EUROPEAN COMMISSION Brussels, 9.11.2016 SWD(2016) 370 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Possible change in the calculation methodology of dumping regarding

the People's Republic of China

(and other non-market economies) Accompanying the document Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) 2016/1036 on protection against dumped imports from countries not members of the European Union and Regulation (EU) 2016/1037 on protection against subsidised imports from countries not members of the European Union {COM(2016) 721 final}

{SWD(2016) 371 final}

{SWD(2016) 372 final}



Table of Contents

INTRODUCTION 1. THE FUNCTIONING OF THE CURRENT EU TDI SYSTEM 2. PROBLEM DEFINITION: WHAT IS THE PROBLEM AND WHY IS IT A PROBLEM? 2.1. Risks to the continued effectiveness of the EU’s TDI in relation to China 2.2. Importance of maintaining a mutually beneficial relationship with China ………11 2.3. The problem drivers 2.4. Problem tree 2.5. Identification of the stakeholders: Who is affected by the problem? 2.6. What is the EU dimension of the problem?

3. WHY SHOULD THE EU ACT? 4. OBJECTIVES: WHAT SHOULD BE ACHIEVED? 4.1. General objectives 4.2. Specific objectives 4.3. Consistency with other EU policies 5. POLICY OPTIONS: WHAT ARE THE VARIOUS OPTIONS TO ACHIEVE THE OBJECTIVES 5.1. Identifying the policy options 5.2. Description of the Policy Options 6. IMPACT ANALYSIS 6.1. Impacts of Policy Option 1 – “Baseline” 6.2. Impacts of Policy Option 2 6.3. Impacts of Policy Option 3 7. COMPARISON OF POLICY OPTIONS 7.1. How do policy options compare? 7.2. Preferred Option 8. MONITORING AND EVALUATION: How would actual impacts be monitored and evaluated?

8.1. Monitoring 8.2. Evaluation Annex 1 : Procedural information Annex 2 : Stakeholder consultation Annex 2.1: Report – Stakeholder conference Annex 2.2: Report – Social Partner meeting Annex 3: Who is affected by the change in anti-dumping methodology and how? Annex 4: Analytical models used Annex 5: Section 15 – China’s Protocol of Accession to the WTO Annex 6: Legal context of other WTO members Annex 7: TDI modernisation -LDR………………………………………...……………83 Annex 8: Independent Economic study - Confidential draft report…………………….86



INTRODUCTION Trade is an essential element in the pursuit of economic growth. In the aftermath of the economic crisis, free trade is a key factor in order to seize the opportunities that the global economy has to offer. However, in order for all stakeholders to be able to benefit from these opportunities, trade has to be based on fair conditions, i.e. not dumped or subsidised. In cases where fair trading conditions have been compromised by trade distortive practices such as dumping or subsidisation, trade defence instruments (‘TDI’) may be used, in order to restore a level playing field.

