs and Trade 1947,

   Taking note that China is a signatory to the Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations,

   Taking note of the Report of the Working Party on the Accession of China in document WT/ACC/CHN/49 ("Working Party Report"),

   Having regard to the results of the negotiations concerning China's membership in the WTO,

   Agree as follows:

15.    Price Comparability in Determining Subsidies and Dumping

   Article VI of the GATT 1994, the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 ("Anti-Dumping Agreement") and the SCM Agreement shall apply in proceedings involving imports of Chinese origin into a WTO Member consistent with the following:

   (a)    In determining price comparability under Article VI of the GATT 1994 and the AntiDumping Agreement, the importing WTO Member shall use either Chinese prices or costs for the industry under investigation or a methodology that is not based on a strict comparison with domestic prices or costs in China based on the following rules:

(i)    If the producers under investigation can clearly show that market economy conditions prevail in the industry producing the like product with regard to the manufacture, production and sale of that product, the importing WTO Member shall use Chinese prices or costs for the industry under investigation in determining price comparability;

(ii)    The importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product.

   (b)    In proceedings under Parts II, III and V of the SCM Agreement, when addressing subsidies described in Articles 14(a), 14(b), 14(c) and 14(d), relevant provisions of the SCM Agreement shall apply; however, if there are special difficulties in that application, the importing WTO Member may then use methodologies for identifying and measuring the subsidy benefit which take into account the possibility that prevailing terms and conditions in China may not always be available as appropriate benchmarks. In applying such methodologies, where practicable, the importing WTO Member should adjust such prevailing terms and conditions before considering the use of terms and conditions prevailing outside China.

   (c)    The importing WTO Member shall notify methodologies used in accordance with subparagraph (a) to the Committee on Anti-Dumping Practices and shall notify methodologies used in accordance with subparagraph (b) to the Committee on Subsidies and Countervailing Measures.

   (d)    Once China has established, under the national law of the importing WTO Member, that it is a market economy, the provisions of subparagraph (a) shall be terminated provided that the importing Member's national law contains market economy criteria as of the date of accession. In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession. In addition, should China establish, pursuant to the national law of the importing WTO Member, that market economy conditions prevail in a particular industry or sector, the nonmarket economy provisions of subparagraph (a) shall no longer apply to that industry or sector.

Annex 6

Legal context of other WTO members regarding China and/or other NME countries

US

There is no US statute classifying China as a non-market economy (NME) generally. The US statute provides Department of Commerce (DOC) with significant administrative discretion for determining when a foreign country is a NME.

The legal basis for China's treatment as NME in AD cases is contained in 19 U.S.C. §1677(18), which sets out the factors which the DOC must take into consideration when making a determination regarding a country’s status as a non-market economy. The determination of NME status may be made “with respect to any foreign country at any time,” and remains effective until expressly revoked by DOC. Moreover, DOC’s determinations are not subject to judicial review. DOC has confirmed China's NME status in every AD investigation so far.

In 2006 DOC received a request from a respondent in the "lined paper" case, supported by the Chinese government, to review China's NME status. DOC then issued a memorandum with a comprehensive analysis of the NME factors, concluding that China does not meet the relevant criteria 48 to be considered a market economy.

Since the status of China is not laid down in legislation, granting MES can be done by an administrative decision by DOC, either in the context of a concrete AD case, or independently from an investigation.

As a result of the application of the non-market economy methodology to China, DOC bases the calculation of normal value for Chinese exporters on 'factors of production' selected in an appropriate foreign surrogate country. The costs of production borne by Chinese exporters are thus replaced by the value of the corresponding factor of production in the surrogate country.

Canada

In Canada, the legal basis to treat a country as a non-market economy is contained in the Special Import Measures Act (SIMA). The countries concerned are identified as a "prescribed country" under the Special Import Measures Regulations (the SIMR).

When the provisions were enacted for China and Vietnam, automatic expiry dates were included (11 December 2016 for China and 31 December 2018 for Vietnam). These expiry dates were removed in April 2013 "to ensure that Canada’s trade remedy system can continue to take into account whether these countries are operating according to market economy conditions".

Changes to the SIMR are adopted by the "Governor in Council on the recommendation of the Minister of Finance", who is the minister responsible for SIMA. Amendments to the Regulations are therefore under the control of the council of ministers headed by the Prime Minister. Changes do not need to be formally adopted by the Parliament.

