24 April 2017

Brexit: Invalidation of existing trade remedy measures in the EU

With the UK parliament passing the Brexit Bill on 14th of March 2017 paving the way for the government to trigger Article 50 of the EU Treaty (which allows the UK to begin the process to exit from the European Union), Brexit may now only be a matter of time.

Among the plethora of trade related issues that may arise on the first day of Brexit, an important issue is that of the continuation of existing trade remedy measures by the EU. As of December 2016, 114 AD measures and 15 CVD measures were in force by the EU. [See end note i]


Invalidation of existing anti-dumping and countervailing duties

Two most essential elements under any anti-dumping investigations are (i) determination of export price for comparison with normal value to arrive at dumping margin and (ii) Injury caused to domestic industry (i.e. the EU industry).


(i) Determination of export price

Ordinarily, the export price is the price paid or payable for the product when sold for export from the exporting country to the Union. [See end note ii] The export price that is so determined for the product under investigation in the EU is in effect the weighted average of the prices at which the product under investigation was imported by 28 EU member states.

Hypothetical illustration: Imports of stainless steel in the EU in 2013

Country Import Price ($) Quantity (Kg)
Czech Republic 10 50
Spain 15 20
UK 5 100

Weighted average export price of stainless steel determined by the EU would be 7.66$ per kg. If the normal value for the like product was 10$, the dumping margin would have been 2.4$ or 31% (i.e. as the percentage of export price).

Weighted average export price for stainless steel for the EU in the above situation in absence of the UK i.e. after Brexit would be 11.42$. Keeping all other factors (normal value, other adjustments) constant, the consequent dumping margin will be negative. The positive dumping margin of 31% becomes incorrect and thereby also the consequent imposition of anti-dumping duty when the UK leaves the EU. The anti-dumping measures in force in the EU will be without any factual or legal basis and cannot be continued from the first day of Brexit for this reason alone. [See end note iii] 


(ii) Determination of injury

Since, export price does not form the basis for determination of subsidy margin or imposition of countervailing duty, countervailing determinations are not affected for the stated reason. However, the injury determination, in both anti-dumping and countervailing duty investigations will get invalidated because of Brexit. Anti-dumping and countervailing duties are imposed only when the injury was caused to the EU industry because of dumped or subsidized imports. The positive determination regarding injury in all the cases is made after analysing a host of economic factors of the Union industry such as profit, return on investment, capacity etc.  All the injury determinations that accounted for injury caused to the segment of industry situated in the UK for its conclusion are invalidated on the first day of Brexit. In short, as is the case of export price and the consequent dumping margin, the injury determinations are also without any factual or legal basis. [See end note iv] 

It will not suffice to suggest, which may be the situation in some of the cases, that the domestic industry was not located in the UK, and therefore the injury assessment in those cases is not affected by Brexit.  Various injury parameters are analysed by the authority for determining injury such as domestic sales, export sales, domestic market share, etc.  Exclusion of UK from the EU will affect these indices. For example, EU domestic sales that included sales to the UK are now actually to be accounted as export sales and any loss arising out of decline in such sales have to be considered as an injury caused due to other factors. Needless to say, the change of these indices will eventually affect and perhaps reverse the conclusion regarding existence of material injury. [See end note v]


Re-validation of anti-dumping and countervailing duties - Review investigations

It is arguable that the EU should initiate review investigations in these cases so as to allow continuation of existing duty. 

However, such review investigations can only validate the existing anti-dumping duty if the outcome of the review investigation is brought into effect on the first day of Brexit. If the review is initiated on the day of Brexit, anti-dumping or countervailing duty will remain in force pending the review. It is to be noted that anti-dumping duty cannot be levied in excess of the margin of dumping at any point in time. [See end note vi]  Moreover, no anti-dumping duty or countervailing duty can be imposed in absence of material injury. As noted above, determination regarding dumping and injury are no longer valid and therefore continuation of anti-dumping or countervailing duty after Brexit cannot be considered as legal and consistent under the WTO obligations even during the review investigation period.[See end note vii] 

It is also not credible to suggest considering the EU system of prospective levy, the anti-dumping duties or the countervailing duties in question were imposed based on the data during the identified period of investigation (POI) - a definite period in the past, and therefore the imposition of duty is legally valid. The argument would effectively imply that the EU is entitled to continue to collect the duty even though the exporter is dumping goods or is exporting the subsidized goods that is causing injury (at least in part) to a third country.

Article 11(3) of the EU Basic Anti-Dumping Regulation provides for suo moto initiation of interim review by the Commission. It is advisable that the EU initiates review investigation beforehand to arrive at a revised determination of dumping and injury on the day of Brexit in all the cases where anti-dumping/counter vailing duty is in force. If the EU fails to amend the existing measures or withdraw the measures altogether, challenge against the existing measures before the WTO DSB can be expected.

[The author is a Principal Associate, International Trade Practice, Lakshmikumaran & Sridharan, New Delhi]

[i] Anti-dumping, Anti-subsidy, Safeguard statistics covering the 12 months of 2016 (December 2016); 9 AD measures and 6 CVD measures are in force against India.
[ii] Article 2(8) of the EU AD Regulation
[iii] The calculation (involving country wise data) for arriving at one export price is not disclosed during the investigation process but it is reasonable to presume the export price determined did also involve the price at which product was imported in the UK and therefore the export price is no longer accurate. 
[iv] Assessment of Union Interest under Article 21 of the EU Basic Anti-Dumping Regulation is also affected due to Brexit. Interest of domestic industry, user and consumers in the UK should be excluded. However, since there is no corresponding obligation under the WTO Agreements in this regard, the EU will not be under an obligation to carry out re-assessment. Obviously, it does have an obligation to do so under its own law.
[v] The illegality of the determination is even more glaring if the industry was in the UK because in such cases the sales made by that industry to the rest of EU are no longer domestic sales at all but on the contrary are to be accounted as exports made by other non-subject countries.
[vi] Anti-dumping Agreement, Article 9.3; Article 19.4, Agreement on Subsidies and Countervailing Measures 
[vii] Subsequent refund of anti-dumping duty under Article 11(8) of the EU Basic Regulation may not be the appropriate remedy, even assuming it will be possible under the existing cumbersome mechanism. From among the other issues associated with the refunds, it is only possible in case the anti-dumping duty exceeds the dumping margin. Refund of duty is not contemplated for lack of material injury. See Commission Notice concerning the reimbursement of anti-dumping duty, 2002, OJ C 127/10. 



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