ANALYSING THE CHANGE IN EU ANTI DUMPING INVESTIGATION

PROCEDURE THROUGH REGULATION 2017/2321

(Submitted Towards the fulfilment of Assessment of Project Work in the Subject of Trade
Remedies)

Submitted By, Submitted To,

Akash Yadav Dr. Bipin Kumar
1298 Assistant Professor
Semester VIII Faculty of Law
B.A. LL.B. (Hons.) NLU Jodhpur
TABLE OF CONTENTS

Introduction......................................................................................................................................2
Determination of Dumping..............................................................................................................2
Pre-Amendment Position.................................................................................................................3
Coming of Amendment Through Regulation 2017/2321................................................................5
General Observations...................................................................................................................6
Increasing Uncertainty Amongst the Countries With Regard to Consistency With WTO.............7
Saudi Arabia................................................................................................................................7
Russian Federation.......................................................................................................................8
Conclusion.......................................................................................................................................9
Bibliography..................................................................................................................................10

1
INTRODUCTION
Under the previous regime of Anti-Dumping Law, there was a distinction between market and
non-market economies. That distinction has now been done away with through the
aforementioned regulation which instead focuses on countries with ‘Significant Distortions’ in
its market. The EC is now supposed to prove the existence of such distortion after which the use
of domestic prices and costs of that country becomes redundant. The distortion is measured
through the innovative use of International Social and Environmental Standards.
While the EU maintains that the new regulation is country-neutral in nature, there is
apprehension that these will primarily be used against China. The significant amount of
discretion available to the EC is a cause for concern for many countries as the EC can arbitrarily
decide on the breach of International Social and Environmental Standards thereby invoking the
Significant Distortions clause inserted by the regulation. Thus, an attempt must be made at
reconciling this amendment with the Agreement on Implementation of Article VI of GATT,
1994 so as to limit its scope.

DETERMINATION OF DUMPING
The Law on Anti Dumping in EU was re-codified taking into account the amendments passed
through various regulations into a single instrument with the passing of Regulation 2016/1036. 1
The ‘Basic Regulation’ also lays down the conditions wherein anti-dumping duty may be
imposed: i.) There is a free circulation of goods in the market of the Union which causes injury 2
and; ii.) The export price to the Union is less than the comparable price of a ‘like product 3’ in the
Union4.
At first blush, it may appear that by virtue of Art. 1(1), goods not being freely circulated but
temporarily imported for the inward processing may be excluded. However, the council has in
various decisions held that even such products can be subject to anti-dumping duty as they may
have the potential to cause injury and a ruling as to the contrary would open the door to abuse.5
The determination of dumping margin usually involves the following steps6:
i.) Determination of the export price of the dumped product, including its construction
where necessary. The export price is the net amount payable after all taxes, deferred
discounts and rebates which the final consumer pays7;
1
Regulation (EU) 2016/1036 of the European Parliament and Council of 8 June, 2016 on protection against dumped
imports from countries not members of the European Union (codification) [hereinafter ‘Basic Regulation’]
2
‘Basic Regulation’, supra 1 at Art. 1(1)
3
Like Product under Art. 1(4) is defined as a product which is either identical in all respects to the dumped product
or has characteristics closely resembling the dumped product [‘Basic Regulation’, supra 1]
4
‘Basic Regulation’, supra 1 at Art. 1(2)
5
Decision on Acrylonitrile from the USA [1983] OJ l101/29 and other decisions; cited and referred to in 235,
EDWIN VERMULST, EU Anti-Dumping Law and Practice, (2nd ed., 2010, Sweet and Maxwell Publications)
[hereinafter ‘Vermulst’]
6
‘Vermulst’, supra 5 at 237
7
id

2
 ii.) Determination of the normal value i.e. the value at which the exporter/producer is
selling the dumped product in his home country in the ordinary course of trade8;
iii.) Netting back of export price and normal value to bring them to the ex-factory level.
This means that rather than comparing products on a unit price, the costs and
expenses incurred from the point where the product leaves the factory and packing
are deducted so as to reach an ex-factory normal value and export price which are
comparable9;
iv.) The comparison of both the netted export price and the normal value which wil give
the dumping amount;
v.) The calculation of the actual dumping margin as a percentage of the CIF value of the
export price.

