Proposal for a Council Regulation amending Regulation (EC) No 384/96 on protection against dumped imports from countries not members of the European Community
Date: 2000-06-15
Institutions: European Commission
Subjects: anti-dumping legislation, dumping, export price, import, third country

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 15.06.2000
COM(2000) 363 final

2000/0160(ACC)

Proposal for a

COUNCIL REGULATION

amending Regulation (EC) No 384/96 on protection against dumped imports from
countries not members of the European Community

(presented by the Commission)

EXPLANATORY MEMORANDUM

REVIEW OF THE ANTI-DUMPING REGIME APPLICABLE TO RUSSIA
AND CHINA AND A PROPOSAL FOR A COUNCIL REGULATION
AMENDING COUNCIL REGULATION (EC) NO 384/96

1.

PREAMBLE

In April 1998, the Commission and the Council agreed that the special anti-dumping
regime applicable to Russia and China, along with the treatment of other countries
classed as non-market economies for anti-dumping purposes would be reviewed in
2000.

This document sets out the outcome of that review and serves as an Explanatory
Memorandum for a proposal for a Council Regulation amending Regulation (EC)
No 384/96 on protection against dumped imports from countries not members of the
European Community.

2.

1.

2.

3.

4.

EXECUTIVE SUMMARY

In April 1998 the Council amended the Basic anti-dumping Regulation to
allow, on a case-by-case basis, individual Russian and Chinese companies
the opportunity to prove that they operate in market economy conditions in
accordance with certain criteria contained in the legislation. Where they
prove this is the case, dumping calculations for the company are based on
their own domestic prices and costs. The amendment did not grant full
market economy status to Russia and China and the analogue country
approach is maintained for companies in those countries who do not meet the
market economy treatment criteria. The amendment became effective on 1
July 1998.

This treatment differs from other countries classed as non-market economies
(NMEs). In anti-dumping cases involving those countries one dumping
calculation is made for the country as a whole by comparing their export
prices with a normal value based on information from companies in a market
economy third country, the analogue country. The reason for basing normal
value on an analogue market
is to overcome the distorting effect on
prices/costs of State influence in a non-market economy.

The amendment to the legislation for Russia and China was in response to
the ongoing reforms in those countries and the fact that some Russian and
Chinese companies operate in market economy conditions and therefore their
prices and costs may be appropriate for the calculation of normal value.

It was agreed by the Commission and the Council that the special regime
would be reviewed after a period of two years in operation and that the
situation in other countries currently classed as non-market economies would
also be examined.

2

5.

6.

7.

8.

Since July 1998, only a small percentage of companies who applied for
market economy treatment were successful in proving their claim i.e. just
over 10%. However this has more to do with the economic situation in
Russia and China rather than with the criteria for market economy treatment
being too strict. Experience has shown the criteria to be a good framework to
evaluate whether or not a company operates in a market economy
environment.

Regarding the economic situation in Russia and China, while there have been
some setbacks in the economic reform process in both these countries, they
both continue making progress. It is also clear that both countries have some
way to go before they can be considered market economy countries. The
regime itself also gives a certain impetus to the reform processes in these
countries. For these reasons it is considered appropriate to continue applying
the regime to anti-dumping proceedings involving Russia and China.

In reviewing the situation in other countries currently classed as non-market
economies with a view to adapting their treatment in anti-dumping cases, the
countries can be classified into three groups. Ukraine, Vietnam and
Kazakhstan in one group, those currently classed as non-market economies
for anti-dumping purposes but who are members of the WTO in the second
i.e. Georgia, Krygystan and Mongolia and the remaining NME countries in
the third. Given the level of economic reforms in the first group and
regarding the second group, the fact that membership of the WTO pre-
supposes a certain level of economic reform it is now proposed to extend the
special anti-dumping regime to these countries. Regarding the third group of
countries it is proposed to automatically extend the ad hoc regime to any of
the remaining NME countries that join the WTO in the future.

In applying the market economy regime one problem arose relating to an
overlap between the market economy criteria, which essentially applies to the
domestic situation of a company and the criteria for so-called individual
treatment which concerns their export activities. Individual treatment means
that, for companies in NMEs who can prove that their exporting activities are
determined by market forces and not affected by State influence (based on
criteria set by the Commission), an individual dumping margin is calculated
for them based on a comparison of their own export prices with the normal
value from the analogue country. However, the overlap in the criteria has
created the anomaly that only those exporters that can fulfil the requirements
for full market economy treatment can qualify for individual treatment.
Given that the key issue for individual treatment is that export transactions
are not subject to State interference, it is proposed to amend the criteria
accordingly by focusing on those areas having a direct impact on the export
activities of the exporting company.

3

9.

