I OVERVIEW OF TRADE REMEDIES
The Eurasian Economic Union (EAEU), being a big common market with population of about 183 million people (about 2.5 per cent of the world population), and having a share of about 3 per cent of the world gross product, is an active user of trade defence instruments (TDIs) and is often affected by the trade-restrictive measures of other countries.
As was outlined in the third edition of The International Trade Law Review, trade defence investigations are handled by the Department for Internal Market Defence (the Department) of the Eurasian Economic Commission (EAEC).
Currently, there are eight ongoing anti-dumping investigations. As in the past, the main country-targets of the investigations are China and Ukraine. During the past nine months, three investigation processes (ADs-24–26) have been started and five were launched for interim review. In the same period, five investigations were finished. All cases finished with the imposition of anti-dumping duties.
For instance, AD-22 Steel Angles from Ukraine was settled on 4 October 2017. The Department established that goods (steel angles) were supplied in the territory of EAEU from Ukraine at a dumped price. It was the gradual increase in imports from 2015 to 2016 that led to a significant increase of such goods' market share (7 per cent per year), with a general reduction of Ukrainian imports (10.5 per cent per year).2
Additionally, there has been a substantial decrease in production of goods on EAEU territory. It is important to stress that the comparison of average prices for a similar product between EAEU's internal market and imported goods is very different. For the period from 2013 to 2015, weighted average prices decreased as follows: the import price of the product by 38.8 per cent, and the price on the EAEU market by 34.9 per cent. The main price reduction was in 2015 against an increase in dumped imports.3
However, such a comparison of prices does not confirm their influence on the internal market. Compared with similar Case AD-13, the Department might erroneously conclude that there is material injury to the EAEU sector owing to dumped imports. So, the difference between the two average prices is insignificant, while there were ignored global economic factors that accompanied the EAEU's economy in 2015–2016.
Quite specific is the similar investigation process in AD-23, completed on 31 May 2018, where the Department suggested imposing anti-dumping duties on herbicides from the EU. Distinctive factors in these cases are a slight difference in the average price and insufficient studying of other factors. Thus, in its conclusions, the Department states that only goods from the EU have negative effects on the internal market. At the same time, without sufficient grounds, China's goods were deleted from this list.4
Among the listed active eight anti-dumping investigations conducted by EAEC, three of them are new non-interim investigations initiated in the first half of 2018.
The first investigation was initiated on 2 March 2018 against imports of cast aluminium wheels (Goods), originating in China, into the EAEU territory (AD-24). According to the application by the EAEU manufacturers, the dumping margin for the second half of 2016 to the first half of 2017 was 126 per cent. Justifying the existence of harm caused by dumped imports, the EAEU producers argued that the import of Goods from China hindered the growth of prices for a similar product on the market of the Union, and dumped imports led to a decrease in commodity prices in the Union market. Applications also provided data showing that during the investigation period the import prices from China were significantly lower than the prices for the Goods produced by the EAEU manufacturers – on average by 21 per cent. Because of the price policy of Chinese suppliers, the EAEU enterprises suffered losses from the sale of Goods in the market of the Union and had a negative profitability of production and sales of Goods on the market of the Union. At the same time, there were trends to increase the volumes of production and the degree of capacity utilisation. However, the EAEU producers associate this with a significant increase in exports, which, according to the applicants, was caused by the negative impact of the supply of cheap Chinese Goods to the EAEU domestic market.5
The second anti-dumping investigation was initiated on 26 March 2018 against imports of optical fibre for optical communication cables into the EAEU territory originating from the United States and Japan (AD-25). According to the application submitted by the producer of the EAEU, the dumping margin for the first nine months of 2017 was 38.87 per cent for the United States and 42.6 per cent for Japan. This case is interesting because the EAEU branch is represented by the only existing enterprise that is at the stage of creation. The enterprise's activity began with the creation of a new branch of the Union's economy, rather than a new product line in the already existing enterprise. The share of imported goods in the consumption of the EAEU before the enterprise's entrance to the market of the Union was 100 per cent (for nine months of 2017, the share of imported goods slightly decreased to 98.9 per cent owing to the start of sales of the new enterprise). Substantial investments were made in the creation of the new enterprise and there are further investment plans for the near future. The application alleges that the prices of dumping imports from the United States and Japan during the investigation period were significantly lower than the prices of commercial sales of goods by the EAEU enterprise (an underpricing of about 30 per cent for the nine months of 2017). The prices of sales by the enterprise of the EAEU for some types of goods in general reflect the prices for optical fibre existing in the markets of third countries, while the prices of goods from the United States and Japan in the market of the Union were lower than those of the markets of third countries. Despite the fact that, during the period of nine months of 2017, the EAEU increased the volume of production and the degree of capacity utilisation, it still had negative rates of profitability and sales and was forced to make the majority of sales abroad, while initially it was oriented to the internal market of the Union.6
