lesser duty rule eu

European Commission - DG TRADE

Anti-dumping Anti-subsidy Seminar for the CAN Lima, Peru (23 May to 26 May 2005)

Anti-dumping Anti-subsidy SeminarDay 3:

LESSER DUTY RULE COMMUNITY INTEREST

Speaker: Susanne Kellner, European Commission, Speaker: Susanne Kellner, European Commission, DirectorateDirectorate--General TRADEGeneral TRADE



Specific rules in EC law Specific rules in EC law

Lesser duty ruleLesser duty rule Public interest clause (Community interest test)Public interest clause (Community interest test)

These rules go beyond the ECs obligations under WTOThese rules go beyond the ECs obligations under WTO



LESSER DUTY RULELESSER DUTY RULE



The lesser duty rule is applicable in both, antiThe lesser duty rule is applicable in both, anti--dumping and antidumping and anti--subsidy proceedings.subsidy proceedings.

According to EC law, the amount of the duty According to EC law, the amount of the duty imposed shall not exceed the margin of imposed shall not exceed the margin of dumping/countervailing duty established dumping/countervailing duty established but it but it should be less than the margin if such lesser duty should be less than the margin if such lesser duty would be adequate to remove the injury to the would be adequate to remove the injury to the Community industryCommunity industry. .



The EU therefore determines the lowest The EU therefore determines the lowest price level at which the EU producers sales price level at which the EU producers sales are considered are considered notnot to result in injury.to result in injury.

This is the price level at which sales could be This is the price level at which sales could be made in the absence of dumped imports (made in the absence of dumped imports (non non injurious price levelinjurious price level))



Two benchmarksTwo benchmarks

Level of the duty should be equal to Level of the duty should be equal to the margin of dumping/countervailing the margin of dumping/countervailing duty duty oror

the amount necessary to remove the the amount necessary to remove the injury (injury margin)injury (injury margin)

whichever is lowerwhichever is lower



Quantification of the injuryQuantification of the injuryCalculation of the injury marginCalculation of the injury margin

Examination of the level of price undercutting or Examination of the level of price undercutting or price underselling of the dumped importsprice underselling of the dumped imports Basically a comparison of the Community Basically a comparison of the Community industry prices (actual or target) and the import industry prices (actual or target) and the import prices. prices. Calculation is different from the one in the injury Calculation is different from the one in the injury determination (undercutting and underselling are determination (undercutting and underselling are also injury indicators) also injury indicators)



STEPSSTEPS

Determination of the price of the Determination of the price of the Community industry Community industry Determination of the exporters price Determination of the exporters price CIF CIF Community frontierCommunity frontierAdjustmentsAdjustmentsDetermination of the injury amountDetermination of the injury amountInjury amount expressed as a % of the Injury amount expressed as a % of the CIF Community frontier priceCIF Community frontier price



Price of the Community industryPrice of the Community industry

The price of the Community industry The price of the Community industry corresponds to corresponds to

Actual selling price Actual selling price oror Target priceTarget price

The Community institutions have to The Community institutions have to determine which price is more appropriatedetermine which price is more appropriate



Actual selling priceActual selling price

Mainly in cases where the Community Mainly in cases where the Community industry maintained its sales price at certain industry maintained its sales price at certain level, but lost significant sales volume and level, but lost significant sales volume and market sharemarket share

= undercutting margin= undercutting margin



Target priceTarget price

Mainly in cases of price depression and Mainly in cases of price depression and where the Community industry had to lower where the Community industry had to lower its sales prices. As a result the Community its sales prices. As a result the Community industry should be able to increase its prices industry should be able to increase its prices without losing sales volumewithout losing sales volume

= underselling margin= underselling margin



The target price is the price which the The target price is the price which the Community industry could have achieved in Community industry could have achieved in the absence of dumped imports.the absence of dumped imports.

