[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 10.7.2009

COM(2009) 356 final

SIXTH ANNUAL REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT

OVERVIEW OF THIRD COUNTRY TRADE DEFENCE ACTIONS AGAINST THE COMMUNITY (STATISTICS UP TO 31 DECEMBER 2008 BUT COMMENTARY ON CASES AND TEXT IS UPDATED TO MARCH 2009) {SEC(2009) 958}

SIXTH ANNUAL REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT

OVERVIEW OF THIRD COUNTRY TRADE DEFENCE ACTIONS AGAINST THE COMMUNITY (STATISTICS UP TO 31 DECEMBER 2008 BUT COMMENTARY ON CASES AND TEXT IS UPDATED TO MARCH 2009)

Executive summary

The number of trade defence measures in force against the EU at the end of 2008 decreased slightly compared to the previous year. This is due to the fact that there had been a high number of initiations in 2001 and consequently measures in 2002/2003, many of which expired in 2008. This number is expected to increase given the acceleration of initiations of new investigations in the last months of 2008 and the first months of 2009. The Commission continued to closely monitor this activity, to provide assistance to the EU industry concerned and to intervene where appropriate. Positive results were achieved this year. However, the current financial and economic crisis will constitute an increasing temptation for many third countries to apply the instruments in a WTO inconsistent way which is not conducive to the promotion of open trade. Against this backdrop, the Commission's activity to monitor third country actions, to encourage international cooperation and coordination and to promote increased disciplines when using trade defence instruments is of crucial importance.

1. INTRODUCTION

In last year's reports the Commission welcomed the decreasing trend of the number of trade defence measures against the EU or its Member States, but also concluded that a close monitoring of those actions was still necessary given the persisting weaknesses identified in third country actions.

The unfolding global economic crisis was certainly the striking event of 2008, and this naturally negatively affected the situation of many economic operators worldwide. In this context, in its recent declaration, the G20 underscored the critical importance of rejecting protectionism and committed to refrain from raising new barriers to trade in goods, imposing new export restrictions or implementing WTO inconsistent measures.

Interestingly the number of initiations of trade defence investigations increased significantly in the last months of the year, and this trend also continued during the first months of 2009: at the end of February 2009 there were 49 on-going TDI investigations potentially affecting EU exports[1], which is an extremely high number as compared to previous years, and almost half of those new cases were initiated in the last four months of the year 2008.

Anti-dumping and countervailing measures cannot be considered as "protectionist" measures as such given that their purpose is rather to correct distortions in international trade and to restore fair trade flows. This however is no longer the case when initiations of new investigations, and any possible resulting measures, are not complying with WTO standards.

In the current situation, ensuring a legitimate market access to EU industries is more important than ever and thus the need to enforce (and even to reinforce) the standards of application of the instruments and to carefully monitor that the actions taken are legally justified remains of crucial importance.

In this context, the report below gives a detailed analysis of the overall trends, the on-going problems as well as the achievements obtained by the Commission in its monitoring activity of third country actions.

2. OVERALL TRENDS

At the end of 2008 there was a total of 133 trade defence measures in force against the European Community or its Member States, which represents a decrease in comparison with last year (147 measures). This decrease is mainly the result of the expiry of a number of measures after their 'normal' 5 years of imposition and should be seen in the light of the peak of measures in force in 2004, which almost reached 200.

The majority of these measures are still anti-dumping measures; they stand for around two thirds of the total. The decreasing trend in the number of countervailing measures continued in 2008. Similarly, the number of safeguard measures also decreased, from 36 in 2007 to 32 in 2008 but still represents a quarter of the overall measures in force.

As explained above, the decrease in measure in force is however in contrast with the level of new initiations . Indeed, the total number of initiations increased from 19 in 2007 to 33 in 2008, which is a worrying trend, especially considering that almost half of the new cases were initiated in the last two months of the year and that this trend continued in the first months of 2009. It should however be noted that half of those initiations concern safeguards, which are applied on an erga-omnes basis but do not always concern products exported by EU industries. In any event, if all those investigations materialise in measures, it is expected that the number of measures in force will increase in the future.

Those new cases mostly concern the steel industry (fasteners, hot/cold rolled coils, steel pipes) but also products such as chemicals, ceramic tiles, and harvesting machines. The main users were India, Russia, China and Brazil, but also countries which had never or hardly ever used these instruments, e.g. Kazakhstan in 2008, Israel at the beginning of 2009).