The third, most recent, anti-dumping investigation was initiated on 29 June 2018 against imports of galvanised steel into the EAEU territory originating from China and Ukraine (AD-26). According to the application submitted by the EAEU producers, the dumping margin for 2017 was 16.4 per cent for China and 25.6 per cent for Ukraine. As indicated in the submitted application, in a situation of a consumption volumes reduction of the goods during the analysed period, there was a significant increase in the volume of dumped imports from China and Ukraine (13.1 per cent). At the same time, sales of the EAEU enterprises slightly increased – by 2.8 per cent. In addition, the share of imports from China and Ukraine in the total volume of imports of goods into the EAEU territory increased by 9.2 per cent (to 71.3 per cent). In 2017, the price of dumped imports in rubles fell by 1.2 per cent, while the price of goods of the EAEU enterprises increased by 6.5 per cent. This increase in prices occurred against an increase in the cost of goods by 15.2 per cent. Thus, goods from China and Ukraine prevented the growth of prices for a similar product in the Union market. Such trends led to the fact that in 2017, the price of dumped imports for the first time in the analysed period was lower than the price of the product of the EAEU producers. The price reduction for this period was 6.8 per cent. Further, the complainants state that in 2017 the sales volume of the EAEU enterprises fell by 1.3 per cent, while inventories at the end of the period increased by 6.7 per cent. Taking into account all mentioned factors, the EAEU enterprises were forced to restrain prices to the detriment of their financial performance, which led to a decrease in profit and profitability.7
II LEGAL FRAMEWORK
As was indicated in the third edition of The International Trade Law Review the Protocol on the imposition of safeguards, anti-dumping and countervailing measures in respect of third countries to the Treaty on the EAEU governing the TDIs is fairly recent (starting 1 January 2015). The Protocol covers all three types of trade remedies proceedings and largely follows the provisions and the structure of the respective WTO Agreements.8
Therefore, there have been no changes to the current EAEU trade defence regime during the past year or earlier. However, this may change in the future as the EAEC is currently working on drafting amendments and alterations to the Protocol. Aside for procedural changes, the need for change has been triggered by changes in the European trade defence regime that took place earlier this year.
In particular, the EAEC and the business community are actively discussing the issue of changes in the anti-dumping and countervailing legislation of the EU. The essence of those changes is that, while conducting anti-dumping investigations, the European Commission will have the right to determine the existence of 'distorting effects' in the exporting country's market. As a result, the Commission will be able to ignore the data provided by the producers of such countries and use other sources of information, for example, to choose for dumping calculations 'surrogate countries'. As a rule, such actions would lead to a significant increase in dumping margins and anti-dumping duties.
In this regard, the representatives of the EAEC note the need to continue working on changes to the legislation of the Union regarding the application of protective measures that will similarly affect the European market, and also suggest conducting negotiations 'at all levels' of the EAEC on changes in European legislation.9
III RECENT CHANGES TO THE REGIME
EAEU Member States and governing bodies are actively negotiating free-trade regimes with the third parties. Currently, the EAEU conducts negotiations on the conditions and future terms of free trade agreements (FTAs) with such countries as Egypt, India, Indonesia, Israel, Mongolia, Serbia, Singapore and Thailand.
As of today, except for an FTA signed on 29 May 2015 with Vietnam, the EAEU has recently signed two new agreements – the agreement on economic and trade cooperation between the EAEU and China signed on 17 May 2018, and the interim agreement leading to formation of a free-trade area between the EAEU and Iran signed on 17 May 2018. Both agreements have chapters related to application of trade remedy instruments.
i Agreement on economic and trade cooperation between the EAEU and China
The issue of trade remedies application between the parties is regulated by Chapter 3 of the Agreement: 'Trade remedies'. The very first Article of this Chapter of the Agreement states that the parties shall apply anti-dumping, countervailing and safeguard measures in accordance with the provisions of Article VI and Article XIX of GATT 1994, the Anti-Dumping Agreement, the SCM Agreement and the Agreement on Safeguards, respectively.10 There are no other specific provisions on how TDIs should be applied.
