External Trade

Stefaan DepypereDirector TDI

DG Trade – European Commission

Trade defence instruments in times of financial crisis-

The EU Experience

External Trade

Outline of the presentation

1. Background – why do we need TDI? – Role and origin of TDI

2. Economics and TDI3. Use of TDI during the crisis- WTO and

EU Statistics4. EU response to financial crisis

External Trade

1. Origin of TDI

• Part of Tariff legislation (first CVD provision US 1890) also linked to the original competition legislation in the US (Sherman act) and first AD act introduced in Canada 1904

• Now an independent set of rules but still with links to competition

External Trade

ROLE of TDI in WTO legal order

• Key element in ensuring fair trade within the framework of the WTO multilateral system

• Necessary to remedy distortions of trade caused by market segregation

in view of existence of customs duties and in the absence of:

- international competition rules and authorities- international rules on bankruptcy, property ownership, etc.

(the emergence of an agreed and enforced competition policy at world level is not likely for the near future)[Singapore issues]

External Trade

2. Economic considerations on TDI and financial crisis

• Economics and TDI: an often uneasy relationship

• Many economists suspect that TDIs reduce economic welfare

• But: TDI aim to tackle long-run effects (more than one investment cycle)

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Economics of dumping and the crisis

• Predatory or strategic dumping i.e. voluntary and aggressive market-share conquest with the aim of weakening/destroying competition or another strategic objective

• Dumping to solve the problem of overinvestment and overcapacity in certain sectors

• In current crisis the real problem may be this latter form; could be exacerbated by market reservation measures or certain subsidies/stimuli to exit from crisis

External Trade

TDI in times of crisis (cont’ed)

• Increase of dumping as a strategy for companies(For an economic operator, if conditions

allow, dumping goods on a third market can make sense (just like trying to set up a cartel makes sense). E.g.: to solve a problem of over capacity in the home market. But: The fact that it makes economic sense for the company does not mean that it makes sense for the market as a whole or that society should condone such behaviour.)

External Trade

Economics of Subsidies and the crisis

• Some subsidies correct market failures (e.g. R&D, environment)

• But others lead to inefficient factor allocation, distort competition (e.g. operating aid, sectoral aid)

• Distortive subsidies may also have predatory effect• Additional negative welfare effects even in absence

of consumer harm• Hence: strong economic case to be critical about

subsidies• But: low proportion of AS cases compared to AD• Comment: at present AD procedure implicitly also

covers subsidies (at least in non-MES setting)

External Trade

3. TDI in times of financial crisis

• Economic crisis - temptation for protectionism

• Commitment by G20: Refrain from new barriers to investment & trade in goods and services

• The goal of AD/CVD is to bring about fair trade, eliminate distortions of competition and not to protect domestic markets against fair competition

• Safeguards are exceptional safety valves

• Hence: Correct use of AD/CVD is not protectionist

• Abuse of AD/CVD is protectionist

External Trade

WTO statistics - increase in AD investigations

• July-December 2008, 17 % increase in initiations of AD investigations compared with the corresponding period of 2007

• 208 initiations in 2008, as compared to 163 in 2007 and 202 in 2006

• Highest number of initiations for July-December 2008: India (42), Brazil (16), China (11), Turkey (10), Argentina and EC (9 each)

• Who was the target? China (34), EC (14), Taiwan, Thailand, US (6 each)

• Source: semi-annual reports by Members of WTO on TDI for the period 1 July - 31 December 2008

External Trade

ANTI-DUMPING NUMBER OF INITIATIONS

1995 – 2008 (source: WTO)

157

243257

356

292312

232214

200 202

163

208225

366

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Total 3,427

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0

20

40

60

80

100

120

140

160

I 2007 II 2007 I 2008 II 2008

Initiations worldwide in 2007 and 2008 (source: WTO)

Initiations worldwide Initiations EC

EU is a moderate user of TDI

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Initiations worldwide 2nd semester 2008 (source: WTO)

India Brazil China EU USA Others

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4. EU response on TDI and financial crisis

• EU Spring Council condemns any form of protectionism

• EU approach: TDI to be used with utmost prudence, following in-depth analysis and scrupulously respecting procedural requirements

• Internally: moderate but strict application of rules

• Externally: monitoring of third countries activity, direct intervention and technical support of EU exporters hit by unjustified actions

External Trade

EU is a moderate user of TDI• Quantitatively

Number of measures: average of 18 measures per year (AD/CVD/undertakings), and 24 new investigations (2000-2008)

• % of trade affected by TDI: <1%• Number of cases opened leading to definitive measures: ±60 %• In 2009 only 2 new investigations initiated so far

• Qualitatively (standards going beyond WTO rules)

• Exceptional use of safeguards: only 3 cases since conclusion of Uruguay round

External Trade

EU’s use of TDI: main trends

• Duties not imposed automatically in all cases (< than 40% of complaints lead to investigations, about 60% of investigations lead to measures)

• Of all the cases half are new investigations, half reviews

• Most of the activity is AD (90%), with some AS cases (10%)

• Moderate use but firm intervention if there is a solid case

External Trade

EC Legal framework and WTO+ rules

• WTO legislation is transposed into EU law (AD & AS Basic Regs)

• EC Treaty + general principles of law (non-discrimination, proportionality etc.) also apply to TDI, ECJ control

• WTO+: EU law introduces higher standards to adopt TDI measures mandatory lesser duty rule public interest test (i.e. Community interest) mandatory shorter deadlines for new investigations and mandatory

deadlines for reviews increased transparency (double disclosure after provisional and

before definitive, hearing officer)

• COUNCIL ultimate decision-making body for definitive measures i.e. additional level of control Separation between investigative authority and decision-making

body

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EU Checks and balancesDG Trade TDI Directorate: analysis and proposal

Internal checks - consistency- validation

Outside TDI Directorate: - DG DDG- Hearing Officer: Rights of defence

Other associated services (ex):- Legal Service

Trade Commissioner and College of Commissioners

Member States: Consultative committees/Council

Parties and their lawyers

E.C.J./WTO: Appeals and disputes

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TDI current evolution

• Within set of existing rules: scope for work on quality, reliability and transparency

• TQM effort

• Transparency initiative June 2009(i.a. non-confidential file, disclosure, web site)

External Trade

EU Monitoring of potentially trade restrictive measures

• Context: EU ‘market access’ strategy• Constant monitoring of potentially

trade restrictive measures in framework of G20 commitment

• Discussion with EU States and publication on internet

• TDI: latest stats in third progress report of 12 June 09

External Trade

Conclusion• Current economic crisis means increasing

pressure to use TDIs

• All TDI authorities have responsibility to ensure a purely technical analysis and high quality of decisions

• Avoid any protectionist abuse of TDI

• Dialogue among TDI authorities and exchange of best practices even more important during economic crisis

External Trade

For more information

Consult our website:

http://ec.europa.eu/trade/issues/respectrules/index_en.htm