The attached note sets out the following:

–

–

–

–

A review of the application of the special anti-dumping regime for
Russia and China;

Information on the economic reforms ongoing in Vietnam, Ukraine and
Kazakhstan and a proposal
to amend the Basic Anti-dumping
Regulation to extend the special market economy regime to these three
countries;

A proposal to extend the special market economy regime to those
countries currently classed as NMEs for anti-dumping purposes but
who are WTO members and to automatically extend the regime to any
other NME country when they accede to the WTO in the future;

A proposal to change the criteria for individual treatment
dumping investigations.

in anti-

4

REVIEW OF THE ANTI-DUMPING REGIME APPLICABLE TO RUSSIA
AND CHINA AND A PROPOSAL FOR A COUNCIL REGULATION
AMENDING COUNCIL REGULATION (EC) NO 384/96

A.

(1)

(2)

(3)

(4)

(5)

INTRODUCTION AND GROUNDS FOR REVIEW

In April 1998 the Council amended the Anti-dumping Regulation thereby
changing the treatment of exporting producers in Russia and P.R. China in
anti-dumping proceedings - Council Regulation (EC) No 905/981. The
amendment provided for the use of domestic prices and costs for ´normal
value`
in anti-dumping proceedings if certain criteria were met. The
amendment became effective on 1 July 1998.

At the time the amendment was adopted, a declaration in the Council minutes
stated that the regime would be reviewed two years after its entry into force.
A further declaration stated that the situation in other countries classed as
'non-market' economies, for anti-dumping purposes, would be reviewed with
a view to extending the regime to them when it is considered appropriate to
do so. Declarations to the Council minutes - Annex 1.

Up to April 1998 the EU Anti-dumping legislation categorised third
countries as either a ‘Market Economy’ (ME) or a ‘Non Market Economy’
(NME), this latter category comprised of the countries of the CIS, Albania,
China, North Korea and Vietnam. In practical terms the difference means
that for the purposes of establishing normal value in dumping investigations
concerning NMEs, information on domestic prices and costs is considered
unreliable because of the significant distorting effect of State influence and
control and the absence of meaningful market signals due to State
interference. Therefore in these cases, normal value is based on information
the analogue
from companies in another market economy country i.e.
country.

However this situation did not recognise the ongoing economic and political
reforms in countries such as China and Russia and it was considered that the
normal value calculation method automatically applied in anti-dumping
investigations concerning these two countries was no longer appropriate in
each and every anti-dumping proceeding. As a result, it was considered that
there was clear economic justification to adapt EU antidumping practice so
as to accommodate the impact of the ongoing reforms on individual
companies. Consequently the anti-dumping Regulation was amended and a
specific regime introduced for exporting companies in Russia and China.

The amendment did not confer 'market economy' status on these two
countries nor did it abolish the analogue country regime for anti-dumping
investigations concerning them. However, it introduced a regime whereby
Russian and Chinese companies could claim, on a case-by-case basis, that
they operate under market economy conditions according to 5 specific
criteria. Where those companies successfully prove their case, the normal

1

OJ L 128, 30.04.1998, p. 18.

5

B.

(6)

(7)

value is based on their own domestic prices/costs rather than on information
from companies in an analogue country.

EXPERIENCE TO DATE

The regime has been applied in 9 anti-dumping investigations concerning
China and 1 concerning Russia - Annex 2. 29 companies in total claimed
market economy treatment, 27 Chinese and 2 Russian. Only 3 Chinese
companies were granted ME treatment, representing about 10% of the total
companies which claimed ME status. The low level of claims/success by
Russian companies for market economy treatment was not
in line with
original expectations as the situation in that country looked more promising
at the time the regime was adopted than subsequently. Clearly the situation in
that country has seriously impacted on the ability of companies there to meet
the criteria.

The 5 criteria to determine whether or not a company operates in market
economy conditions allow for an objective analysis of the situation in
those specific issues
individual companies while taking into account
considered most
in anti-dumping investigations. In brief the
criteria are:

important

–

–

–

–

–

Decisions of firms are taken without significant State interference and
are made in response to market signals;

Accounts must be independently audited in line with international
accounting standards;

Production costs and the financial situation of the company is not
affected by distortions carried over from the former State-led economic
system, barter trade or compensation of debts;

Companies are subject to bankruptcy and property laws;

Exchange rate conversations carried out at market rates.

(8)

These criteria have provided an adequate framework for case-handlers to do
an analysis against a background of the two different reform processes in
Russia and China. As mentioned above, 3 companies
successfully
demonstrated that these criteria could be met. For those companies who were
refused ME treatment the main reasons were:

–

–

Restrictions on selling on the domestic market. This has proven to be
one of the main tools employed by the Chinese Government to protect
inefficient domestic industry from competition and is more extensive
than originally thought. Even where such restrictions were no longer
specified in legal documents they were still found to exist in practice in
many instances;

Significant State interference in decision making, including investment
obligations imposed by the State, compulsory use of certain raw
material suppliers, Government regulations forcing foreign invested

6

enterprises to pay 120% of the salary paid to an equivalent worker in a
State-owned company;

–

–

Absence of properly audited accounts. Many companies submitted
incomplete accounts, many accounts were either not audited at all or
not audited in line with international accounting standards and many
had inconsistent accounting policies particularly in relation to
depreciation. While accounting laws are being brought into line with
in practice the standards are only being
international standards,
implemented gradually;

Significant distortions in costs as a result of previous State involvement
in the company e.g. improper valuations or arbitrary revaluation of
assets carried over from previous State ownership of the company,
often further compounded by depreciation policies which are subject to
change and inconsistent with normal practice;

–

Barter trade was found to be common for a number of companies.