Japan

Japan currently uses criteria similar to the EU to determine market economy conditions. It also has a presumption of NME treatment for China. Japan has initiated joint negotiations for a free trade agreement with China and with South Korea. Like India, it did not commit to early recognition of China's MES. Japan had already, at the time of China's request for MES in 2007, introduced an amendment to the guidelines for procedures relating to countervailing and antidumping duties, setting a December 2016 deadline for the application of NME status to China. However, the guidelines are not legally binding and can easily be modified (with no legislative procedure required).

China probably did not insist on early MES recognition from Japan, simply because Japan rarely used anti-dumping measures. The Joint Study Report, which was drafted to evaluate the FTA between Japan, China and Korea, contains a chapter on the use of trade remedy measures. In particular, the study reported that between 1995 and 2010, Japan initiated six AD investigations and applied seven AD measures in total, of which only one investigation and one measure were respectively initiated and introduced against Chinese imports. In total Japan has only one AD measure still in force against Chinese imports.

Annex 7

TDI Modernisation – the lesser duty rule

The continued effectiveness and further strengthening of the EU’s TDI is also linked to TDI modernisation and the lesser duty rule (‘LDR’).

During the public consultation, stakeholders, in particular in the steel sector, claimed that due to the LDR, duties are too low to offset injury. The negative effect of such low duties is amplified in situations of massive overcapacity in the exporting country. In such cases, the very low import prices combined with the very high import volumes disrupt the market mechanisms of supply and demand. Thus, a duty based on the injury margin, which primarily deals with price injury is insufficient to also offset the volume injury. Such situations are likely to increase in the future and compromise the effectiveness of the EU’s TDI, as many sectors with huge overcapacities in China have been identified (ref. para 2.3.3 of the main report).

As explained at the beginning (section 1 of the main report), the LDR element is part of the TDI modernisation proposal of 2013. It is proposed not to apply the LDR in cases of significant raw-material distortions. Thus, duties would in those cases not be limited to the level of the injury margin (which is not a requirement imposed by the WTO).

The effects of the non-application of the LDR in such cases was analysed in the impact assessment accompanying the TDI modernisation proposal. There, the analysis did not involve a change in the calculation methodology and was based on using the analogue country methodology for cases regarding China. Furthermore, the analysis was limited to changes in duty levels, but no employment data was available at that time.

The current initiative deals with a change in the dumping calculation methodology and its impact, in particular on jobs. In order to have a complete picture, it was decided to include in this impact assessment also an analysis of the impact of the non-application of the LDR in all cases involving China, in combination with a changed calculation methodology. The results are provided for information, in order to show the possible effects of the new methodology under option 3, also in the event that the TDI modernisation proposal would be adopted.

The impact of the non-application of the lesser duty rule (LDR) in cases involving China, in combination with a changed methodology:

While, the principle of the LDR would continue to be applied in many trade defence investigations, in case the TDI Modernisation proposal is adopted, the LDR would no longer be applied in specific cases. This would lead to higher duties in a certain number of cases and would thus more effectively offset injury (in particular injury caused by distortions, which is often not fully captured in the injury margin calculation). It would also help avoiding injury caused by trade deflection from other third countries, which do not apply the lesser duty rule and thus impose higher duties.

The analysis of the potential economic and social impact of the non-application of the LDR in cases involving China is based on the same scenario as for the first element of option 3 (i.e. recalculation of the dumping margins that would have been achieved, when using an alternative methodology). For the purpose of this analysis, it is assumed that the AD duty would always be equal to the dumping margin, even if the injury margin is lower. This would lead to AD duties that are higher than those under the current methodology, by about 7.81 percentage points. In other words the non-application of the LDR (in addition to the three elements of option 3) leads to a real increase in duty levels.

While lower AD duties are likely to result in negative effects on jobs, it would be difficult to sustain the assumption that higher AD duties would allow to create new jobs. However, in order to compare the results of the analysis of the non-application of the LDR with the results of options 2 and 3, the same analytical approach was followed.

On this basis, and for illustrative purposes, the effects of the non-application of the LDR are presented in table 7 at the aggregate level and at the MS level for the upper bound effects in table 8.    