Parties attribute an important role to information exchange as a primary form of dialogue on TDI application issues. According to Article 3.4 of the Agreement, each party may request the other party in writing to provide information on any issue covered by this Chapter. The parties shall endeavour to provide the requested information in writing within a reasonable period of time, but not exceeding 30 days, upon receipt of the request. However, the provision of the requested information shall not prevent the parties from initiating an anti-dumping, countervailing duty or safeguard investigation and shall not impede such investigation.11
ii Interim Agreement leading to formation of a free trade area between the EAEU and Iran
The Agreement stipulates that the parties shall conclude an FTA no later than three years from the date of entry into force of this Agreement.
Unlike the agreement with China, Chapter 3 ('Trade remedies') contains 19 pages of detailed guidelines for the parties on which TDIs to use and how to use them. There are no any provisions setting priority of the WTO rules and agreements for the parties. Conversely, the Interim Agreement provides that each party shall apply safeguard measures in accordance with its legislation.
Except for the main two instruments – anti-dumping and countervailing duties –two additional instruments are provided to the parties. These are global safeguard measures (GSM) and bilateral safeguard measures (BSM) introduced in the Articles 3.3 and 3.4 respectively. BSM is a measure imposed by a party on imports of a product originating in another party in order to prevent or remedy serious injury to a domestic industry or threat thereof caused by increased imports of that product as a result of the reduction or elimination of a customs duty under this Agreement.12 Application of a BSM is a temporary measure for the transition period. The state intending to apply a BSM shall promptly, and in any case before applying a measure, notify the other party and the Joint Committee.13 The importing state may apply a bilateral safeguard measure in the form of:
- suspension of further reduction of any applicable rate of customs duty provided for in this Agreement for the goods concerned; and
- increase of the applicable rate of customs duty for the goods concerned to a necessary level not exceeding the base rate.14
The state that applies BSM shall offer a compensation measure or trade liberalisation for other goods.
Article 3.5 stipulates that for the purposes of conducting anti-dumping and countervailing investigations and subsequent proceedings Iran shall consider the EAEU Member States individually and not as the EAEU as a whole, and shall not apply anti-dumping and countervailing measures with respect to imports originating in the EAEU as a whole. If there are subsidies available at the level of the EAEU for all EAEU Member States, Iran may consider the EAEU as a whole.
IV SIGNIFICANT LEGAL AND PRACTICAL DEVELOPMENTS
Regarding the changes in the enforcement practice of the EAEC Department for Internal Market Defense in recent years, it should be noted that the standard of proving injury to the domestic industry has generally increased. The requirements to the level of economic arguments of the parties have raised, and the requirements for the provided documents have become tougher.
It is possible to distinguish procedural and substantive factors, which significantly complicates investigations for participating parties.
Recently, the procedure for conducting verification visits has become longer and more difficult. In accordance with the new standard for conducting verification visits, the inspection team has increased quantitatively, inspections are conducted for at least a week and the depth of analysis of the documents of the inspected enterprises has significantly increased.
During the investigation, particular attention is paid to the potential impact of restrictive measures on competition. Bodies responsible for competition protection in the markets are now more actively participating in trade investigations. This applies both to the Department of Antimonopoly Regulation of the EAEC and to the Federal Antimonopoly Service of Russia. The latter even developed a special questionnaire for enterprises participating in the investigation, which allows for an economic analysis of the impact of potential duty on market competition, analysis of market structure, barriers to entry and market power analysis before and after applying the restrictive measure.
In particular, in the anti-dumping investigation against the import of railway steel wheels from Ukraine (AD-19 and AD-19-R1) on the territory of the EAEU, special attention was paid to the issue of competition. Given that, according to Paragraph 221 of the Protocol, the situation of applicant enterprises could be recognised as dominant, the Department requested a competition impact assessment of a possible anti-dumping duty on the relevant market of the Union. The EAEC Department of Antimonopoly Regulation provided its assessment to the Department. Later, during the anti-dumping review investigation, which ended on 7 March 2018 with an increase in duties from 4.75 per cent to 34.22 per cent, the possibility of monopolising the market by reducing the number of suppliers and raising prices for final consumers of the market was examined. When doing so, the Department analysed the workload of existing and potential capacities of market participants, their investment plans to expand production and other economic factors affecting the possibility of price increases after the introduction of the measure.
In general, the application of restrictive measures and protection from their application have become more complicated for the parties involved, which requires better economic expertise.
V TRADE DISPUTES
i WTO dispute settlement
Among the current five country-members of the EAEU, Russia remains the most active user of the WTO dispute settlement system.