The World Trade Organisation (‘WTO’) provides the legal framework for the TDI. In particular, specific rules are laid down in the WTO Anti-dumping Agreement and the WTO Agreement on Subsidies and Countervailing Measures. Under WTO rules, anti-dumping or anti-subsidy measures, generally in the form of additional tariffs, can be imposed on products from third countries, if an investigation demonstrates that these products are dumped/subsidised and causing injury to the domestic industry. Regarding non-market economy (‘NME’) countries such as the People’s Republic of China (‘China’), a specific methodology may be applied to calculate the dumping margin. Specific provisions have been included to that effect in the Accession Protocols to the WTO of certain such NME countries. The WTO members must ensure that their national laws and practice are consistent with the WTO agreements, which are not directly applicable. In this respect, WTO rules leave some room for additional rules to be developed. Therefore, provisions in the national legislations regarding TDI, including the provisions on how to treat China and other NME countries, differ among WTO members. In the EU, the rules for the functioning of TDI are contained in the Basic Anti-dumping Regulation and the Basic Anti-subsidy Regulation. When China joined the WTO in December 2001, an arrangement concerning 'price comparability in determining subsidies and dumping' was introduced in Section 15 of the Protocol of Accession of China to the WTO. Some of the provisions included in Section 15 will expire in December 2016. According to the current EU TDI legislation, it is mandatory to use a specific methodology when calculating dumping regarding China and other NME countries. Therefore, there is a need to analyse any possible impact of the expiry of certain provisions of Section 15 on the EU trade defence instruments and in particular on the methodology to be used with regard to the calculation of dumping in cases involving China. Furthermore, there is a need to assess any impact of a possible change in methodology on the EU economy, and in particular on jobs, as a result of this expiry and/or any change in methodology. The expiry of certain provisions of Section 15 of China’s Accession Protocol in December 2016, is the trigger for possible changes in the current specific anti-dumping methodology. However, other countries that are WTO members, and where distortions prevail in the economy, could also be covered by a possible change in methodology. 1.THE FUNCTIONING OF THE CURRENT EU TDI SYSTEM In the EU’s TDI system, the initiation of investigations is normally based on complaints prepared by EU industry, which must contain sufficient prima facie evidence of the existence of dumping or subsidisation in the exporting country, and of injury suffered by the EU industry as a result. If the relevant criteria for initiation are met, an investigation is initiated. Dumping takes place when a product is exported at a price lower than its “normal value”. The normal value is the price of a product when sold on the domestic market of the exporting country. If the domestic price cannot or should not be used (e.g. if it is not in the ordinary course of trade), normal value is “constructed” on the basis of cost of production, or it is based on the export price to third countries. Domestic prices and costs are normally driven by market forces and hence reflect the actual market situation in a certain country/sector. This is why the existence and magnitude of dumping for those countries is normally based on a comparison of the export prices with actual domestic prices and costs in the exporting country This is called the ‘the standard methodology’ as set out in the WTO Anti-dumping Agreement. The EU Basic AD Regulation lists NME countries and economies in transition, such as China5, that do not or do not yet completely operate under normal market economy circumstances. In such cases, domestic prices and costs do not necessarily reflect market forces because of State interference in the economy. Such prices and costs are therefore normally considered as unreliable.

The current EU legislation mandates the investigating authority to disregard domestic prices and costs in these countries and to use the “analogue country methodology”. This means that in AD investigation concerning imports of a product originating in China or other NME countries, the prices and costs of these countries are disregarded, and prices and costs data from another country, that is a market economy (a so called ‘analogue country’) is used to establish normal value. This normal value is compared with the export prices of the Chinese products under investigation for the determination of the dumping margin. Since data from another market economy country are used, the problem of non-market distortions in the exporting country is not an issue under the analogue country methodology. The analogue country methodology is also used by other WTO members, such as Japan, but there are also other specific methodologies e.g. based on production factors, as used by the US (please see section 2.3.2. and annex 6 for more details regarding methodologies and legislation of other WTO members). Individual Chinese exporting producers (as well as those of other NME countries listed in the Basic AD Regulation that are WTO members) have the possibility to demonstrate that they operate under market economy conditions. If they provide conclusive evidence to this end, the normal value for such exporting producers may be based on their own costs and prices (so called “market economy treatment” or MET). The EU Basic AD Regulation also provides for the use of other methodologies to establish normal value in cases where a so-called “particular market situation” exists. In such cases, prices and costs are adjusted in order to allow for a fair comparison. For NME countries, as explained above, the analogue country methodology is mandatory according to the current EU legislation. Hence, a change in the use of the analogue country methodology vis-à-vis NME countries would necessitate a legislative change in the form of an amendment to the Basic AD Regulation. TDI modernisation In 2011, the Commission launched the modernisation of the EU’s TDI, in order to further improve certain areas that have been identified by stakeholders and by the Commission services in the use and practice of the instruments. An external evaluation completed in 2012 also identified certain issues in this regard. That exercise led to a communication and a legislative proposal adopted by the Commission in April 2013. The main goal of the TDI modernisation proposal is to enhance transparency, effectiveness and efficiency of the system for the benefit of all stakeholders. Specific elements of the modernisation include providing information prior to the imposition of provisional measures, reducing the duration of investigations, easier access to TDI for SME’s, or the partial non-application of the lesser duty rule in cases of raw material distortions (LDR). The latter LDR element has prevented the Council from reaching a position on the TDI modernisation proposal. What is the LDR? On the basis of the findings in an investigation and in accordance with the WTO agreements and the EU legislation and practice, the amount of dumping or subsidisation, and the level of injury are calculated to determine the level of anti-dumping (‘AD’)/anti-subsidy (‘AS’) measures, if any. An AD/AS duty can never be higher than the dumping/subsidy margin but it must be lower (at the level of the injury margin), if a lower duty is sufficient to eliminate the injury suffered by the EU industry. This principle is called the “lesser duty rule” and while it is not mandatory under WTO rules, its application is mandatory under EU legislation.

