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No. 56

An Important Legal Step Towards Tackling Unfair Trading Practices and Protecting the European Companies

The European Union is on the verge of implementing a new set of rules regarding trade defence. But why is this topic so important?

Firstly, these changes are supposed to provide a higher degree of protection for European companies in face of the challenges of the global economy and unfair competition from imports.

Secondly, the new set of rules brings the EU trade defence system closer to the needs of small and medium-sized enterprises (SMEs), which represent 99% of all businesses in the EU and are more vulnerable towards the unfair trading practices.

For the EPTDA members, especially those involved in the manufacturing area, the threat posed by the unfair competition from imports is huge right now.

A 2017 study confirmed that Chinese governmental interventions have triggered massive overcapacities in several metals sectors, including aluminium, lead, tin and tungsten and other materials used in manufacturing power transmissions and motion control products. This practice made Chinese imports cheaper. This is why the USA is ready to start a commercial war with China. (Read more)

So, in this troubled times, only a robust EU trade defence mechanism could guarantee a fair competition for European companies on the global market.

What is changing?

It is important to remember that an EU industry can complain to the European Commission if it suffers from unfair competition as a result of an imported product being subsidised by its country of origin or being sold in the EU at prices lower than its market value. The complaint must be supported by evidence of the unfair practice and of the economic difficulties caused by it. The European Commission investigates the allegations and, if justified, proposes anti-dumping or anti-subsidy measures.

With these new legal changes, trade defence instruments are becoming more effective, transparent and easier to use for companies. Also, in some cases, they will enable the EU to impose higher duties on dumped products. This measure will apply to cases targeting imports of unfairly subsidised or dumped products from countries where raw materials and energy prices are distorted.

On the other hand, according to the European Commission, the new rules will shorten the current 9 month investigation period for the imposition of provisional measures (to a period of 7 months, with a maximum period of 8 months; definitive duties will have to be imposed within 14 months). The companies will benefit from an early warning system that will help them adapt to the new situation in case duties are imposed (this includes a pre-disclosure period of three weeks after the information is made public during which provisional duties will not be applied). Smaller companies will also get assistance from a specific help desk, to make it easier for them to trigger and participate in trade defence proceedings. Also, the new legal framework will enable investigations to be launched without an official request from industry when there is a threat of retaliation by third countries. At least, but not the last, it will enable importers to be reimbursed of duties collected during an expiry review investigation in cases where trade defence measures not being upheld.

Multiple talks

The regulation modernising the EU's trade defence instruments (TDI) is the fruit of more than 4 years' labour, including broad consultations with multiple stakeholders and negotiations with member states and the European Parliament.

The European Council adopted last month its position on the matter, following the political agreement reached with the European Parliament in December 2017.

In coming weeks, the European Parliament will vote in plenary on the final text of the regulation. Most likely, the formal signature of the regulation will be in late May. Shortly thereafter, the new set of rules will be published in the Official Journal of the European Union and it will automatically come in force.

This is the first major review in this area since 1995 (back then, a review was needed to implement the Uruguay Round of multilateral trade negotiations*) and the European authorities considered that the TDI needed improvements after multiple talks with EU producers, importers, users, consumer groups and Member States. Also, an extensive study was conducted in order to evaluate if the EU's trade defence instruments are still efficient.

The study and the talks concluded that the the system needed improvements. Why? Firstly, there have been profound changes in the global division of labour and organisation of production over the last decade. Secondly, macroeconomic stress in the context of economic crisis has led countries to resort to extraordinary policy measures with significant implications for global trade flows. Finally, the increased use of TDI by the EU‘s trading partners, in particular by emerging economies, has led to an increasing risk of retaliation against EU producers requesting the application of TDI.

TDI and anti-dumping

The new TDI regulation is going hand-in-hand with the new anti-dumping methodology that the EU has recently introduced, because the both regulations have aimed to protect companies  in light of the changes in the global economy. The latter put up in place a methodology that offers a formula to calculate the dumping margin concerns cases where the exporting country engages in distortive practices in its economy.

*The main objectives of the Uruguay Round were:

  • to reduce agricultural subsidies
  • to lift restrictions on foreign investment
  • to begin the process of opening trade in services like banking and insurance.
  • to include the protection of intellectual property

The parties also wanted to draft a code to deal with copyright violation and other forms of intellectual property rights.

Sources and Further Reading

The European Council
The European Commission fact sheet about TDI
KTDC
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