PRE-AMENDMENT POSITION
Prior to the amendment made by Regulation 2017/2321, the test to be applied was to see whether
there was to verify whether the country of origin was a non-market economy or not. The Basic
EU Legislation earlier provided for the imputation of a constructed value in a market economy
third country, including a price from such a third country to other countries, including the Union,
or, where those are not possible, on any other reasonable basis, including the price actually paid
or payable in the Union for the like product, duly adjusted if necessary to include a reasonable
profit margin.10 The selection of an appropriate third country shall be done in a reasonable
manner and where possible and appropriate, a market-economy third country which is subject to
the same investigation shall be used.11
Art. 2 enumerates the countries in a non-exhaustive list which are to be treated as non-market
economy for the purposes of Anti-Dumping Duty being charged.12 It is to be noted that countries
have often been omitted from the list, such as Russia in 2002 and Ukraine in 2005; which is seen
as a political rather than an economic decision.13 The EU Law on anti-dumping presumes that
costs and prices in a non-market economy are inappropriate for the purposes of establishing a
normal value and that, therefore such value should be based on prices or constructed value of the
product in a third, ‘analogue’/’surrogate’ country.14 Due to the fact that not much has been laid
down by the EU Regulation apart from the fact that the procedure of selection of the third
country has to be reasonable, the EU has wide discretionary powers to select the country of their
choice which depends upon the following factors 15: i.) administrative convenience; ii.) existence
of a like product sold in sufficient quantities; iii.) similarity in manufacturing processes and

8
‘Vermulst’, supra 5 at 251
9
‘Vermulst’, supra 5 at 334
10
‘Basic Regulation’, supra 1 at Art. 2(7)(a)
11
id
12
‘Basic Regulation’, supra 1 at Art. 2(7)(b)
13
‘Vermulst’, supra 5 at 298
14
‘Vermulst’, supra 5 at 299
15
‘Vermulst’, supra 5 at 300

3
technical production standards; iv.) reliability of price levels to constitute sufficient internal
competition.
The practice is that the parties (usually the complaining industry) would suggest one of the
countries to be taken up as the surrogate industry and if the other parties (foreign exporters and
EU importers) do not raise objections then the Commission would follow that suggestion if
possible.16 A very liberal interpretation of the term ‘like product’ is done in order to determine
whether the country can suitably be selected as a surrogate country, minor differences are
allowed and would not result in a country being not considered as a third country but may on the
other hand result in minor adjustments being made to arrive at a fair normal value.17
The test on whether a particular economy is a market economy or not has also been laid down
under Art. 2. However, it is to be noted that this particular provision was drafted not to define
what is a market economy but the evidence required to prove that a non-market economy under
Art. 2(7)(b) is actually a market economy. The test laid down is as follows18:
i.) Economic decisions of the firm relating to pricing, choice of technology, etc., are
determined not by State Intervention but by market forces;
ii.) The accounting standards used by the firm are uniform and are in line with
International Accounting Standards;
iii.) Production costs and financial situation of firms are not subject to significant
distortions carried over from the former non-market-economy system, in particular in
relation to depreciation of assets, other write- offs, barter trade and payment via
compensation of debts;
iv.) Firms have financial and legal stability as a result of bankruptcy and property laws;
v.) Exchange Rate conversions are carried out at market rate.
It is important to note that while these conditions are not required to be proven by every country
in an anti-dumping investigation as there is a presumption that a particular economy is a market
economy; this clause helps us to identify the criteria on the basis of which the EC determines if a
particular economy is a non-market economy or not. If a country is able to prove this onerous
standard then, notwithstanding that such a country is a non-market economy, it shall be treated as
a market economy and the dumping shall be imposed as per Art. 2, paras 1 through 6 and not
Art. 2(7).19
It is important to note, that unlike the US approach, the EU Law does not take into account
factors such as the general macro-economic conditions, level of development, population, labour
costs, etc.20 This was vehemently contested by the PRC which claims that the Law is not taking
into account that PRC on account of having a low development has basic amenities available at
cheaper rates and has comparatively lower labour rates. 21 These objections have however been

16
‘Vermulst’, supra 5 at 301
17
id
18
‘Basic Regulation’, supra 1 at Art. 2(7)(c)
19
‘Basic Regulation’, supra 1 at Art. 2(7)(2)
20
‘Vermulst’, supra 5 at 302
21
id

4
overruled by the EC which has held that the purpose of analogue countries being selected is to
determine the normal value of the goods unbiased by the non-market economy conditions.22
Hence, the focus is on finding a market economy producing like products in a competitive
market. Another point to be kept in mind is that the condition imposed under Art. 2(2) is also
required to be fulfilled in order for a country to be considered as a surrogate country, i.e. the
domestic sales must be atleast 5% of the exports by the non market economy to the EU. 23 With
respect to duty imposition, the EU imposes a one country/one duty rule, that is to say, in case of
non-market economies, the Commission shall impose a uniform anti-dumping duty on exports
originating from such country on a case to case basis so as to avoid circumvention, a rule which
has now been codified in Art. 9.24