Therefore, the TDI modernisation proposal and a possible amendment to the dumping calculation methodology are different concepts. The proposed changes to the LDR under the TDI modernisation proposal do not address or affect the calculation of the dumping margin. The Commission has set out further elements for TDI modernisation in the Steel Communication. The Commission, the EP and the European Council have called for a swift completion of the work on TDI modernization. (Please find more details regarding TDI modernisation and the lesser duty rule in annex 7). 2.PROBLEM DEFINITION: WHAT IS THE PROBLEM AND WHY IS IT A PROBLEM? Following the expiry of certain provisions of China’s Protocol of Accession to the WTO a change in methodology may be required. Without recourse to the analogue country methodology, the EU’s TDI may not be as effective in relation to imports from that country (and other NME countries with distortions in their economies). In addition, the wider economic relationship with China needs to be considered (see sections 2.1 and 2.2 below). Moreover, the opacity of NME countries not only has an influence on costs and prices but creates capacities and/or overcapacities that would not exist in a market economy. Such capacities may have a negative impact on competitors in market economies and other markets. Effective TDI must be able to address such situations. This impact assessment focuses on China because certain provisions of China’s Protocol of Accession to the WTO expire in December 2016. Furthermore, China is by far the country most subject to EU TD investigations and measures, and thus also most relevant regarding the economic impact that any change in methodology would have. Currently, the EU has more than 50 trade defence measures in force regarding Chinese imports and one regarding imports from Vietnam. However, other NME countries are also covered by a possible change in the anti-dumping methodology. In the public consultation a vast majority of stakeholders stated that they are familiar with the provisions of Section 15 of China’s Protocol of Accession to the WTO and that they are aware that certain provisions of that section will expire in December 2016. Almost all respondents are aware that this expiry may result in a change in methodology when calculating dumping in cases regarding China. Please see also section 6 and annex 2 for more details regarding the public consultation. 2.1. Risks to the continued effectiveness of the EU’s TDI in relation to China