Table 7: Illustrative range of the number of potential additionally protected jobs as a result of a change in method towards a new methodology: cost adjustment combined with a removal of the LDR, in all cases involving China, long-run

Source: Assessment of the economic impact of changing the methodology for calculating normal value in trade defence investigations against China. 21 December 2015

Table 8: illustrative upper-bound, long-run estimates of potential additionally protected jobs by EU MS as a result of a change in method towards a new methodology: cost adjustment combined with a removal of the LDR, in all cases involving China

Source: Consultants' simulations, Eurostat [lfsi_grt_a], own calculations.

A rough approximation of the results to Croatia yields about 400 jobs potentially protected additionally, including the LDR element.

(1)

The EU safeguard instrument is not subject to this Impact Assessment.

(2)

Centralised command economies such as Cuba are not relevant to the present discussion.

(3)

Council Regulation No. 1225/2009 of 30.11.2009.

(4)

Council Regulation No. 597/2009 of 11.6.2009.

(5)

The following countries are subject to a specific methodology under the current Basic AD Regulation: Vietnam and Tajikistan (who also have specific provisions in their Accession Protocols to the WTO) and Albania, Armenia, Azerbaijan, Georgia, Kyrgyzstan, Moldova, Mongolia and Kazakhstan (WTO members) and Belarus, North Korea, Turkmenistan and Uzbekistan (non-WTO members).

(6)

In the five year period from 2006 to 2010, 173 applications for MET were received and 37 were granted, in the five year period from 2011 to 2015, 75 applications were received and 4 were granted.

(7)

http://trade.ec.europa.eu/doclib/press/index.cfm?id=786

(8)

COM(2013) 191 final of 10.04.2013.

(9)

 COM(2013) 192 final of 10.04.2013.

(10)

ec.europa.eu/DocsRoom/documents/15947/attachments/1/translations/en/.../native

(11)

Section 15 of China’s Protocol of Accession is attached in annex 5.

(12)

“Evaluation of the European Union’s Trade Defence Instruments” (Contract No. SI2.581682), Evaluation Study 27
February 2012.

(13)

No official statements are available from Japan and Canada. The latter country has however changed its law in order to remove the automatic expiry date for treating China as a NME. Australia, New Zealand and South Korea have changed their methodology many years ago in the context of FTA negotiations. Brazil officially granted MES to China in 2004, but still uses the analogue country methodology.    

(14)

The five criteria are largely based on Article 2.7(c) of the Basic AD Regulation concerning individual market economy treatment determinations in specific investigations, and are the following:

1.a low degree of government influence over the allocation of resources and decisions of enterprises, whether directly or indirectly (e.g. public bodies), for example through the use of state-fixed prices, or discrimination in the tax, trade or currency regimes;

2.an absence of state-induced distortions in the operation of enterprises linked to privatisation and the use of non-market trading or compensation system;

3.the existence and implementation of a transparent and non-discriminatory company law which ensures adequate corporate governance (application of international accounting standards, protection of shareholders, public availability of accurate company information);

4.the existence and implementation of a coherent, effective and transparent set of laws which ensure the respect of property rights and the operation of a functioning bankruptcy regime;

5. the existence of a genuine financial sector which operates independently from the state and which in law and practice is subject to sufficient guarantee provisions and adequate supervision.

(15)

 Source: Annual Report on European SMEs 2014/2015

(16)

This figure is derived from the detailed information which the Commission has gathered in the context of the investigations leading to the current TD measures in place.

(17)

http://www.eurofer.org/

(18)

Article 3.5 of the Treaty on the European Union: "In its relations with the wider world, the Union shall uphold and promote its values and interests and contribute to the protection of its citizens. It shall contribute to peace, security, the sustainable development of the Earth, solidarity and mutual respect among peoples, free and fair trade, eradication of poverty and the protection of human rights, in particular the rights of the child, as well as to the strict observance and the development of international law, including respect for the principles of the United Nations Charter".

Article 206 of the Treaty on the functioning of the European Union: "By establishing a customs union in accordance with articles 28 to 32, the Union shall contribute, in the common interest, to the harmonious development of world trade, the progressive abolition of restrictions on international trade and on foreign investment, and the lowering of customs and other barriers".

Article 207 (1) of the Treaty on the functioning of the European Union: "[…] The common commercial policy shall be conducted in the context of the principles and objectives of the Union's external action".

(19)

  http://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153846.pdf , page 15

(20)

COM(2010)2020, p.3.

(21)

COM(2010)2020, p.4.

