EU ADD on Chinese Screws and Fasteners Unlawful

05 January 2011

Yet another defeat for the EU at the WTO.

Following on from the WTO Ruling on High Tech Goods, the EU has suffered a further defeat at the WTO. For the first time, the WTO Dispute Panel ruled in favour of a Chinese complaint against the EU in the case surrounding Anti Dumping Duties (ADD) levied by the EU on Chinese screws and fasteners.

The Facts

On 31 July 2009, China requested consultations with the EU concerning Article 9(5) of Council Regulation No. 384/96 (the EU’s Basic ADD Regulation). This Article provides that in the case of imports from non-market economies, the ADD shall be specified for the supplying country concerned (China) and not for each supplier and that an individual duty will only be specified for exporters that demonstrate that they fulfil the criteria listed in that provision.

China argued that the article violated the WTO Agreement, the GATT 1994 Agreement as well as the WTO ADD Agreement. Furthermore, China requested consultations concerning Council Regulation No. 91/2009 imposing definitive ADD on imports of certain iron or steel fasteners originating in China. China submitted that by imposing ADD on these products, the EU were acting in violation of their obligations under GATT 1994, the WTO ADD Agreement and Part I, paragraph 15 of China’s Protocol of Accession to the WTO.

The main areas of concern were the scope of the like product concerned, the extent of the domestic injury, the conduct of the injury analysis and the lack of price comparable adjustments made in the calculation of the ADD margin.

The Panel Ruling

Although the WTO Panel did not uphold all of China’s complaints, it did uphold a significant number of them.

The Panel found that the ADD measures did violate the EU’s obligations under the WTO Agreement, the ADD Agreement and the GATT 1994 Agreement. The WTO, amongst other things, criticised the EU’s calculations for determining whether the goods were being dumped at below the domestic cost incurred and also took issue with the treatment of “non-market economies” by the EU when determining ADD measures. It rejected the EU’s approach of effectively applying a single ADD rate to the whole country rather than for individual firms unless they can prove they are independent of the state.

What happens now?

As with the WTO ruling on High Tech goods, there is a theoretical and practical element as to what happens next. At first instance, both sides have 60 days to appeal the ruling. The Chinese could decide that the ruling does not go far enough and appeal but as this is the first time that the WTO has ruled in China’s favour against the EU this is highly unlikely. Alternatively the EU could appeal against the ruling although it is not clear as of yet whether it will do so. If the EU accepts the WTO ruling then it will have a year to implement its recommendations. Should it do so, the EU will have to alter its entire approach to the way it introduces ADD especially towards non-market economies.

Furthermore, the question will be raised as to existing ADD measures in place that have followed the same premise as the one in the case above. Will the EU have to amend other existing ADD measures that have been framed in the same manner and thus fall foul of the ruling or will it argue that WTO rulings do not have retrospective effect and will only seek to amend future regulations? In any case, all that we can do is to wait for the EU to decide on its next course of action.

ITS Comments

The EU has experienced a multiple battering at the WTO in 2010, having lost 3 major cases: the EU-US Airbus dispute (though this was concerned with business subsidies and not customs law and practice), the ‘High Tech Goods Dispute’ and now the ‘Fasteners and Screws Dispute.’

Non-EU commentators (as well as some EU commentators) are suggesting that an unwelcome trend is developing that a number of EU Trade Practices are (seemingly) not in tune with the EU’s international obligations. This is not only creating a dearth of litigation but is more worryingly creating an increasing air of uncertainty for businesses and practitioners alike both within and outside of the EU.

The EU has a 12-month period to implement the WTO recommendations in both customs cases but with regard to the ‘High Tech Dispute’, the EU has effectively told businesses to “carry on as normal” until new rules are developed and published. From one sense this is the natural course of action. However, from the other, businesses are resentful that they will have to continue paying additional duties that have been deemed to be unlawful. Whether these duties will be able to be reclaimed or not will be determined by the EU. The same will most probably apply with regard to the ‘Fasteners and Screws’ case.

Until new rules/regulations are published then it will be “business as normal”. It will be interesting to see how the EU responds to the ‘Fasteners and Screws’ report and in particular what will happen to the ADD regulations in place against non-market economies that have followed the same approach as the regulation that was ruled against above. Whatever happens in the next couple of weeks, the EU has got a major headache to contend with and we would not be surprised if importers pursue retrospective recoveries of duties under the “unlawful” regulations through the ECJ.

 

1An anti-dumping duty shall be imposed in the appropriate amounts in each case, on a non-discriminatory basis on imports of a product from all sources found to be dumped and causing injury, except as to imports from those sources from which undertakings under the terms of this Regulation have been accepted. The Regulation imposing the duty shall specify the duty for each supplier or, if that is impracticable, and as a general rule in the cases referred to in Article 2 (7), the supplying country concerned.”

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