COMING OF AMENDMENT THROUGH REGULATION 2017/2321

The new regulation instead of distinguishing between what is a market economy and what is a
non-market economy under Art. 2(7) of Regulation 2016/1036 (‘Basic Regulation’), focuses
instead on what is a significant trade distortion. Of much emphasis is the fact that the condition
of significant trade distortion is not in fact, a novel concept but is present in the ‘Basic
Regulation’ itself.25 The new amendment itself recognizes so in its preamble 26 which recognizes
the need of clarifying circumstances in which significant distortions affecting to a considerable
extent, the market forces can be deemed to exist that is to say, ‘…when reported prices or costs,
including the costs of raw materials and energy, are not the result of free market forces because
they are affected by substantial government intervention.’ Regard must be had in this respect to
the following elements27: i.) Presence of significant State Control by the authorities over the
enterprises which may be owned or operated; or under the control or policy supervision of the
aforementioned authorities; ii.) State Presence in firms allowing them to interfere in their pricing
and costing decisions; iii.) Public policies or measures which discriminate in the favour of the
domestic suppliers or otherwise distorting free market; iv.) The lack of, discriminatory
application of, or inadequacy of bankruptcy, corporate and property laws; v.) Distortion of wage
costs and; vi.) Access to finance from institutions which are acting under State Policy
considerations or are not acting independently from the State.
Further, the Commission is implored to produce and publicly make available reports on
significant trade distortions which may lead to anti-dumping investigations along with the
evidence and data to support such claims; as well as give ample opportunity to the interested

22
id
23
Microwave owens from China, Korea, Malaysia [1995] OJ L156/5 and other decisions; cited and referred to in
‘Vermulst’, supra 5 at 303
24
‘Basic Regulation’, supra 1 at Art. 9(5)
25
‘Basic Regulation’, supra 1 at Art. 2(7)(c) cl. 3
26
Recital Cl. (3), Regulation (EU) 2017/2321 of The European Parliament and Council of 12 December 2017
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 [hereinafter ‘The Amending Regulation’]
27
id

5
parties to comment upon such reports.28 While making such reports, the standards of distortions
set by International Conventions, including the ones set by the ILO in their conventions and the
multilateral conventions relating to the environment must be taken into account where
appropriate.29
Further, where such distortions are deemed to exist and the costs are low, such costs may be
adjusted or established on a reasonable basis, including information from representative markets
or from international prices or benchmarks which is to say, that domestic prices may be used to
the extent they are not positively affected by distortions on the basis of accurate and appropriate
evidence.30
The ‘Amending Regulation’ inserted paragraph 6a to Art. 2 with the effect that where it is not
appropriate to use the domestic prices and costs due to the presence of significant trade
distortions then the normal value shall be constructed exclusively on the basis of costs of
production and sale reflecting undistorted prices or benchmarks. 31 For the purposes of the
adjustments required to be made, the Commission may use corresponding costs of production
and sale in an appropriate representative country with a similar level of economic development,
appropriate undistorted international prices, costs, or benchmarks and even domestic costs
provided that they are only used to the extent that they are not positively affected by the
purported distortion.32 The definition of trade distortion in the operative part is similar to the one
given in the preamble.33

General Observations
Firstly, the burden has now shifted from the then non-market economies to the Commission.
Earlier, the non-market economies would be required to prove under Art. 2(7)(c) that they should
be given market economy treatment (MET). Now, however, it is on the Commission to prove
that a particular economy is affected by significant trade distortion. There is no non-exhaustive
list on the basis of which the Commission could do away with the investigation into whether a
particular country is actually a non-market economy.
There is hence, a complete change in the jurisprudence of burden of proof. Earlier, if a country
was purported to be a non-market economy and was named in Art. 2(7)(b) then it was on the
NME to prove that it should be given Market Economy Treatment. If it was not named therein,
then the commission had to prove that it was not a market economy by virtue of the conditions
laid down in Art. 2(7)(c). Now, the Commission does not have to prove at all whether the
exporting country is a market economy or a non market economy, all it needs to prove is that
there is, a trade distortion. After such a distortion is proved to exist, the burden again shifts on
the exporter to prove the extent to which the domestic price is not positively affected by the
distortion.