(9)

It should be noted that different companies failed to meet different criteria. In
this context particular reference is made to the anti-dumping investigation
concerning imports of quarto plates originating, inter alia, in China. In that
investigation 6 companies claimed market economy treatment. However,
while none of the companies fulfilled all the criteria on an individual basis,
as a group the six companies together demonstrated that all the criteria could
in fact be met.

Conclusion

(10)

Therefore the practical experience to date has proven that these criteria are
not only realistic and attainable but are the minimum needed to prove market
economy status. It is therefore proposed that these criteria should remain
unchanged.

C.

ECONOMIC SITUATION IN RUSSIA AND CHINA

(11)

The original Commission Communication (COM(1997) 677 final) proposing
the change to the anti-dumping legislation said:

"…What is clear, however, is that both countries (Russia and China) have
definitely moved away from a command economy..."

The following sets out a brief overview of the current economic situation in
Russia and China with a view to determine if the special anti-dumping
regime remains appropriate.

Russia

(12)

According to an assessment by the EBRD (1999), the economic and financial
crisis suffered by Russia in the second half of 1998 has had a negative effect
on the overall evolution of structural reforms. For example temporary price
controls were imposed following the August 1998 crisis although in most

7

(13)

cases these were only maintained for a few months. In addition a range of
currency restrictions was also imposed but some of these were removed
during 1999 as a condition of the new IMF programme.

However, the improvement in some of the main macroeconomic variables in
1999 has allowed progress in restructuring the Russian economy to resume.
While the privatisation process virtually stalled in late 1998/early 1999, the
process may again be started through plans by the Russian Federal Property
Fund to sell off large share packages in a range of oil and gas companies.
There have been some advances in improving tax administration with a
commitment to improve fiscal management in the context of the new IMF
agreement and the introduction of a much improved bankruptcy law. There
has also been a commitment to introduce international accounting standards
(IAS) for large companies by the end of 2000 - for smaller companies the
Russian accounting standards will gradually be adapted to IAS.

(14)

Further progress will depend on what reform policies,
if any, will be
introduced after the presidential elections which took place at the end of
March.

China

(15)

(16)

The pace of reform in China has been somewhat constrained by concerns
about its social impact particularly in terms of unemployment. The pursuit of
reform has been rendered even more difficult by the recent slowdown in
economic growth that is largely attributed to the poor health of the State-
Owned Enterprises (SOEs). However the Government’s approach is to apply
a steady reform pressure throughout the SOE system through various steps;
improved management in SOEs; a large scale restructuring of the SOE sector
through privatisation, closures and mergers; shedding of excess labour;
improvements in the financial situation of SOEs and the financial sector
through debt write off, the setting up off Asset management companies and
the banking sector being instructed to make lending decisions on the basis of
market forces and not policy considerations.

including fiscal provisions,

In the private sector the Government announced in January 2000 the
elimination of all restrictions and discriminatory regulations that impede the
private sector development,
land use rights,
import and export rights and access to stock markets. Although any change is
expected to be gradual (only a handful of some 950 listed companies are
privately held, and State banks remain weary of lending to non-State firms),
indicator of the Government’s seriousness
this is seen as an important
regarding the promotion of private sector development. The Government is
also going out of its way to promote foreign direct investment which since
1998 showed a steep decline in this area of activity.

(17) While all these developments are likely to lead to an increased pace of
reform they are not without certain short-term risks:
increase
unemployment and put a strain on the fabric of Chinese society, exposing
reformers to charges of destroying Chinese industry for the benefit of foreign
and home-grown capitalism. So while the reform process is continuing in

they will

8

China it will proceed with close reference to its social and political
consequences.

Conclusion

(18)

(19)

(20)

(21)

(22)

Clearly while both Russia and China have had setbacks in their reform
process, they both continue to move in the direction of market economy
principles. In any event the regime itself lends certain support to the policy
initiatives pursued by these countries to encourage fundamental restructuring
at the company level, including the introduction of modern accounting and
auditing systems and modern management
techniques and effective
bankruptcy legislation. In this context the regime has contributed to the
Chinese Government lifting certain domestic selling restrictions.