Determination entails assumptionsDetermination entails assumptions

The price level should cover two elements:The price level should cover two elements:cost of productioncost of productionreasonable return on sales, i.e. reasonable return on sales, i.e. reasonable profit marginreasonable profit margin



Cost of production:Cost of production:

Actual weighted average costs of the Actual weighted average costs of the Community producers which form the Community producers which form the Community industryCommunity industry

In particular, when the Community In particular, when the Community industry prices during the investigation industry prices during the investigation period are below costperiod are below cost

Other methodology: actual sales price + Other methodology: actual sales price + losseslosses



ReasonableReasonable profit margin (or target profit margin (or target profit):profit):

Profit which could have been achieved in Profit which could have been achieved in the absence of dumped importsthe absence of dumped imports

Usually as a percentage of turnoverUsually as a percentage of turnover Criteria to take into consideration when Criteria to take into consideration when

determining the profitdetermining the profit EC practice: target profit usually EC practice: target profit usually

moderate, i.e. between 5moderate, i.e. between 5--10% on turnover10% on turnover



Criteria:Criteria:

Level of R&D/investments needed for the type of productLevel of R&D/investments needed for the type of product Life cycle of the product (e.g. mature products will need a Life cycle of the product (e.g. mature products will need a

less higher rate of investments and therefore lower profit less higher rate of investments and therefore lower profit rates)rates)

Stage of the development of the Community industry (e.g. Stage of the development of the Community industry (e.g. industry at an early stage of development must expect industry at an early stage of development must expect lower profit margins than well established industries)lower profit margins than well established industries)

Level of profit margins used in prior proceedings for the Level of profit margins used in prior proceedings for the same/similar productssame/similar products

Prevailing market conditions (e.g. a contraction in demand Prevailing market conditions (e.g. a contraction in demand will generate lower profit marginswill generate lower profit margins



Special cases:Special cases:

Where profits also derive from sales of supplies Where profits also derive from sales of supplies related to the product concerned, e.g. photocopier related to the product concerned, e.g. photocopier and toners. Often supplies generate higher profits. and toners. Often supplies generate higher profits. Profits of supplies were not taken into Profits of supplies were not taken into consideration.consideration.

Where the product concerned is not only sold, but Where the product concerned is not only sold, but where there are also rentals of it or components of where there are also rentals of it or components of the product. the product.

ResalesResales of OEM products: in principle only profit of OEM products: in principle only profit of ownof own--manufactures products should be taken manufactures products should be taken into consideration. into consideration.



ExporterExporters price s price CIF Community CIF Community frontierfrontier

As As a startinga starting point the CIF export price is point the CIF export price is used. If necessary adjustments are made to used. If necessary adjustments are made to this price.this price.

The injury margin is calculated for each The injury margin is calculated for each exporter individually, i.e. the export prices of exporter individually, i.e. the export prices of each individual exporting producers are each individual exporting producers are taken into account separately.taken into account separately.



AdjustmentsAdjustments

Comparable to the adjustments made when Comparable to the adjustments made when comparing the export price to the normal value in comparing the export price to the normal value in the calculation of the dumping marginthe calculation of the dumping marginCIFCIF--value should be adjusted by:value should be adjusted by:

-- transport and processing cost in the Communitytransport and processing cost in the Community-- Customs dutiesCustoms duties-- Differences in the level of tradeDifferences in the level of trade-- Differences in physical characteristics between the Differences in physical characteristics between the product produced and sold by the Community industry product produced and sold by the Community industry and the one importedand the one imported-- OthersOthers



Determination of injury amountDetermination of injury amount

Comparison of the Community price and the Comparison of the Community price and the export price as established beforeexport price as established before

Determination of the injury marginDetermination of the injury margin

Injury amount expressed as a % of the CIF Injury amount expressed as a % of the CIF Community frontier value of all exportsCommunity frontier value of all exportsPer exporting producerPer exporting producer



Formula:Formula:Community industry price Community industry price exporterexporters CIF prices CIF price-------------------------------------------------------------------------------------------------------------------------------------- x 100x 100ExporterExporters CIF Community frontier prices CIF Community frontier price

The injury margin is compared to the The injury margin is compared to the dumping/countervailing margin. dumping/countervailing margin. Whichever margin is lower will be Whichever margin is lower will be imposed as the antiimposed as the anti--dumping or dumping or countervailing dutycountervailing duty



COMMUNITY INTEREST TESTCOMMUNITY INTEREST TEST



Conditions to impose measures:Conditions to impose measures:

Determination of dumping (subsidy)Determination of dumping (subsidy) Injury AnalysesInjury Analyses CausalityCausality Community interestCommunity interest



Imposition of measures only allowed if the Imposition of measures only allowed if the overall interests of the EU call for such overall interests of the EU call for such actionaction

Interests to be taken into account:Interests to be taken into account:EU industryEU industryImportersImportersUsersUsersConsumersConsumers