28
‘Amending Regulation’, supra 26 at Recital Cl. (4)
29
id
30
‘Amending Regulation’, supra 26 at Recital Cl. (5)
31
‘Amending Regulation’, supra 26 at Art. 1(1) or ‘Basic Regulation’, supra 1 at Art. 2(6a)(a)
32
id
33
‘Amending Regulation’, supra 26 at Art. 1(1) or ‘Basic Regulation’, supra 1 at Art. 2(6a)(b)

6
Secondly, the focus has now shifted from finding a like product having comparable
characteristics for choosing a representative country to finding a country where the economic
conditions of development are similar to the ones in the exporting country. This is more in line
with the standard of the US anti-dumping measures. Therefore, the objections of China in earlier
cases at the EC regarding selection of surrogate countries which do not have a level of economic
development similar to China with regards to cheap labour costs would now become sustainable
provided that such labour costs are not a result of the trade distortions mentioned therein.34
Thirdly, under the previous law there was a complete substitution of price of the domestic price
of the exporting country with that of the surrogate country. Now, however, there is an adjustment
of the domestic price of the exporting country so as to arrive at a fairer value. In the author’s
opinion, this is a much fairer provision as it focuses on arriving at the correct valuation by
merely adjusting the domestic prices rather than substituting it all together by a surrogate price
which may not have any reference to the exporting country in terms of economic conditions.
Attempts have been made to arrive at the closest appropriate price as only those components of
price and costs have to be changed which are actually affected by the trade distortion.
Fourthly, the choice of the term ‘trade distortions’ is indicative that the previous conditions
defined under the then Art. 2(7)(c) can be clubbed under this wider term.
Fifthly, while the amendment is comprehensive with regards to the sources which the
commission may make use of in order to arrive at an adjusted price, it does nothing to put limits
and define a more comprehensive procedure for computation, therby giving the commission a lot
of leeway to act as they please in the guise of appropriate pricing method. This allows for there
to be a lot of inconsistency and capriciousness on the part of the Commission to determine
pricing strategies in an ad-hoc manner which would make harmonization of laws difficult and
create uncertainty in the law.

INCREASING UNCERTAINTY AMONGST THE COUNTRIES WITH REGARD TO CONSISTENCY

WITH WTO

Saudi Arabia35
Saudi Arabia posed various questions to the EU in response to the notification of Regulation
2017/2321. It firstly questioned the legal basis of this regulation since the Anti Dumping
Agreement does not contemplate a different pricing strategy in case of there being a significant
distortion.36 Further, since only 3 conditions 37; namely absence of sale in the exporting country,
sales not permitting proper comparison due to the presence of a particular market situation or
because of low volumes; could be used as a reason for derogating from the normal method of
valuation, then which of these if any would permit this regulation? Further, it was pointed out

34
For instance, see Footwear with leather uppers from China and Vietnam, [2009] OJ l352/1
35
Committee on Anti-Dumping Practices, Questions Posed by The Kingdom of Saudi Arabia Regarding the
Notification of the European Union, G/ADP/Q1/EU/6
36
Referred Art. 2.2 of The Agreement on the Implementation of Article VI of GATT, 1994
37
EC – Tube or Pipe Fittings (DS219)

7
that while there were sundry sources mentioned from wherein adjustment could be made of the
domestic price of the exporting country, there was no criteria given as to which of these sources
would actually be chosen. Questions were also posed as to what would specifically constitute
undistorted price or benchmarks that will be used to distinguish an undistorted price from a
distorted one. It was also pointed out that the regulation would be inconsistent with the findings
of the appellate body report in EU-Biodiesel38 as it was explained that the records of investigated
exporters/producers are the preferred source of information and must be used as long as the
records "suitably and sufficiently correspond to or reproduce those costs incurred by the
investigated exporter or producer that have a genuine relationship with the production and sale of
the specific product under consideration".

Russian Federation39
The Russian Federation through its questions pointed out the vagueness and lack of clarity in the
amended regulation. Questions included requests for clarifications on what does it mean by
publishing reports on incidents which may ‘potentially result in an anti-dumping investigation’.
Further, it was asked as to which of the ILO Conventions does it consider to be ‘core’ and which
multilateral ‘Environmental Conventions’ does it consider as relevant? Further what relevant
standards other than the two referred therein are ‘relevant international standards’? Clarifications
were also sought as to what is meant by direct and indirect significant distortions and what does
domestic price not positively affected by significant distortions mean. It was also pointed out that
while the EU has to look into the countries having same level of economic development as the
exporting country, it was not clarified as to what actually means to have similar level of
economic development and on what criteria would such a selection actually be made. Lastly, it
was asked of the European Union as to what is the actual significance of the report which is
published by the Commission and as to whether its findings have any legal value or are binding
on the Commission while making an anti-dumping investigation into a country for which such
reports may be relevant.
Argentina40 also questioned EU’s regulations on 2 counts namely that under the new regime
there is no distinction between a market and a non-market economy. Further, it was iterated that
there is no textual support for the new regulations notified by the EU in the WTO texts.
China41 was concerned with the EU's new rules for establishing the normal value in case of
significant market distortions as there was no concept under the WTO on the significant market
distortions. Article 2 of the Anti-Dumping ("AD") Agreement and Article VI of the GATT 1994
did not provide a legal basis for determining the normal value using the methodologies that were
not based on a strict comparison with the domestic price or cost in the country of origin. China
urged the EU to abide by the WTO rules and to annul all discriminatory approaches.

