The UK is all in a muddle over the Lesser Duty Rule

The UK does not understand the lesser duty rule

A recent non-paper from the UK supports limited reform of the EU’s trade defence instruments with respect to timing, profit margins, interim reviews, and increased use of anti-subsidies. It opposes even limited relaxation of the Lesser Duty Rule (LDR).

The UK takes a very pragmatic approach to the LDR. It considers that there is no compelling evidence that anti-dumping duties set in line with the LDR have not been effective in reducing unfairly priced imports. The UK cites evidence from four steel cases in 2008, 2009, 2013 and 2015. The UK argues:

Relaxing the LDR would of course enable higher tariff duties in some cases, but we question what greater reduction in import levels this would achieve and whether it would be any more effective in dissuading unfair trade.

This is an empirical argument and it is beyond the scope of this short commentary to determine if it is correct. Anecdotally, however, it can be said that there are cases where the level of duties have not been dissuasive.

The objective of this comment is different. It concerns the other arguments made by the UK against change. Essentially the UK argues that relaxing the LDR:

• Could increase costs for users and consumers;
• Change the balance of competing interests between affected industries;
• Impose unnecessary costs on consumers;
• Create a risk of retaliation because of higher tariffs.

These are all valid arguments. The problem is that, in trade defence law, these are not injury or even lesser duty arguments. These are Union Interest arguments and, in the course of trade defence investigations, are only assessed in relation to Union Interest and not in relation to the calculation of a duty. The UK is mixing up arguments.

Article 21 of the EU Anti-Dumping Regulation allows an evaluation of whether the EU should take measures taking into consideration various interests taken as a whole including the interests of the domestic industry and users and consumers.

The arguments that the UK raises in relation to the LDR refer to factors that must be taken into consideration when evaluating the appropriateness of measures under the Union Interest test. They are not factors to be taken into consideration when determining the possible duty that could be imposed.

EU anti-dumping law sets out clear technical rules in relation to the calculation of dumping margins. There is a long established, but questionable, practice in relation to the calculation of injury margins. And, in relation to the duty to be imposed on the basis of these margins, Article 9(4) of the basic Regulation provides:

The amount of the anti-dumping duty shall not exceed the margin of dumping established but it should be less that the margin if such lesser duty would be adequate to remove injury to the Community industry. 

To the extent that Article 9(4) lays down a lesser duty ‘rule’ (see further), the rule is in relation to the Union industry only, and does not refer to users and consumers. The interests of users and consumers are to be taken into account within the terms of Article 21.

It can be concluded therefore that the arguments that the UK uses to justify the continued use of a lesser duty ‘rule’ (balancing the needs of users and consumers), find no place in Article 9(4) and are therefore legally irrelevant. They must be excluded in any evaluation of what duty is appropriate in any investigation.

Article 9(4) addresses the level of the anti-dumping duty and whether, should that duty be based on the dumping margin, it is adequate to remove injury to the Union industry. It is an assessment that simply does not pertain to the interests of users and consumers. The UK is arguing chalk and cheese. It has gotten itself in a muddle.

Is there a lesser duty ‘rule’ at all?

The UK refers to a Lesser Duty Rule. Is that a correct interpretation of Article 9(4)? Reading the text it is not so clear. There is no ‘rule’. There is no rule in two senses:

Firstly, there can be no ‘rule’ when what the law provides is ‘should’ and not ‘shall’. The duty shall not exceed the dumping margin, but should be less where a lesser duty would be adequate to remove injury to the Union industry. Considering this to provide for a ‘rule’ is a simple misreading of the text (even if the Commission misreads it as well).

Secondly, there can be no ‘rule’ requiring fixing of the duty at the lower of the dumping and injury margins. That is not what the text says. The text requires an evaluation of whether the dumping margin is adequate to remove injury. An evaluation of adequacy to remove injury might find that it is necessary to set the duty at the level of the dumping margin, or that a higher duty is necessary to remove injury (nothing can be done in this case), or that a lower duty is enough. There is no ‘rule’ as to the outcome.

Conclusions

The UK non-paper is a useful basis for a debate on the Lesser Duty Rule because it forces an examination of what is provided in EU law and the separation between the evaluation of the Union Interest test and the level of the duty. The situation of users and consumers is not relevant for the fixing of the level of the duty and is not relevant in the application of the so-called Lesser Duty ‘Rule’.

The UK arguments are both legally and practically irrelevant.