In the case of China, the impetus added to the economic reforms from recent
developments will help improve the economic climate ensuring that more
Chinese companies should be able to meet the ME criteria in the future.
Regarding Russia, the situation there has meant that, up to now it has proved
not possible to apply the regime in practice. However any suspension of the
be
regime would
counterproductive to the reform process in that country.

and would

the wrong

political

signal

send

Therefore it is considered appropriate to maintain the regime as it stands for
both these countries.

Our position is in line with some of our other WTO partners including
Australia and US.

It is likely that this regime will remain appropriate for Russia and China for
some time up to and after their accession to the WTO.

D.

MONITORING OF OTHER NME COUNTRIES

(23)

(24)

In April 1998, when the original amendment to the anti-dumping legislation
was adopted the Commission and the Council agreed to keep the situation in
other NME countries under review with a view to granting the special anti-
dumping regime when it was appropriate to do so.

These countries are Albania, Armenia, Azerbaijan, Belarus, Georgia,
Kazakhstan, North Korea, Kyrgyzstan, Moldavia, Mongolia, Tajikistan,
Turkmenistan, Ukraine, Uzbekistan and Vietnam. These countries can be
categorised into three groups:

i.

countries that were already singled out on the basis of their economic
reforms as possible candidates for future consideration to have the
special market economy regime applied to them and/or countries that
have requested that
the regime be applied to them i.e. Ukraine,
Vietnam and Kazakhstan;

ii.

countries currently classed as non-market economies for anti-dumping
purposes but who are members of the WTO;

9

iii.

the remaining non-market economy countries.

Ukraine

(25)

(26)

(27)

(28)

(29)

(30)

For Ukraine, their treatment in anti-dumping proceedings is a political issue
given they feel discriminated against, vis-à-vis our treatment of Russia. They
have raised the issue at every available opportunity including at ministerial
level.

Progress on reforms in Ukraine has been mixed and the Russian crisis has
had some negative impact on the situation there. There has been progress in
areas such as privatisation, deregulation, fiscal and public administrative
to some extent, private
reform and banking supervision. However,
enterprises continue to face an unstable and unfriendly regulatory
environment. Reforms in other areas especially the agriculture and energy
sectors have been slow and disappointing.

Small-scale privatisation is virtually complete through a mass scheme
launched in 1995. Of larger enterprises,
just over a quarter originally
identified for privatisation have been sold. Lack of transparency in the
procedures has meant relatively low participation by foreign or strategic
investors. However, the Government is expected to accelerate the process
this year in order to raise budget revenues and obtain foreign exchange with
which to meet its foreign debt obligations.

There has been progress in the areas of demonopolisation and deregulation
but nevertheless the regulatory environment is not particularly conducive to
the promotion of private enterprise activity. FDI is discouraged as a result of
numerous permits required to conduct business and engage in foreign trade
and companies exporting to Ukraine face a number of non tariff barriers and
discriminatory practices e.g. certain testing and certification requirements
and excise taxation.

Ukraine has introduced accountancy rules for banks and enterprises that are
(IAS) and the
compatible with International Accountancy Standards
changeover in practice is taking place gradually.

In relation to fiscal and administrative reforms, Ukraine has undertaken a
number of improvements including the elimination of certain exemptions
under the VAT regime, abolition of the special payroll tax used to finance the
Chernobyl fund as well as a reduction in public sector employment numbers.
The frequent granting of exemptions to loss-making enterprises has led to an
emergence of a black economy and an increase in barter transactions.
However the Prime Minister has promised to cut down on tax exemptions
and privileges although this has yet to be put into action. The Parliament has
blocked the adoption of a personal income tax. In the energy sector prices are
below cost-recovery levels and non-payment for energy supplies is common.

(31)

A new bankruptcy law was approved in August 1999 to take effect in 2000.
Improvements in the enforcement of bankruptcy law are needed. Regarding
property laws; private ownership of buildings, without restrictions, was
authorised in 1993; private ownership of small parcels of land permitted

10

since 1996 for Ukrainian citizens and while full private ownership of larger
plots of land is not yet possible, it has been promised for the future by the
Prime Minister.

(32) While the banking system remains weak, supervision in the sector has been
strengthened. The country has a modern and effective payments system. On
currency convertibility, in 1996 Ukraine accepted obligations imposed by the
IMF implying full convertibility of
its currency for current account
transactions. While some restrictions on currency convertibility were
imposed in 1998 in the wake of the Russian crisis, these were removed in
1999.

Vietnam

(33)

(34)

(35)

(36)

The reform process in Vietnam is continuing although the country seems to
have been particularly badly affected by the economic crisis in that region
and does not seem to be benefiting from the regional economic recovery that
is underway.

