External Trade Stefaan Depypere Director 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 TDI 3.Use of TDI during the crisis- WTO and EU Statistics 4.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)

External Trade 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 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) Total 3,427

External Trade EU is a moderate user of TDI

External Trade

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 ( ) % 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

External Trade EU Checks and balances DG 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

External Trade 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

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