In total there were 18 new measures imposed in 2008 (2 provisional and 16 definitive measures). Brazil (4 anti-dumping measures) and Turkey (4 safeguard measures) were the most active, together with India and the USA with two anti-dumping measures each.

3. TRENDS BY COUNTRIES

The major user of the instruments against the European Community or its Member States remains the USA with 25 measures in force, i.e. almost 20% of the total. The other main countries are India (16 measures), Brazil and Turkey (11 measures each), China (9 measures), Ukraine and Mexico (8 measures each).

The measures in place in India continued to decrease (from 19 in 2007 to 16 in 2008) while the numbers for the other countries only started to decrease (Brazil and China) or remained stable (USA) as compared to 2007. The five biggest users still account for more than half of the total measures in force.

Only three countries (Turkey, Japan and Republic of Moldova ) increased the number of measures in 2008, and as far as Turkey is concerned it should be underlined that the increase of measures exclusively relates to new safeguard measures introduced in 2008.

A detailed description of the trends and main cases for each third country is given in Annex I.

4. ONGOING PROBLEMS

The Commission still faced the same problems it has identified in the past, i.e. poor standards of initiation, poor injury and causality analysis, disregard for the rights of defence of interested parties and increasing use of safeguard measures.

The acceleration of the number of initiations in the last months of 2008 (and first months of 2009), which is certainly a direct result of the economic crisis, has certainly exacerbated some of the problems identified and especially those related to the standards of initiation, rights of defence of the parties and the intensive use of the safeguard instruments.

4.1. Poor standards of initiation

As in previous years, investigations are too often initiated despite the fact that the criteria for initiation are not met, i.e . in many cases the evidence on injury is inconclusive and there is no convincing evidence of causal link. This has been especially observed in the last months of 2008. It is obvious that the financial and economic crisis had negative consequences on the situation of many industries, and those industries are trying to obtain relief wherever possible. Some industries therefore lodged complaints with a view to obtain protection under the form of trade defence measures. While recognizing the right of third countries to use the trade defence instruments, various investigations have however been initiated on the basis of unduly substantiated complaints, lacking prima facie evidence. Indeed, firstly, the negative effects of the crisis materialised only at the end of 2008, which is not a sufficiently representative period to show evidence of dumping, injury etc. Secondly, imports are very often unduly accused of causing any alleged injury because the real source of the problems is rather the overall economic downturn. Finally the objective of trade defence instruments is not to offer protectionist measures to industries, but to remove the injurious effect of unfairly traded imports or surges of imports.

In the current context it is therefore essential that investigating authorities ensure that the complaint they receive from the local industries comply with the WTO standards and includes objective, adequate and sufficient evidence. Investigating authorities should indeed refrain from unduly initiate investigations because they disrupt trade, are usually very burdensome for the companies concerned and very often also lead to unjustified measures.

According to WTO rules, no initiation can be justified on a complaint based on pure assertions, unsubstantiated by relevant evidence, as however unfortunately seems to be often the case.

4.2. Extensive use of safeguards

Safeguard continues to be extensively used: More than half of the new initiations in 2008 concerned a safeguard investigation and they still represent a quarter of the overall measures in place against the European Communities. Even if not all those investigations or measures affect EU industries (sometimes the product under consideration is not even exported from the EU), this trend is nevertheless worrying because safeguards should really be reserved to exceptional circumstances. Furthermore, safeguard measures can result in direct or indirect (trade deflection) negative effects for EU firms.

In many occasions the rather strict WTO standards are not respected by the investigating authorities when they impose such measures and they should thus be considered a protectionist measure unduly affecting fairly traded products.

When looking at the details of the new initiations and measures imposed in 2008, it appears that some countries clearly favour this choice of instrument, whereas it is considered that many occasions' country-specific instruments targeting unfair trade, i.e. anti-dumping, should rather be used.

The Commission therefore continues to express its concerns with regard to the use and impact of safeguard instruments, urging third countries to refrain from using this instrument. Where safeguard investigations can not be avoided, the Commission services' role is therefore often to try and minimise, as much as possible, the impact of any such measures on EU exports.

4.3. Procedural aspects, in particular the respect of rights of defence of parties

Despite the Commission's efforts to solve these issues, it unfortunately appears that some third countries are still neglecting the rights of defence of the parties and impose burdensome and unnecessary procedural aspects in the conduct of their investigations.

In particular the rules on confidentiality are still too often interpreted in an inappropriate way and actual data is sometimes not disclosed and/or not even indexed or summarised when there is in fact no risk of divulging confidential information. This is for example the case when aggregated actual injury indicators are not disclosed although they relate to more than three economic operators.