Reform in the State-owned sector started back in 1989 but progress has been
poor. However the onset of economic downturn has brought SOE reform
back to the forefront of policy priorities. The National Enterprise Reform
Committee developed a comprehensive SOE reform programme consisting
of measures aimed at diversifying ownership, restructuring and downsizing
large SOEs that are to remain in State hands and reducing the number of
SOEs that are non-viable. A number of actions were taken in 1999 in this
context; classification of SOEs using financial/economic criteria,
issuing
regulations to get rid of some small SOEs and the setting up of a
Restructuring Fund to finance the cost of worker redundancy due to the
reforms. The opening of Vietnam's first stock market
in 1999 is also
expected to help the process of privatisation.

There have been efforts to liberalise the highly restrictive foreign trade
regime and regulatory framework since 1998 and these efforts have begun to
show results. Liberalisation of trading rights and approval of an Enterprise
Law have prompted rapid growth in the number of enterprises involved in
import and export activities particularly in the private sector. However
improvements in the actual implementation of the law are needed.

The normal support structures for a functioning market economy regime are
not yet properly developed e.g. poor courts system, no accounting agencies,
and little or no information agencies. This lack of market infrastructure is a
problem for foreign investors. However a three-year agenda for banking
reform includes the introduction of international accounting standards for
banks and enterprises and this will be implemented gradually. There have
been some improvements in property law including the granting of land-use
rights to foreign companies investing in industrial and export processing
zones. The reform agenda also includes further improvements on the issue of
property laws.

(37)

The Vietnamese currency, the Dong, is not convertible. 80% of foreign
exchange proceeds have to be sold to State banks and the exchange rate is

11

managed by the central bank, which announces the average exchange rate
traded on the inter-bank market on the previous day. Enterprises are required
to surrender and convert into local currency 50% of their foreign exchange
currency balances. However this amount is decreasing - it had been 80% up
to August 1999.

(38)

In a bid to accelerate the overall reform process, individual ministries and
agencies have developed credible three year programmes for reform of State
enterprises, banks and the trade regime. While these have not yet been put in
place an implementation plan may be adopted in March or April of this year.
International donors are pushing for speedy progress.

Kazakhstan

(39)

(40)

(41)

(42)

(43)

Privatisation in Kazakhstan is underway although the State remains the most
important shareholder among large firms in transport, oil and gas sectors. A
freeze on privatisations in the oil and gas sector took place in 1997 due to a
dispute relating to the size of the stake which foreigners should be permitted
to hold. Only 50% of SMEs and 35% of large companies have already been
to re-launch the 'blue chips'
privatised. However the Government
privatisation in 2000. The privatisation strategy has been criticised for not
being based on sound market principles and in many cases the value added
by new owners of enterprises is questionable.

is set

Among the Central Asian countries, Kazakhstan has the most developed
commercial legal and regulatory environment. The legal framework is well
established although there are still substantial obstacles hindering efficient
commercial activities. In many cases detailed regulations are inadequate, and
legislation is subject to frequent changes creating confusion over the law for
both business and the tax authorities. The creation of a stable tax
enhancement of
environment
Kazakhstan’s attractiveness as a place to invest and as a trading partner.

for business would be

significant

a

The Kazakhstan authorities are committed to maintaining a liberal trade
regime. Changes to the import tariff schedule were introduced in July 1998,
lowering the weighted-average tariff to 8.9%. The number of tariff lines with
rates above 20% was also reduced. Limits on duty free imports were also
reduced. While price liberalisation is well underway, cross subsidisation
persist in the utilities sectors. Utility prices have gradually been adjusted
upward to cost recovery levels, although higher rates for business and
Government customers subsidise lower rates for households.

The currency is fully convertible for all purposes and exporters can freely
convert on a forex market that is free of Government distortions.

The purchase of land is still restricted. A new bankruptcy law was adopted in
1999. Recently accounting laws have been adopted which take account of
internationally agreed accounting principles. However it will take some time
before this law is fully implemented in practice.

12

NMEs who are members of the WTO

(44)

(45)

Two of the countries currently classed as non-market economies for anti-
dumping purposes are members of the WTO i.e. Kyrgystan and Mongolia
while Georgia’s accession is pending ratification.

In recognition of the fact that WTO membership pre-supposes a certain
degree of economic reform and trade liberalisation, and as a further incentive
towards their transition to market economies, it is proposed to extend the
special ad hoc market economy regime to imports from countries classed as
NMEs for anti-dumping purposes which are members of the WTO.

Remaining NME countries

(46)

The remaining NME countries are Albania, Armenia, Azerbaijan, Belarus,
North Korea, Moldavia, Tajikistan, Turkmenistan and Uzbekistan. Some of
these countries are in the process of negotiating their accession to the WTO.
For reasons outlined under paragraph 45 above it
is also proposed to
automatically extend the regime to imports from any of these countries in
respect of any anti-dumping investigations which are initiated following their
accession to the WTO.