The current EU’s TDI, as described above (see section 1) normally effectively offset any injury caused by dumped/subsided imports from China. There is a need to ensure that any methodology chosen in response to the expiry of certain provisions of Section 15 of China’s Protocol of Accession to the WTO, is able to ensure the continued effectiveness of the EUs TDI. 2.1.1.Insufficient remedy for EU producers exposed to unfair competition from China and other NME countries (a) Risks of using the standard methodology Chinese authorities still exercise a significant influence on the economy, e.g. through five-year plans and the leading role of state-owned enterprises that do not always operate according to market forces. Indeed, in China, the determination of sales prices or costs of production (such as e.g. credit costs, raw materials or energy used in the production of a product) often does not follow normal market forces (see section 2.3.3 below). Because of this factor, a Chinese “normal value” established on the basis of such distorted prices or costs is not comparable to a normal value in a market economy without such influence, especially for the purposes of measuring the impact on competitors operating in international trade or in a market economy. Thus, dumping margins calculated according to the standard methodology would on a regular basis significantly understate the actual level of dumping (unless it would be determined that there is a "particular market" situation, justifying rejection of such data in favour of data from a third country). Hence, the dumping margin calculated on that basis would not reflect the full magnitude of actual dumping. This, in turn, would frustrate the very purpose and object of the Basic AD Regulation, which is to allow a duty to be imposed that is sufficiently high, to off-set the injurious dumping. Furthermore, dumping margins of Chinese exporters based on the standard methodology would in many cases be below the injury margin, which reflects the actual level of injury suffered by the EU industry as a result of the actual level of dumping (and what the European industry needs in order to redress the situation resulting from unfair trade). However, WTO rules provide that the level of duty may never be higher than the dumping margin calculated. Therefore, in many AD cases involving China, the level of the duty would be based on the lower dumping margin, which would be insufficient to offset the injury caused to the EU industry by the actual level of dumping. This would have important consequences for the effectiveness of the AD instrument, which may no longer be able to restore a level playing field in trade between China and the EU. Many stakeholders consider the low duty levels, if based on the standard methodology, as a fundamental problem. In the public consultation a vast majority of respondents considered that using the standard methodology would result in fewer AD investigations and would have an impact on the effectiveness of the TDI. The problem is amplified by the uncertainty relating to the position that other WTO Members, such as the US or Japan, may take in respect of the expiry of certain provisions of China’s WTO Accession Protocol. If they decide not to change their methodology, when calculating the dumping margin in cases involving China (as from December 2016), duty levels imposed would in many cases be higher than those of the EU, if the EU were to apply the standard methodology. As a consequence, excess volumes may be more easily diverted to the EU, as long as the EU has lower duty levels in place, than other WTO Members such as the US or Japan. Furthermore, EU industries are confronted with unfair competition from China because its industry is not subject to the same risks and constraints as investors in market economies.

In NME and economies in transition, investment decisions are often not driven by market forces, but based on broader planning by the various levels of the State. Specifically, China operates a complex system of plans at all levels of the government, often broken down to individual sectors. Thus, industries are created and sectors developed that may not exist, if it were not for the strategic investments and planning by the State. In short, such industries are not exposed (or significantly less so) to the risks associated with start-up phases or the subsequent execution of the investment projects. Therefore, they can offer goods at lower prices than private market investors and hence sell higher volumes, as they are not subject to the same constraints and risks. This sustained support from the State also allows domestic companies to engage in long term dumping and for enormous overcapacities to be built up. Under such circumstances, the standard methodology set out in the EU Basic AD Regulation does not necessarily take into account any benefits to the Chinese producers from such strategic investments, which may cause additional trade distortions. In the public consultation a large majority of respondents considered that they compete with products subject to trade distortive measures in China. This shows the importance of providing an effective remedy against such practices. Some stakeholders also claimed that because the EU is one of the most open economies in the world, the effectiveness of TDI is even more important than in other countries, which have other means of defence, such as high import tariffs, very high AD/AS duty levels, or other obstacles to trade. (b) Anti-subsidy duties do not reflect the full amount of subsidisation During anti-subsidy investigations a calculation is made, based on the applicable specific legal provisions, of the exact magnitude of subsidisation, by the exporting country and injury to EU industry. One critical problem in relation to China is the opacity of the subsidisation schemes. Such schemes are not always defined through published legislation. In addition, China has so far failed to comply with its obligation to notify its subsidy schemes to the WTO. Therefore, the AS instrument is more difficult to use for complainants than the AD instrument, resulting in fewer AS complaints and investigations, and often also in lower duties. For instance, in order to impose an AS duty, it must be demonstrated that the subsidy is specific to an enterprise or industry or group of enterprises or industries. Furthermore, under current rules, essentially only the subsidy schemes identified by the EU industry in the complaint can be investigated during the subsequent investigation by the Commission services. Any subsidy schemes that are discovered by the investigating team in the course of the investigation, which were either unknown to the EU industry at the time of lodging the complaint, or, which are entirely new schemes, are difficult to countervail because their legal status may not be clear in the EU’s law. Thus, any benefit derived by Chinese exporters from a subsidy scheme that was not identified in the complaint might not be reflected in the amount of the countervailing duty imposed by the EU. 2.1.2.Risks for the stability and continued effectiveness of existing measures