It also appeared that various countries request from exporters the submission of very specific and detailed information, when it is obvious that such information is either not relevant to the dumping and injury determinations, extremely burdensome and unnecessary or even sometimes concern extremely sensitive business proprietary information.

This of course negatively affects the right of defence of the exporting industries and the other parties concerned. The Commission will therefore continue to raise these issues with relevant authorities not only in the context of individual cases, but also more generally during bilateral contacts or working groups organised with the various third countries.

5. MAIN ACHIEVEMENTS

The Commission basically has three different roles to play in the context of third country trade defence actions. The first role consists of informing and advising industries directly concerned by investigations. The second is a more general role by which the Commission closely monitors investigations carried out by third countries in order to ensure that standards are properly applied, which also includes the organisation of seminars and working groups in order to promote best practices. Finally the last role consists of directly intervening in on-going investigations in order to address weaknesses identified and ensure the best outcome for the EU industries concerned.

As far as the two first roles are concerned it is difficult to measure the achievements that were reached, but the Commission obtained very good feedback from the industries concerned as well as from the Member States, which is certainly an encouragement to continue this activity and to improve it where possible. As a matter of fact, due to the recent financial crisis and the resulting increase of third country actions, the Commission's role in providing assistance and guidance to EU industries is even more important than in the previous years.

The main achievements in 2008 were the following:

5.1. Zeroing – favourable WTO findings

In the first zeroing case, the WTO Appellate Body (AB) ruled against the United States in May 2006 and the US was given until April 2007 to comply with the findings. However, the US refused to comply fully, and the EU had to request a so-called compliance panel, which issued its report in December 2008. The EU got the Panel’s confirmation that the US cannot escape its WTO obligations by conducting annual reviews of a duty and then arguing that such reviews have "superseded" the challenged measure and can only be subject to challenge in a new dispute. Nonetheless, the EU decided to appeal this report as it disagrees with certain aspects of the Panel’s additional findings. If the final ruling in this dispute finds that the US is still not in compliance with its WTO obligations and if it does not fulfil them, then the EC will be in position to request retaliation.

In the second Zeroing case, the AB confirmed the main EU claims on appeal, rejected all grounds of appeal put forward by the US and upheld the Panel's findings that the US was in breach of its WTO obligations by applying zeroing in annual reviews. Therefore, the US is required to implement the recommendations and rulings in this dispute and may request a 'reasonable period of time' to do so. Implementation in this case involves recalculating the dumping margins in the 46 individual measures identified by the EC, without using zeroing.

5.2. Olive Oil – Mexico – Measures terminated

The WTO Panel requested by the EU found that the countervailing measures imposed by Mexico against imports of olive oil from the EU were in breach of certain WTO provisions. Those measures were terminated following the decision of a Mexican national court that endorsed the Commission's arguments that were put forward in the course of the WTO proceeding.

5.3. PVC profiles - Ukraine – Safeguard investigation terminated

The Commission closely followed this investigation given the high economic interest of the EU industry – a yearly export value of around 100 m EUR, mainly from Germany and Poland – and the weaknesses that were identified. The Commission coordinated its interventions with the EU industry and outlined the main weaknesses related to the lack of serious injury and missing causal relationship between the imports and any alleged problems of the domestic industry. These interventions proved to be successful as the case was terminated without measures on grounds of lack of determination of a serious injury.

5.4. Safeguard measures – Turkey

In the last years Turkey became one of the biggest users of safeguard measures, also affection EU products which, in some cases, were considered not to be the ones causing injury to the Turkish producers. The objective of the Commission was to simply avoid that measures be imposed and, although this could not be achieved, at least the negative economic impact of the measures could be minimised to a certain degree. Indeed, in the case concerning certain electrical appliances, almost half of the product types were excluded from any measures and in the cotton yarn case maximum thresholds were established and thereby the effective ad-valorem duty for the EU exports is decreased. Turkey did not initiate any new safeguard investigation in the second half of 2008 and the Commission remains extremely vigilant to this issue.

5.5. Glass blocks – Thailand – Duty rates reduced

This investigation was initiated in 2007 and concluded in January 2009. Thailand imposed antidumping duties against imports of glass blocks originating in the Check Republic, but following the interventions of the Commission requesting the application of the lesser duty rule, the final duty applicable to the EU exporters has been substantially reduced.