Conclusion

(47)

It is difficult to establish an exact point in the reform process at which
countries could be considered for inclusion under the regime currently
applied to China and Russia. In Ukraine, Vietnam and Kazakhstan reforms
are underway and the countries are making efforts to move towards a market
economy regime. Clearly events in Russia and Asia have had a knock-on
effect on the economic situation in Ukraine and Vietnam respectively.
However there appears to be a strong political will in the countries concerned
to continue with the reform process.

(48) When comparing Ukraine, Vietnam and Kazakhstan, it is obvious that in
certain respects one or other of the countries is further progressed. However
it would be difficult to attempt to make a judgement on which of these three
countries has reached an acceptable level of reform. In any event
this
exercise is less concerned with the overall progress at a macroeconomic level
than the ability of companies to meet the market economy criteria in the anti-
dumping legislation. It should be recalled that the special market economy
regime in anti-dumping is specifically designed to examine the situation of
companies operating in countries in transition. The extent to which the actual
reforms are implemented will only be clear once the regime is applied in
anti-dumping investigations. This was certainly true in the case of Russia and
China.

(49)

Ukraine, Vietnam and Kazakhstan continue to implement the legislation to
create the necessary framework for a functioning market economy. As was
the case with Russia and China, granting the ad hoc market economy regime
will support the reform process and help fundamental restructuring at the
company level, including the implementation of accountancy, bankruptcy
to extend this regime to
and property laws. Furthermore any proposal

13

(50)

(51)

E.

(52)

(53)

(54)

Ukraine, Vietnam and Kazakhstan should interact positively with the search
for solutions to ongoing market access issues in these countries currently
causing difficulties for the EU. Moreover effective progress in resolving
those issues would also further enhance the creation of a market economy
climate in these countries and would therefore be taken into account when
granting the special anti-dumping regime to them.

It is therefore proposed to grant the special market economy regime to anti-
dumping proceedings involving Ukraine, Vietnam and Kazakhstan.

It is also considered appropriate to extend the special market economy
regime to imports from countries classed as NMEs for anti-dumping
purposes who are members of the WTO at the date of initiation of an anti-
dumping investigation.

PROBLEMS OF SUBSTANCE IN THE PRACTICAL APPLICATION
OF THE REGIME

In adopting the amendment in respect of Russia and China, the Council
endorsed the criteria (Annex 3) which an exporting producer from an NME
country had to meet in order to be granted individual treatment. Individual
treatment is granted where an exporting producer in a non-market economy
to State
country can show that
interference. Where it is granted an individual dumping margin is calculated
for the exporting producer by comparing the normal value from the analogue
country with the producer's own export prices. This is an option open to
exporting producers who may not be able to meet all the criteria for full
market economy treatment, which is granted where an exporting producer
can show that neither its domestic nor its export activities are subject to State
interference.

its export activities are not subject

However a problem arises because of considerable overlap between the
traditional individual treatment criteria and full market economy criteria and
has been severely criticised by the Chinese. This has created the illogical
situation that only those exporting producers that can fulfil the requirements
for market economy status can qualify for individual treatment.

is that
Therefore given that the important issue for individual treatment
export transactions are not subject to State interference, it seems logical and
fair to refocus the criteria for such treatment on those areas having a direct
impact on the export activities of the exporting producer. This means that the
exporter has to show that it is free to determine export prices and quantities,
as well as their terms and conditions. The claim must be submitted together
with the reply to the questionnaire. In this respect, the following criteria are
considered to be relevant in determining whether an exporting producer in an
NME should be granted individual treatment:

i)

Exporters are free to repatriate capital and profits (applicable to wholly
foreign owned firms or joint ventures).

14

ii)

Export prices and quantities, and conditions and terms of sale are freely
determined, and the majority of the shares belong to genuinely private
companies. State officials appearing on the board or
in key
management positions should be in a clear minority. The presumption
is that a State-controlled company cannot guarantee its independence
from State interference, and the burden rests with the exporter to prove
otherwise.

iii)

Exchange rate conversions are carried out at the market rate.

iv)

State interference is not such as to permit circumvention of measures if
exporters are given different rates of duty.

(55)

imposed is not

In granting individual treatment on the basis of the revised criteria the
Commission will endeavour to ensure that circumvention of any anti-
dumping measures
the
Commission would have to check the exporters’ capacity, because if its
exports are higher this could be an indication that circumvention is taking
place. In this respect, particular attention will be paid to exports made via
traders. Any change in the business licence may also indicate circumvention
and must be reported by the companies concerned. If necessary, a withdrawal
of individual treatment could ensue through an investigation.

taking place. For example,

F.

FINAL CONCLUSION AND PROPOSAL

(56)

(57)

(58)

(59)

On the basis of the foregoing it
applying the current
imports from Russia and China.

is considered appropriate to continue
regime to anti-dumping investigations concerning

The economic reforms ongoing in Ukraine, Vietnam and Kazakhstan show
that these countries have taken steps to move away from a centrally planned
economy towards an economy based on market principles. It is considered
that, in view of their ongoing progress and the fact that the special market
economy regime should interact positively both with the reform process and
the search for solutions to current EU market access problems,
is
appropriate to extend the special anti-dumping regime to them. A legislative
proposal to that effect is attached.

it

On the basis that membership of the WTO indicates a certain level of
economic reform and trade liberalisation it is proposed to extend the market
economy regime to those NME countries who are members of the WTO and
to automatically extend it to others when they become WTO members in the
future.