TD measures are normally imposed for a duration of five years. Before the end of the five year period, industry may request an expiry review during which the continued need for measures is examined. If the investigation shows that dumping/subsidisation and injury will likely continue or recur in the absence of measures, the existing measures will be prolonged for another five year period. WTO rules and EU legislation also allow for the possibility to request an interim review, if circumstances have changed since the original investigation and the imposition of the original definitive duty. If the relevant criteria are met, an interim review is initiated to determine whether there is a need to modify the original duty level. Such a request for an interim review can in principle be lodged during the five-year period, or together with a possible expiry review. A possible change in methodology for the calculation of the dumping margin in cases involving China could be considered to constitute a change in circumstances, which merits the initiation of an interim review. Although the expiry of certain provisions of Section 15 constitutes a change in the legal situation, in the Commission's view it does not, in itself, amount to a change in the factual circumstances and thus should not trigger an interim review. Furthermore, given the significant number of measures in force, a requirement to review all of them simultaneously would be incompatible with the principle of good administration. It would create uncertainty regarding the continuity of the measures in force and risk the administration’s ability to comply with the mandatory deadlines. 2.2.Importance of maintaining a mutually beneficial relationship with China and respond adequately to the expiry of certain provisions of Section 15 of China’s WTO Accession Protocol China expects that following the expiry of certain provisions of Section 15 of its WTO Accession Protocol, the EU will cease to label China a NME and will no longer apply the analogue country methodology in TD investigations concerning products originating in or consigned from China. China has already hinted that if the use of the analogue country methodology were to be continued as currently provided in the EU legislation, this could have negative repercussions. It could, among others, lead to litigation in the WTO and in the European Court of Justice (‘ECJ’), as well as increased TDI activity by China, as has been observed in the past.

2.3.The problem drivers

2.3.1.Expiration of certain provisions of Section 15 of China’s Accession Protocol to the WTO and a possible change in methodology for the calculation of dumping When China joined the WTO in December 2001, a transitional arrangement for its accession was introduced in Section 15 of the Protocol of Accession of China to the WTO. Section 15 (a) (ii) included in the Protocol of Accession of China will expire in December 2016. If, following this expiry, the EU legislation (Article 2.7 of the Basic AD Regulation) would be changed, this will have an impact on future investigations and may also entail changes for measures already in place, at the time of entering into force of a possible change in legislation.

2.3.2.Chinese expectations related to the expiry of certain provisions of Section 15 of

China’s Accession Protocol to the WTO With the expiry of these provisions, China expects that the EU will cease to systematically apply the analogue country methodology for anti-dumping purposes. China has voiced its expectations in this regard at several occasions and in various fora. Should this change not be applied, China could pursue this matter by way of WTO litigation. Although, China has certain concrete expectations, WTO members may react in various ways to the expiry of certain provisions of Section 15 of China’s Protocol of Accession to the WTO. While the EU is coordinating with its major partners (e.g. US and Japan) regarding anti-dumping methodologies in the light of the expiry of certain provisions of China’s Protocol of Accession to the WTO, their positions may evolve. It is important to note that the process to legally implement the change in methodology is significantly different in other countries as compared to the EU. For the EU to amend its trade defence legislation, it will require a Commission proposal through ordinary legislative procedure involving the European Parliament and the Council. This is not the case in other countries and therefore their procedures for changing law or practice are swifter. It should also be noted that, currently, the EU and US approaches with regard to non-market economies differ in several aspects. In particular, in the EU’s basic AD Regulation, the use of the analogue country methodology is an obligation regarding China and the other countries specified in that Regulation (Article 2.7(a)). Therefore, as compared to other users of the TDI vis-à-vis China, the EU is in a rather unique position, as the EU legislation mentions China specifically classifying it as a NME country. The current US legislation provides that the determination of NME status may be made “with respect to any foreign country at any time”. It is thus not directly relating to China’s Accession Protocol, and it is therefore possible that the US’s current methodology (based on 'factors of production' selected in an appropriate foreign surrogate country) might also be used after December 2016. There are indications that the US will not, for the time being, change the methodology for the calculation of the dumping margin in cases involving China. 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 a non-legally binding provision in its legislation under which it would consider granting market economy status to China from December 2016. However, Japan has made no official statement saying that it will continue to follow this guideline, and does not seem to support the automatic granting of MES to China from 2016.