5.6. Cold-rolled steel products – Thailand – Duties revoked

The AD duties imposed in 2002 in this case ranged between 10.02% and 25.57% for EU exporters. In March 2008 the Thai investigating authorities initiated an expiry review of the measures against the EU, Japan, Taiwan and Korea. In its preliminary findings, Thailand considered prolonging the measures for all countries concerned. The Commission intervened in this case, arguing that a negative dumping margin of 41% resulting from the investigation for EU exports clearly proved that there was no likelihood of continuation or recurrence of dumping for EU exporters. The Commission closely liaised with a part of the EU exporting producers that cooperated with the investigation, which also highlighted the limited exports of the product concerned and the higher quality of the EU exports as compared to domestic production, thus resulting in a lack of injury for the Thai industry.

5.7. Dextrose monohydrate – Indonesia

Based on the provisional disclosure, the Commission intervened, in close cooperation with the industry, and obtained the exclusion of most of the product types that were exported from the EU, on the grounds that they were not injurious to the Indonesian domestic industry. This result remains however subject to confirmation by the final findings.

5.8. Steel wire ropes (South Africa) and viscose fibre (Brazil) – positive preliminary findings

In those two cases the provisional disclosures seems to indicate that our interventions may lead to a more favourable outcome for the EU exporters concerned, i.e. a lower duty in Brazil or a not duty at all in South Africa. The later is however subject to confirmation by the final findings.

5.9. Brazil: Expiry review against Greece concerning canned peaches

This case is an other good example of the positive influence that the continuous efforts of the industry and the Commission can have on an outcome of an investigation. The above mentioned review was concluded in April 2008 without the continuation of the measures. Unfortunately shortly thereafter Brazil decided to increase its customs duties on the same product within the limits of the bound rate.

5.10. MES new Member States

It is recalled that during 2007 it emerged that Brazil and Argentina continued to treat the newer EU Members States as countries that have not reached full and unconditional market economy status (MES) in the framework of anti-dumping investigations. After numerous interventions at various levels this issue was almost completely solved in 2008. It is regrettable that the solution to this problem came after such a long time, especially because of its inconceivable nature, and even more disappointing that the issue is still not totally solved in the case of Romania and Bulgaria in Brazil. The Commission nevertheless continue its efforts and hopes for a definitive solution in 2009.

6. CONCLUSION

Even if the number of trade defence measures in force against the EU or its Member States decreased in 2008, it is expected that this number will increase in the next year. Indeed, in contrast with the above reduction the trade defence activity was extremely high in 2008, and especially at the end of the year. 33 new investigations were initiated, and about half of those were opened in the last four months of the year. This trend continued in the beginning of 2009.

This trend is worrying especially because the Commission noted that in a number of cases the initiations were not legally justified, mostly because they did not show sufficient prima-facie evidence of injury or only during a very limited period of time. In addition, the rights of defence of the parties were often not fully respected.

The global economic downturn undoubtedly had negative consequences on the economic situation of many companies worldwide and it is natural that many companies try and obtain any kind of relief in those circumstances. This in it self is however not sufficient to justify the initiation of trade defence investigations, the objective of which is to correct distortions in the market and to restore fair trade flows rather than to protect industries from fair competition. Therefore, when they receive complaints, administrations of third countries should be extremely careful and live up to their international obligations, i.e. not to initiate such investigations and/or imposing trade defence measures when they are not legally justified.

In this context, the Commission closely monitored the trade defence activity of third countries, intervened very actively in the framework of on-going investigations and extensively assisted companies targeted by those actions. The achievements of this year underline the relevance of the actions undertaken by the Commission and also the importance of the cooperation with the industries and Member States as well as the need to foster bi-lateral contacts with Third Country authorities. Unfortunately those efforts did not always result in positive outcome and in many cases it is still considered that investigations lacked objectivity and that the right of defence of the parties was not adequately respected.

In a difficult economic situation, ensuring legitimate market access to EU industries is even more important and the Commission will therefore continue its efforts to assist exporters and promote high standards in trade defence investigations in order to avoid an abusive use of the instruments.

In addition to direct interventions in the framework of on-going investigations the Commission will also continue discussions on a bilateral level, e.g. in the various TDI ad hoc expert groups with a number of trade partners such as India, China, Ukraine and Korea), and organise various trainings for officials of third countries which offer another opportunity to promote high standards in trade defence matters.

[1] Those cases consist of 29 AD investigations (of which 9 expiry reviews), 19 safeguard investigations (of which 8 concern EU exports) and 1 CVD (expiry review).