Finally it is proposed to base future claims for individual treatment on the
revised criteria set out under paragraph 54 above in order to remove the
anomaly which currently exists arising from the overlap with market
economy treatment criteria.

(60)

This proposal does not

require any additional budgetary resources.

15

1.

2.

3.

4.

5.

6.

7.

ANNEX 1

STATEMENTS TO THE COUNCIL MINUTES

"The Council notes that in the case of individual treatment, i.e. determination
of the individual dumping margin as opposed to the single national margin,
within the framework of Regulation (EC) No 384/96, the Commission will
comply with the criteria set out in the Annex to its communication to the
Council (5070/98 COMER 4)."

"The Council calls on the Commission to implement this Regulation in such
a way that firms of all sizes have equivalent opportunities to make use of its
provisions if they fulfil all the necessary criteria."

"The Council and the Commission consider that it will be appropriate to keep
developments in other countries at present listed as NMEs under review with
a view to granting them, as and when appropriate, the same treatment as
provided for in Article 1(b) of this Council Regulation."

"The Council and the Commission agree that
the practice regarding
derogations from the analogue country rule will be discussed within two
years of the entry into force of this Regulation."

"The Council and the Commission agree to continue their exchange of views
on the implementation of the anti-dumping Regulation. These discussions
will cover transparency and the legal security of the procedure, amongst
other matters."

"The Commission will carefully examine all requests for review arising out
of this Regulation in order to ensure the provision of sufficient prima facie
evidence that the conditions of Article 11(3) of Regulation (EC) No 384/96
for the initiation of interim reviews are met. Where the evidence provided is
insufficient, such review requests will be refused."

"Austria takes note of and agrees with the opinion expressed by the European
Commission during the discussions on the amendment of the Regulation, to
the effect
the first criterion in Article 1(c) of the Regulation for
recognition of the market economy status of an undertaking also comprises
verification of the existence of freedom of establishment and freedom of
employment in the undertaking's specific sphere of activity.

that

Austria moreover presumes that
there has been compliance with the
international accounting standards included in the second criterion if it has
been proved that the accounting records adequately reflect the production
and sales costs of the goods concerned."

16

ANNEX 2

ANTI-DUMPING INVESTIGATIONS CONCERNING CHINA

PRODUCT
CONCERNED

NO. OF ME
CLAIMS

NO. OF CLAIMS
ACCEPTED

REASONS FOR REFUSAL OF ME STATUS

Yellow Phosphorus

3

Malleable cast iron
fittings

TV Tubes

Coke 80+

CD Boxes

3

1

1

3

1

0

0

0

2

- No audited accounts provided
- State holds directly or indirectly 2/3 majority of shares
- One company not an exporter
- Suppliers controlled by the State

- No audited accounts provided
- Financial situation distorted as a result of improper valuation of assets transferred to
the company from the State
- State interference in setting salaries and through particular tax rebate

- No audited accounts
- Majority of suppliers controlled by the State
- No export licence

- Unreliable accounts not prepared in line with international accounting standards

- Domestic sales prohibited
- No legal status in China
- No individual company accounts available

17

Quarto Plates

Hair Brushes

Glycine

Electronic
Weighing scales

6

2

6

2

0

0

0

0

ANNEX 2 (cont.)

- All companies fully or partially owned by the State
- Agreements to purchase raw materials from State owned suppliers
- Only nominal fees paid for land-use rights
- Barter trade practised

- No domestic sales allowed

- Three of the claimants are not exporting producers of the product concerned
- Related companies failed to claim ME treatment
- Incomplete financial statements
- Restrictions on domestic sales

- Restrictions on domestic sales
- Companies follow pricing law and consequently sell at loss making prices in China

ANTI-DUMPING INVESTIGATIONS CONCERNING RUSSIA

PRODUCT
CONCERNED

NO. OF ME
CLAIMS

NO. OF CLAIMS
ACCEPTED

REASONS FOR REFUSAL OF ME STATUS

Urea Ammonium
Nitrate

2

0

- State interference affecting the price of energy which is a major input in the
production of the product concerned
- Absence of information on a related company
- Accounts not audited in line with international accounting standards
- Barter trade practised

18

ANNEX 3

CRITERIA ON INDIVIDUAL TREATMENT

i)

ii)

iii)

iv)

v)

vi)

vii)

viii)

The majority of the shares should belong to genuinely private companies and no
State officials should appear on the board or in a key management position; the fact
that the company concerned is controlled by a foreign investor will be considered a
relevant indication of independence.