Canada had introduced specific provisions in its law in 2002, with regard to China and Vietnam and a deadline, but these provisions were subsequently repealed. Thus, Canada’s trade remedy system can continue to take into account whether these countries are operating according to market economy conditions. Any change to Canada’s law in this regard does not require an approval by the Parliament. Many stakeholders emphasised that the EU should coordinate with its major trading partners in order to see how they will react to the expiry of certain provisions of Section 15 of China’s Accession Protocol. As explained above, the EU is indeed coordinating with its partners. However, due to the various calculation methodologies used and the different, and, in in many cases more flexible legislations in place, there is no “one fit for all” approach and any possible change in methodology must be tailored to the specific needs/legislations of each WTO member concerned. Please see also section 2.1.1 and a more detailed description of the systems of other WTO members in annex 6. 2.3.3.Pervasive distortions in the Chinese economy Section 15 paragraph (d) of China's Accession Protocol allows WTO members to establish, under certain circumstances, that China may become a market economy before the end of the 15-year period. Shortly after the accession of China to the WTO, a bilateral process with the EU was established in order to give China the possibility to demonstrate that it is a market economy under EU domestic rules, which comprise five criteria. On the basis of a continuous assessment, to date China has not met these five criteria. On the contrary, as assessed in the bilateral process with China until 2011, and also drawing from information gathered in AD and AS investigations carried out in China, a variety of distortions continue to exist. These include differential tax treatment, state interference e.g. in the financial sector, state policies/plans, and a variety of programs at various governmental levels that provide benefits to sectors/companies. While certain similar schemes may also exist in other WTO member countries, the sheer number and cumulative effect of Chinese schemes is unequalled, in particular as concerns the following: Various programs of tax exemption and reduction exist, these include e.g.: tax credits for the purchase of domestic equipment if a project is consistent with the industrial policy of the government of China, tax reductions if a company is recognised as a “high and new technology enterprise”, VAT exemptions and import tariff rebates for the use of imported equipment. Furthermore, a complex VAT refund system is designed to discourage exports of certain products (e.g. hot or cold rolled steel). According to the Land Administration Law of China, all land belongs to the people, and cannot be bought or sold. The law sets out the conditions by which land use rights can be sold to businesses by bidding, quotation or auction. However, there is no functioning market for the sale of land use rights and thus often the amount paid for land use rights is below the market rate. Furthermore, there are also programs aiming at providing goods, such as electricity or water, for less than an adequate price. Regarding the Chinese financial sector, fully State-owned banks with a board of directors dominated by the government of China hold the highest market share and are the predominant players in the Chinese financial market. State-owned banks are subject to legal rules which require them, inter alia, to carry out their loan business according to the needs of the national economy, provide credit support to encouraged projects or give priority to the development of high and new technology industries. Preferential loans and financial contributions in the form of debt for equity swaps, equity infusions, or disguised grants in the form of unpaid dividends are common practice. Besides the obvious advantage that Chinese producers benefit from through these various schemes, distortive practices also led to intensive capacity building and enormous overcapacities in many sectors such as solar panels, chemicals, aluminium, glass, shipbuilding, paper, ceramics, melamine, cement or steel as well as high value added industries such as automotive or semi-conductors. The overcapacity is also caused by local protectionism and the fragmentation of industries that is driven by local interests, low input prices due to government policies and a fiscal system that encourages local governments to attract excessive investment. China had for many years massive fiscal stimulus package including an unprecedentedly large lending programme. It targeted infrastructure investment, with the government-encouraged lending surge resulting mainly in the expansion of Chinese State-owned enterprises’ production capacity. This stimulus package poured credit into increasingly economically non-viable projects and increased direct and indirect subsidies to investment and manufacturing. While these policies boosted the economy in the short term, in the medium term they have led to macro-economic imbalances and distorted global markets.