38
EC-Biodiesel (DS473)
39
Committee on Anti-Dumping Practices, Questions Posed by The Russian Federation Regarding the Notification of
the European Union, G/ADP/Q1/EU/7
40
¶19, Committee on Anti-Dumping Practices, Minutes of the Regular Meeting Held on 25 April, 2018,
G/ADP/M/54 [hereinafter ‘Minutes’]
41
‘Minutes’, supra 39 at ¶17

8
In Response to these questions42, EU chose to remain silent, stating that this was not the forum
to have a sophisticated legal debate to justify its amended legislation with any legal sources. Its
amended legislation was just a framework, the application of which would depend upon a case-
specific analysis.

CONCLUSION
Firstly, under the WTO Texts, there is no basis of this so called ‘trade distortion’ which the EU
has put forward in its regulations. Even otherwise, such a provision would be inconsistent with
the general WTO obligations as the definition of trade distortion along with related terms are
either too wide or not clarified. The EU’s assurance that this regulation is merely a framework
and the actual interpretation would be done on a case-to-case basis is against the principles of
GATT does not give much assurance, because in the current form, it allows for the EC to be as
capricious as it wants to be and keep changing their interpretation from case to case. This is, in
the author’s opinion, in complete derogation of one of the basic objectives of the WTO i.e. to
clearly lay down the obligations and rights of the countries vis-a-vis each other and gives too
wide a discretion to the EC to act in an arbitrary manner. Therefore, it has no basis in WTO as
well as Law in general being too uncertain in nature.
Secondly, there is a clear need to clarify most of the terms defined under the new regulation as
well as lay down a more certain criteria regarding provisions such as the selection of the price
adjustment mechanism, determination of significant distortion, potentiality of anti-dumping
measure, etc. In their current form, they are too uncertain to actually form a proper enforcement
mechanism.
Thirdly, the EC ought to clarify as to which of the multilateral ILO, Environmental and other
International Conventions it deems to be core or relevant as they would form the very basis for
determination of distortion. Regard must be had to the fact that there must not be too
complicated a structure as that would only add to the existing uncertainty.

42
‘Minutes’ supra 39 at ¶23

9
BIBLIOGRAPHY
Cases
Decision on Acrylonitrile from the USA [1983] OJ l101/29..........................................................2
EC – Tube or Pipe Fittings (DS219)...............................................................................................7
EC-Biodiesel (DS473).....................................................................................................................8
Footwear with leather uppers from China and Vietnam, [2009] OJ l352.......................................7
Microwave owens from China, Korea, Malaysia [1995] OJ L156/5..............................................5
Other Authorities
Committee on Anti-Dumping Practices, Minutes of the Regular Meeting Held on 25 April, 2018,
G/ADP/M/54............................................................................................................................8, 9
Committee on Anti-Dumping Practices, Questions Posed by The Kingdom of Saudi Arabia
Regarding the Notification of the European Union, G/ADP/Q1/EU/6.......................................7
Committee on Anti-Dumping Practices, Questions Posed by The Russian Federation Regarding
the Notification of the European Union, G/ADP/Q1/EU/7.........................................................8
Treatises
EDWIN VERMULST, EU Anti-Dumping Law and Practice, (2nd ed., 2010, Sweet and Maxwell
Publications) [hereinafter ‘Vermulst’].............................................................................2, 3, 4, 5
The Agreement on the Implementation of Article VI of GATT, 1994...........................................7
Regulations
Regulation (EU) 2016/1036 of the European Parliament and Council of 8 June, 2016 on
protection against dumped imports from countries not members of the European Union
(codification)....................................................................................................................2, 3, 4, 5
Regulation (EU) 2017/2321 of The European Parliament and Council of 12 December 2017
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................................5, 6

10