Definition Definition All interests involved: domestic industry, All interests involved: domestic industry,

importers, users, consumers, etcimporters, users, consumers, etc Interests directly related to the product concernedInterests directly related to the product concerned Special consideration to the need to eliminate the Special consideration to the need to eliminate the

tradetrade--distorting effects of injurious dumping and to distorting effects of injurious dumping and to restore effective competition restore effective competition


Domestic industryDomestic industry: : Complainant and nonComplainant and non--complainant Community complainant Community producers, including non coproducers, including non co--operating domestic operating domestic producersproducersInterests (examples)Interests (examples): : -- prevention of further aggravation of already prevention of further aggravation of already precarious situationprecarious situation-- prevention of undermining of positive results of a prevention of undermining of positive results of a restructurationrestructuration-- safeguard of sufficient earnings for investmentssafeguard of sufficient earnings for investments



Importers/tradersImporters/traders: : Proportion of business with product Proportion of business with product concerned ? concerned ? Job losses, bankruptcies ? Job losses, bankruptcies ? Profitability/markProfitability/mark--up?up?Other sources of supply (exporting Other sources of supply (exporting countries without measures)countries without measures)



UpUp--stream industrystream industry: : = Supplier industry = Supplier industry Proportion of total turnover (raw Proportion of total turnover (raw material for the production of the material for the production of the product concerned)? product concerned)? Profitability/markProfitability/mark--up?up?



User industryUser industry: : Expected price/cost increaseExpected price/cost increaseSufficient supplySufficient supplySafe sources of supply within the Safe sources of supply within the CommunityCommunityJob losses, bankruptcies?Job losses, bankruptcies?Profitability? Profitability?



Example: Example: Increase in production cost for Increase in production cost for farmers using ammonium nitrate farmers using ammonium nitrate (AN, a fertilizer)(AN, a fertilizer)

Total production cost 100Total production cost 100 Average share of AN in farmers production cost: 5 Average share of AN in farmers production cost: 5 Market share AN of country X: 10%Market share AN of country X: 10% Average share of AN from country X in production cost: 0,5 Average share of AN from country X in production cost: 0,5 If duty of 50% on AN from country X, then average increase in prIf duty of 50% on AN from country X, then average increase in production cost oduction cost

for farmers: 0,25for farmers: 0,25 Therefore, average increase in production cost of this measure: Therefore, average increase in production cost of this measure:

0.25%, compared to profitability ?0.25%, compared to profitability ?



ConsumersConsumers: : Only relevantOnly relevant where consumer goods are where consumer goods are subject to ADsubject to AD--proceedingsproceedingsInterests (examples)Interests (examples)Prevention of price increase (BUT: purchasing Prevention of price increase (BUT: purchasing decisions not always on purely commercial decisions not always on purely commercial terms, e.g. preference for brands instead of terms, e.g. preference for brands instead of cheaper substitutes)cheaper substitutes)Preservation of consumer choicePreservation of consumer choice



Other interestsOther interests: : Elimination of trade distorting effectsElimination of trade distorting effectsRestoring effective competitionRestoring effective competitionSafeguarding of employmentSafeguarding of employmentPrevention of major loss of technologyPrevention of major loss of technologyPrevention of rePrevention of re--location of downstream location of downstream industries in third countriesindustries in third countries




BALANCING THE INTERESTBALANCING THE INTEREST Balancing of competing interests with the interest Balancing of competing interests with the interest

of the Community industryof the Community industry Special consideration for the need to eliminate the Special consideration for the need to eliminate the

trade distorting effects of injurious dumping and to trade distorting effects of injurious dumping and to restore effective competitionrestore effective competitionPRESUMPTION: If injurious dumping has been PRESUMPTION: If injurious dumping has been found, the adoption of the measures is normally found, the adoption of the measures is normally justified unless there are overriding reasons not to justified unless there are overriding reasons not to imposeimpose



Is it possible to Is it possible to clearly concludeclearly conclude that the that the negative impact of any measures on the negative impact of any measures on the Community as a whole would be Community as a whole would be disproportionatedisproportionate to the objectives pursued?to the objectives pursued? If no, measures shall be imposed If yes, measures shall not be imposed No modulation of measures

lesser duty rule eu

Documents

antisubsidy proceedings

antithe lesser duty

level of price undercutting

lowest price level

injury margin examination

eu producers sales price

lowereuropean commission

wtoeuropean commission