As of the middle of July 2018, Russia has acted as a complainant in seven WTO cases: four of them against the EU, two against Ukraine and one very recent case against the United States. Three of these disputes (two against the EU and one against Ukraine) are concerned with the cost adjustment methodology in anti-dumping cases where the costs of gas in Russia for the purpose of the calculation of the normal value were substituted with international prices (DS474, DS494 and DS493), which would have far-reaching implications for anti-dumping investigations against countries in which the state regulates pricing in particular areas. Since then, we have some unconfirmed but highly likely information on the outcome of only one case – against Ukraine (DS493 – Anti-dumping measures on ammonium nitrate). On 24 January 2018, the chair of the panel informed the Dispute Settlement Body (DSB) that the panel expected to issue its final report to the parties by June 2018, but as of middle of July there is still no public panel report available. However, according to undisclosed sources in the Ukrainian government, the panels' decision was in favour of Russia.15
The most recent WTO case Russia is involved in is DS554 – United States — Certain Measures on Steel and Aluminium Products.
On 2 July 2018, Russia requested WTO dispute consultations with the United States concerning the measures that the United States introduced to adjust imports of steel and aluminium into the United States, including imposing additional ad valorem import duties of 25 per cent on steel and 10 per cent on aluminium.16 According to the request, Russia claims that the measures at issue appear to be inconsistent with the obligations of the United States under the covered agreements; namely, a number of provisions of GATT 1994, and 11 articles of agreement on safeguards.17
On 10 July 2018, the United States accepted the request of Russia to enter into consultations while stating that this issue should not be susceptible to review or capable of resolution by WTO dispute settlement as the import tariffs were applied to adjust the imports of steel and aluminium articles that threaten to impair the national security of the United States, and therefore it is more a political matter that must not be within the mandate of the WTO.
Further on, the United States mentioned that the tariffs imposed pursuant to Section 232 are not safeguard measures but rather tariffs on imports of steel and aluminium articles that threaten to impair the national security of the United States:
The United States did not take action pursuant Section 201 of the Trade Act of 1974, which is the law under which the United States imposes safeguard measures. Therefore, there is no basis to consult pursuant to the Agreement on Safeguards with respect to tariffs imposed under Section 232.18
As a respondent, Russia is acting in eight WTO cases: four against the European Union, three against Ukraine and one case against Japan.
Unfortunately, since the Appellate Body (AB) report of more than one year ago, only procedural changes have happened in DS475 Russian Federation – Measures on the Importation of Live Pigs, Pork and Other Pig Products from the European Union. However, on 8 December 2017, Russia informed the DSB that it had taken the appropriate steps to comply with the DSB's recommendations and rulings within the reasonable period.
After this notification, the EU doubted that Russia had fulfilled its obligation and requested the authorisation to suspend concessions or other obligations pursuant to Article 22.2 of the Dispute Settlement Understanding (DSU). The EU suggested that Russia had failed to conclude a sequencing agreement with the EU.10
The EU's authorities stated that Russia's measures appear to adversely affect exports to Russia of the products at issue originating in the EU and its Member States, and also appear to nullify or impair the benefits accruing to the EU and its Member States directly or indirectly under the cited agreements. On 25 January 2018, Russia requested consultations with the EU pursuant to Article 21.5 of the DSU with respect to certain measures taken by Russia to comply with the DSB's recommendations and rulings in this dispute. In February 2018, the EU informed Russia that it agrees to enter into consultations with Russia.
On 28 March 2018, the AB settled DS479 – Russia – Anti-dumping duties on light commercial vehicles from Germany and Italy, where Russia appeared as a respondent. The AB established that Article 3.1 of the Anti-Dumping Agreement does not allow investigating authorities to leave domestic producers of the like product out of the definition of domestic industry because of alleged deficiencies in the information submitted by those producers. Thus, the issue about the confidentiality of some producer's information has arisen.
It should be highlighted, that knowledge of the data itself may not be sufficient to enable an interested party to properly defend itself unless that party is also informed of the source of such data and how it was used by the investigating authority. In particular, knowing the source of information may enable a party to comment on the accuracy or reliability of the relevant information and allow it to propose alternative sources of that information. This may be particularly important in the circumstances where the investigating authority uses data that was not submitted by an interested party but obtained from other sources.