The land on which the facilities of the company are built should be rented from the
State at conditions comparable to those in a market economy country or purchased
(e.g. proper contractual lease).

The company should have the right to hire and dismiss employees and the right to fix
salaries.

The company should have full control over its supply of raw materials and inputs in
general.

The supply of utilities should be guaranteed on the basis of proper contractual terms.

Proof is given that profit can be exported and capital invested can be repatriated
(only in case of foreign investment, e.g. joint ventures).

The export prices should be determined freely; the fact that export sales are made to
a related party located outside the country in question will be a decisive factor.

Freedom to carry out business activities should be guaranteed, in particular in respect
of the following:

–

–

–

there should be no restrictions on selling on the domestic market;

the right to do business cannot be withdrawn outside proper contractual terms;

quantities produced for export should be determined freely by the company in
accordance with the traditional demand of its export markets.

19

2000/0160(ACC)

Proposal for a

COUNCIL REGULATION

amending Regulation (EC) No 384/96 on protection against dumped imports from
countries not members of the European Community

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article
133 thereof,

Having regard to the proposal from the Commission,2

Having regard to the opinion of the European Parliament,3

Whereas:

(1)

(2)

(3)

(4)

(5)

2

3

4

By Regulation (EC) No 384/964 (hereafter referred to as `the Basic Anti-dumping
Regulation') the Council has adopted common rules for protection against dumped
imports from countries which are not members of the European Community.

Article 2(7) of Regulation (EC) No 384/96 lays down that, in the case of imports from
non-market economy countries and, in particular those listed in a footnote to that
provision, normal value shall, inter alia, be determined on the basis of the price or
constructed value in an analogue market economy third country.

Article 2(7) of Regulation (EC) No 384/96 further lays down that, in the case of
imports from the Russian Federation and the People's Republic of China normal value
may be determined in accordance with the rules applicable to market economy
countries in cases where it can be shown that market conditions prevail for one or
more producers subject to investigation in relation to the manufacture and sale of the
product concerned.

The process of reform in Ukraine, Vietnam and Kazakhstan has fundamentally altered
their economies and has led to the emergence of firms for which market economy
conditions prevail; these three countries have as a result moved away from the
economic circumstances which inspired the use of the analogue country method.

It is appropriate to revise the Community's anti-dumping practice in order to be able to
the changed economic conditions in Ukraine, Vietnam and
take account of
Kazakhstan.

OJ C
OJ C
OJ L 56, 6. 3. 1996, p. 1. Regulation as last amended by Regulation (EC) No 905/98 (OJ L 128,
30.04.1998, p. 18).

20

(6)

It is also appropriate to grant similar treatment to imports from such countries which
are members of the World Trade Organisation (WTO) at the date of the initiation of
the relevant anti-dumping investigation.

HAS ADOPTED THIS REGULATION:

Sub-paragraphs (a) and (b) of Article 2(7) of Regulation (EC) No 384/96 shall be replaced by
the following:

Article 1

“7. (a) In the case of imports from non-market economy countries (*), normal value
shall be determined on the basis of the price or constructed value in a market
economy third country, or the price from such a third country to other countries,
including the Community, or where those are not possible, on any other reasonable
basis, including the price actually paid or payable in the Community for the like
product, duly adjusted if necessary to include a reasonable profit margin.

An appropriate market economy third country shall be selected in a not unreasonable
manner, due account being taken of any reliable information made available at the
time of selection. Account shall also be taken of time limits; where appropriate, a
market economy third country which is subject to the same investigation shall be
used.

The parties to the investigation shall be informed shortly after its initiation of the
market economy third country envisaged and shall be given 10 days to comment.

(b) In anti-dumping investigations concerning imports from the Russian Federation,
the People's Republic of China, Ukraine, Vietnam and Kazakhstan and any other
non-market economy country which is a member of the WTO at the date of the
initiation of the investigation, normal value will be determined in accordance with
paragraphs 1 to 6, if it is shown, on the basis of properly substantiated claims by one
or more producers subject to the investigation and in accordance with the criteria and
procedures set out in subparagraph (c) that market economy conditions prevail for
this producer or producers in respect of the manufacture and sale of the like product
concerned. When this is not the case, the rules set out under subparagraph (a) shall
apply.

Including Albania, Armenia, Azerbaijan, Belarus, Georgia, North Korea,

(*)
Kyrgyzstan, Moldavia, Mongolia, Tajikistan, Turkmenistan, Uzbekistan.”

21

This Regulation shall enter into force on [insert date].

Article 2

It shall apply to all anti-dumping investigations initiated after the date of its entry into force.
In the case of imports from non-market economy countries which become members of the
WTO after the entry into force of this Regulation,
it shall apply to all anti-dumping
investigations concerning products originating in those countries which are initiated after the
date of their accession to the WTO.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at,

For the Council
The President

22