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EU Commission Seeks More Robust Trade Policy to Quell Overcapacity

Calling upon member states, the European Commission said this week that the EU needs updated, strengthened and more robust trade defense.

The EU currently accounts for 15 percent of world imports (second after the U.S.), but its trade defense measures only affect 0.21% of those imports, according to the commission.

“Despite the fact that the European Commission has been using the available trade defense instruments toolbox to its full extent, these have proven insufficient to deal with the huge overcapacities that result in dumped exports on the EU market,” the Commission said in a statement Wednesday. “The EU is and wants to remain the biggest trading bloc in the world.”

The Commission said the EU is committed to an open rules-based trading system, but that free trade has to be fair.

“Dumping and subsidization by foreign producers and governments cause serious harm to EU industry workers, undermining support for free trade, which is already under attack from many directions,” according to the commission.

Unfair trade practices by third countries have become a bigger challenge for Europe, and government intervention, massive subsidies and price-distorting policies have led to substantial overcapacity and dumped exports on the EU market.

“In addition, the higher duties imposed by other major World Trade Organization members can lead to trade diversion of dumped products into the EU market, further exacerbating the problem,” the commission noted.

The commission has already taken all strides to exhaust its trade defense instruments, including registration of imports, increased transparency, faster imposition of measures and initiating cases on matters where the economy might be threatened. But with all of those efforts, the commission said it has reached the limit of what’s feasible to rein in external overcapacities and dumping.

Now it wants those instruments updated and strengthened to protect trade in the bloc.

No more ‘lesser duty rule’

For one, the EU no longer wants to apply the lesser duty rule.

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The lesser duty rule says that to impose anti-dumping measures, both the dumping and the injury to the EU need to be proven and then the level of anti-dumping duties applied at the level of the dumping margin or the level that removes injury, whichever is the lesser. The problem there, according to the commission, is that it caps the level of duties that can be imposed.

“The vast majority of other WTO members (including the U.S.) do not exercise this type of self-restraint. The U.S. imposes twice as many anti-dumping measures as the EU, with typically much higher duties,” the commission said.

In giving his State of the Union address in September, European Commission president Jean-Claude Juncker said, “We need to do more, as overproduction in some parts of the world is putting European producers out of business,” adding, “We should not be naïve free traders, but be able to respond as forcefully to dumping as the United States.”

A new method for calculating dumping

The commission also wants to address situations where market prices don’t prevail.

“In a world of global and complex supply chains, the traditional calculation of dumping does not capture all the factors and distortions that exist in some emerging and transition economies,” the commission explained in a statement. “The EU cannot remain defenseless against massive subsidies, government interference, lack of transparency and non-independent financial sector providing unfair advantages to exporters in some countries.”

As part of its proposed plan, the Commission will suggest a new anti-dumping methodology that captures market distortions that mask the full extent of dumping practices. The new process won’t grant market economy status to any country but ensure the EU’s trade defenses are adapted to deal with current challenges.

“Where distortions are found, prices and cost will be disregarded for calculating dumping and the Commission will use other available benchmarks, including costs and prices in other economies,” the statement noted.