Furthermore, the Chinese economy rebalances from an investment and industry driven growth model towards services. Therefore, also industries, such as non-ferrous metals, that have so far supplied mainly the domestic market, have a very strong incentive to dump their excessive and heavily subsidized production abroad, as it can be seen currently in case of steel. 2.3.4.Current provisions do not adequately deal with distortions in the Chinese economy The standard methodology (Articles 2.3 and 2.5 in the EU’s Basic AD Regulation) foresees the need to deal with distorted prices/costs but only as punctual distortions in an otherwise normally functioning economy of market factors. Thus, it is not a means to deal with economy-wide distortions, except insofar as they are demonstrated to impact specific costs. These provisions could only be used to respond to such distortions on a case-by-case basis, and it would no longer be possible to systematically have recourse to the analogue country methodology with respect to China. 2.3.5.Current rules provide only for AS schemes to be investigated in regard of which an investigation has been initiated Distortions in China regarding raw materials or energy, or distortions regarding domestic and export prices are omnipresent. Some of these distortions constitute subsidies. These distortions are proliferating and new subsidy schemes are created regularly. However, under current rules, normally, only AS programs and schemes that have been identified in the complaint have been investigated during an investigation. New schemes that are not known to the EU industry at the time of lodging a complaint can only be taken into account in the calculation of the final duty level, if the complainant extends the complaint and a new notice of initiation is published (please see also sections 2.1.1.and 2.3.3 for more details regarding subsidies).

2.4.Problem tree



Insufficient remedy for EU producers exposed to unfair competition from China and other NME countries



Risks for the stability and continued effectiveness of existing measures



2.5.Identification of the stakeholders: Who is affected by the problem?

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



Moreover, the Steel Communication of 16 March 2016 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 Chinathat 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.

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. 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. 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. 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. 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, 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. 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: Lower bound Upper bound Direct effects -117,800 -175,600 Indirect upstream effects -36,900 - 54,600 Indirect downstream effects +28,400 +28,400 Total effect -126,300 -201,800

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.

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. Direct Effect Indirect upstream Effect Indirect downstream Effect Total effect in %of total employment Austria -3 491 -1 124 582 -4 033 -0.09% Belgium -2 797 -806 460 -3 143 -0.07% Bulgaria -2 641 -947 372 -3 215 -0.09% Cyprus -138 -56 21 -173 -0.05% Czech Rep. -7 074 -2 045 1 236 -7 883 -0.15% Germany -41 663 -10 291 7 262 -44 692 -0.10% Denmark -1 642 -481 261 -1 862 -0.07% Greece -1 682 -981 295 -2 368 -0.06% Spain -11 529 -3 509 1 738 -13 299 -0.07% Estonia -508 -191 74 -625 -0.10% Finland -1 901 -577 283 -2 195 -0.09% France -17 033 -4 925 2 704 -19 254 -0.07% United Kingdom -15 226 -4 272 2 352 -17 146 -0.06% Hungary -4 184 -1 279 775 -4 689 -0.11% Ireland -1 037 -350 174 -1 214 -0.06% Italy -23 459 -6 389 3 324 -26 523 -0.11% Lithuania -908 -369 114 -1 163 -0.09% Luxemburg -67 -25 11 -81 -0.02% Latvia -577 -245 72 -751 -0.09% Malta -109 -30 16 -123 -0.07% Netherlands -3 913 -1 155 568 -4 500 -0.05% Poland -16 481 -6 769 2 538 -20 712 -0.13% Portugal -3 574 -1 155 471 -4 258 -0.09% Romania -7 375 -4 578 1 550 -10 403 -0.12% Slovakia -2 701 -841 497 -3 044 -0.14% Slovenia -1 081 -390 198 -1 273 -0.14% Sweden -2 806 -829 460 -3 175 -0.07% Total -175 597 -54 608 28 407 -201 797 -0.09% 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.