(22)

COM/2010)612, p.11

(23)

https://ec.europa.eu/priorities/index_en

(24)

 ec.europa.eu/DocsRoom/documents/15947/attachments/1/translations/en/.../native

(25)

Joint Communication to the European Parliament and the Council "Elements for a new EU strategy on China",
JOIN(2016) 30 final

(26)

http://ec.europa.eu/smart-regulation/roadmaps/docs/2016_eeas_006_eu_strategy_china_en.pdf

(27)

The full report of the external study is attached as annex 8 to this IAR.

(28)

The full range of results is available in annex 8.

(29)

http://www.transportenvironment.org/what-we-do/shipping/air-pollution-ships

(30)

 The Proposal of the Commission to modernise the TDI (COM(2013) 192 final) contains several elements to facilitate access to TDI for SMEs.

(31)

http://ec.europa.eu/agriculture/trade-analysis/monitoring-agri-food-trade/2015-12_en.pdf

(32)

     This average reduction is a combination of lower AD duties in some cases (where the investigation would still conclude Chinese firms are dumping) and elimination of AD duties altogether in other cases.

(33)

 Out of 27 MS investigated, 12 remain the exact same rank over all combinations of scenarios and parameters. Belgium changes ranks strongest, between being the 14th most strongly affected and the 18th most strongly affected, i.e. showing a span over four ranks. All other MS have a span of three or less. The ranking of sectors is somewhat stronger affected, though. The data is based on the WIOD database, which was a research project from 2009-2012. At that time it was decided to cover the 27 EU Member States and 13 other major economies in the world. Croatia joined the EU in 2013 and was thus not covered.

(34)

World Input Output Database: http://www.wiod.org/

(35)

 Eurostat [lfsq_egan22d]. Note that reasonably precise sectorial mapping between WIOD (World Input-Output
Database) and the NACE classification (Statistical classification of economic activities in the European
Community) used by Eurostat is possible for this sector but not necessarily for all others.

(36)

 http://www.epi.org/publication/eu-jobs-at-risk.

(37)

This issue arises also in relation to other countries in a similar situation

(38)

Another 4 submissions were delivered after the end of the public consultation

(39)

Another submission was delivered after the end of the public consultation

(40)

1,2% of replies were submitted by producers from China, 1% by producers from EFTA countries, replies from other countries counted for less than 1% of the replies.

(41)

Since respondents could indicate more than one area of activity in the online questionnaire, the results add to more than 100%.

(42)

Corrected for duplications, the result would be 519 large company respondents, 270 medium ones, 165 small companies and 49 micro-companies

(43)

91,1% of all respondents confirm that currently more than one product which they produce or trade is subject to anti-dumping measures. For one product, this is the case for 93,3% respondents. The level of duty in place is between 10 and 30% for the vast majority of respondents (84,6%) and it was calculated on the basis of injury margin in most cases (83,5%). The majority of respondents (58,2%) indicated that the measures currently in place are partially effective in eliminating the injury they suffered, 30,9% consider the measures from which they currently benefit as effective in eliminating the injury.

(44)

Similar replies were submitted when expanding the question on the respective sector in which the relevant undertaking is active (96% respondents consider jobs would be put at risk in their sector; only among importers to the EU and their associations, 40% are of the opinion that such change in methodology could create jobs in the sector whereas 43% see jobs potentially put at risk)

(45)

58% of non-EU producers, 96% of users of manufactured products, 82% of citizens and 57% of other respondents consider the change as potentially very detrimental.

(46)

With 26,5% of respondents taking the view the effect would be equal for SME's and larger companies.

(47)

The dumped products in the 10 AD-cases are classified in a total of 13, 4-digit HS product categories (many cases comprise a large set of products). From the detailed information of the 10 AD-cases we can ascertain that the dumped products account for 22% of the total Chinese imports into the EU in these 13, 4-digit categories. From the entire list of 52 existing AD-cases involving China, we identify all 4-digit product categories with at least one product involved in a case. In those categories we consider 22% of Chinese imports subject to TDI measures (with an adjustment for categories with multiple cases). In the remaining 4-digit categories there are currently no TDI measures against China and none of the Chinese imports is subject to TDI measures. Aggregating over all product categories suggests that 2.5% of all Chinese trade is subject to TDI measures. We opted for this methodology since it also allows us to assess the indirect employment effects using WIOD in a later phase of the analysis.

(48)

(1) currency convertibility, (2) free bargaining for wages, (3) foreign investment, (4) government ownership or control of production, (5) government control over the allocation of resources, (6) other appropriate factors.