The new President of the European Commission, Ursula Von Der Leyen, has given a series of speeches in the lead up to and immediately after her confirmation by the European Parliament in the middle of July. These indicate that the EU will take stronger lines in relation to the policing of compliance of imports with EU standards, the policing the implementation of trade agreements and imposing taxes at the border so that expensive EU environmental measures are not undermined by imports.
The most likely initiative will be in relation to a carbon border tax. The EU’s Emissions Trading System is increasingly limiting the amount of emission allowances available thus driving up the cost. Not many third country producers exporting to the EU have the same costs. A carbon tax at the border (just like VAT is charged at the border) would eliminate this cost advantage. Such a border tax adjustment can be legal in WTO law if it does not discriminate between domestic and foreign producers. The test for the EU will be to set the tax at a level that does not result in discrimination.
In late 2016 China took the EU to WTO dispute settlement claiming that EU rules which defined China as a non-market economy were illegal as of December 2016. China based its arguments on the expiry of one part of the provisions in China’s Protocol of Accession to the WTO. The dispute before the WTO attracted much attention and most significant trading countries intervened in the proceedings. The issue underlying the dispute was the right of WTO members to disregard Chinese costs and prices when measuring dumping from China on the basis that Chinese costs and prices are distorted by the state intervention in and control of the market.
In WTO dispute settlement, the adjudicating panel sends a draft of its findings to the parties two months before the findings are made public. This practice is designed to allow participants to the dispute to correct any errors in the presentation of their arguments and to give them time to understand the ruling before it is widely distribution. The draft Panel findings were circulated in March 2019. In May China decided to withdraw its complaint. Withdrawal of a complaint has the effect of freezing a dispute at whatever stage it is at. By withdrawing the complaint China has frozen the procedure prior to the public dissemination of the Report.
Outside observers cannot know why China withdrew. The Commission, representing the EU, has not said why. China has not made public its reasons. The draft Panel report is not distributed to the countries that intervened in the case thus they cannot give an explanation. This leads to speculation. And the speculation is that the Panel had not found in China’s favor. In other words, China was not able to show that it was entitled to be considered a market economy. This (non)-ruling is likely to have a significant impact on trade defense systems in the future.
The EU’s trade defense instruments (anti-dumping and anti-subsidy) are designed to allows the imposition of measures at the border in relation to the import of goods. What is a ship from a third country is subsidized or is being dumped on world markets. Vessels bring goods to the EU ports for importation, but the ships themselves are not imported so the EU’s trade defense instruments cannot be applied to counter the unfair subsidization or dumping. If something is to be done, the existing rules will have to change or new rules introduced. In 2017 the existing rules were changed to counter dumping onto off-shore platforms. Before, the dumping or subsidization of goods destined for off-shore platforms (in particular equipment and pipes) could not be addressed by the trade defense instruments as the goods were not imported. The new rules expanding the scope of the instruments to cover not only traditional import on-shore, but also imports off-shore. Can the same happen for ships? It might not be so easy to change the trade defense instruments but maybe the new EU Commission will be willing to propose alternative laws to address the issue.
This article is for information purposes only and is not intended as a professional opinion. For further information, please contact Bernard O'Connor.