All Activities Share of Manufacturing European Union (28 countries) 226 604.5 21.9 % Czech Republic 5 109.2 36.8 % Croatia 1 575.0 26.9 % Poland 15 731.0 30.2 % Romania 8 637.8 28.6 % Slovenia 929.6 29.3 % Slovakia 2 223.2 31.1 % 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 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. 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.

Direct Effects Indirect upstream Effects Indirect downstream Effects Total effect 1-5 Agriculture -1 591 -11 566 2 106 -11 051 10-14 Mining -402 -2 360 47 -2 716 15-16 Food products -16 073 -2 246 2 140 -16 179 17-18 Textiles -2 375 -768 243 -2 900 19 Leather & footwear -1 934 -274 22 -2 186 20 Wood products -7 653 -2 381 137 -9 898 21-22 Paper products -7 111 -1 739 389 -8 460 23 Oil products -1 163 -205 73 -1 295 24 Chemicals -11 866 -2 751 1 561 -13 056 25 Rubber & plastics -12 725 -2 953 549 -15 129 26 Non-metallic minerals -12 387 -1 920 259 -14 048 27-28 Basic & fabricated metals -35 912 -14 179 7 279 -42 811 29 Machinery -21 178 -2 842 3 376 -20 644 30-33 Electrical & optical equip. -10 282 -2 118 3 591 -8 809 34-35 Transport equipment -14 570 -2 692 5 636 -11 626 36 Manufacturing NEC -18 374 -3 616 999 -20 991 Total -175 597 -54 608 28 407 -201 797 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) 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.

Lower bound Upper bound Direct effects -15,200 -22,600 Indirect upstream effects -4,700 -7,000 Indirect downstream effects +4,600 +4,600 Total effect -15,300 -25,100 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. Direct Effect Indirect upstream Effect Indirect downstream Effect Total effect in % of total employment Austria - 449 - 145 94 - 500 -0.01% Belgium - 360 - 104 74 - 390 -0.01% Bulgaria - 340 - 122 60 - 402 -0.01% Cyprus - 18 - 7 3 - 22 -0.01% Czech Rep. - 911 - 263 199 - 974 -0.02% Germany -5 362 -1 324 1 171 -5 516 -0.01% Denmark - 211 - 62 42 - 231 -0.01% Greece - 217 - 126 47 - 296 -0.01% Spain -1 484 - 452 280 -1 656 -0.01% Estonia - 65 - 25 12 - 78 -0.01% Finland - 245 - 74 46 - 273 -0.01% France -2 192 - 634 436 -2 391 -0.01% United Kingdom -1 960 - 550 379 -2 130 -0.01% Hungary - 539 - 165 125 - 578 -0.01% Ireland - 134 - 45 28 - 151 -0.01% Italy -3 019 - 822 536 -3 306 -0.01% Lithuania - 117 - 48 18 - 146 -0.01% Luxemburg - 9 - 3 2 - 10 0.00% Latvia - 74 - 32 12 - 94 -0.01% Malta - 14 - 4 3 - 15 -0.01% Netherlands - 504 - 149 92 - 561 -0.01% Poland -2 121 - 872 409 -2 584 -0.02% Portugal - 460 - 149 76 - 533 -0.01% Romania - 949 - 590 250 -1 289 -0.01% Slovakia - 348 - 108 80 - 376 -0.02% Slovenia - 139 - 50 32 - 157 -0.02% Sweden - 361 - 107 74 - 394 -0.01% Total -22 601 -7 031 4 579 -25 052 -0.01% 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 complementar