Moreover, the AB stipulated, regarding Russia's appeal under Articles 3.1 and 3.2 of the Anti-Dumping Agreement, the fact that several factors or elements could potentially influence the rate of return used to construct the target domestic price does not allow an investigating authority to disregard evidence regarding any particular factor or element that calls into question the explanatory force of dumped imports for significant price suppression under Article 3.2 of the Anti-Dumping Agreement. Article 3.5 focuses on the causal relationship between dumped imports and injury to the domestic industry. In contrast, the analysis under Article 3.2 focuses on the relationship between dumped imports and domestic prices.7
The AB concentrated on the correlation between Articles 3.5 and 3.2 of the Anti-Dumping Agreement, on the basis that the following conclusions can be established. When considering the effect of dumped imports on the domestic market, all factors must be taken into account. At the same time, the causal relationship between the price and volumes of the dumped imports and the negative impact on the market should be investigated and proven with particular care. Separately, the relevant authorities are entrusted with the burden of a comprehensive study of all factors that affect the state of the market. Such a decision is important, including in the light of the above-mentioned EAEU case AD-13. The AB found Russia's actions to be inconsistent with the Anti-Dumping Agreement and the GATT 1994, and advised the modification of such actions in accordance with above-mentioned documents.
On 20 June 2018, Russia informed the DSB that, following the expiration of the measures at issue, Russia had fully implemented the DSB's recommendations and rulings in this dispute.19
In Case DS499 - Russia — Measures affecting the importation of railway equipment and parts thereof, initiated by Ukraine in October 2015, the chair of the panel informed the DSB on 24 April 2018 that, owing to the complex procedural and factual nature of the dispute, and after consultations with the parties, the panel expected to issue its final report to the parties in May 2018. However, there is still no report made publicly available as of mid-July 2018.
iDS532 – Russian measures concerning the Importation and transit of certain Ukrainian products
On 13 October 2017, Ukraine requested consultations with the Russian Federation with respect to measures concerning trade of juice products, beer, beer-based beverages and other alcoholic beverages, confectionary products, wallpaper and similar wall coverings from Ukraine claiming, among other measures, import and third-countries transit ban. This is the second request by Ukraine with Russia for consultations concerning measures that concern the transit of products. In its consultations request, Ukraine asserts that these measures apply separately and in addition to those previously challenged under DS512, Russia – Traffic in Transit.
Ukraine claimed that the measures appear to be inconsistent with a number of provisions of GATT 1994, Trade Facilitation Agreement, TBT Agreement, SPS Agreement and Russia's Accession Protocol commitments.20 As of mid-July 2018, the panel is neither established nor composed.
At the end of 2017, Kazakhstan became the second EAEU country involved in a WTO trade dispute as a respondent for the first time after 30 November 2015, when the country became a WTO member.
DS530 – Kazakhstan – anti-dumping measures on steel pipes
On 19 September 2017, Ukraine requested consultations with Kazakhstan with respect to anti-dumping measures applied to certain types of steel pipes on the customs territory of Kazakhstan. In particular, Ukraine claimed that the measures appear to be inconsistent with a number of articles of the Anti-Dumping Agreement and Article VI of GATT 1994. Namely, Ukraine considers that the findings of the EAEC in the report, followed by Decision No. 48 of 2 June 2016, are erroneous and based on deficient rulings, procedures and provisions pertaining to the Anti-Dumping Agreement.
Ukraine's main claims refer to the argument that the Commission's determination that expiry of the measure is likely to lead to a continuation of dumping and injury was made in violation of the Anti-Dumping Agreement provisions because:
- the investigating authority failed to assess relevant economic factors and indices when conducting examination of likelihood of continuation or recurrence of dumping and injury;
- the investigating authority failed to grant to certain Ukrainian producers a full opportunity to defend their interests. For instance, the investigating authority failed to provide to exporters the reasons for non-acceptance of the undertaking from Ukrainian producers and to give Ukrainian exporters an opportunity to make comments thereon; and
- measures were extended, although positive evidence of such necessity was not provided.21
On 6 October 2017, Russia requested to join the consultations. Subsequently, Kazakhstan informed the DSB that it had accepted Russia's request to join the consultations. However, on 19 October 2017, Ukraine informed the DSB of certain concerns regarding Russia's request to join consultations, which was submitted beyond the 10-day deadline provided in Article 4.11.22 This case still did not move to the next stage as of the middle of July 2018. The parties are in the process of consultations on further proceedings.
It is important to note that some Member States are in a state of economic and financial recession, which also affects the vulnerability of their domestic markets. Unfortunately, as already noted, some members selectively use TDI regarding imported goods and do not always study all of the factors during their investigations.
As can be seen from this brief description of TDIs and disputes for the period of approximately one year, the trend of international trade tensions and raise of protectionism is on the move, and past events allow for the conclusion that this trend will not change in the coming future. The trading block of the EAEU, as well as other major participants in world trade, will probably continue to actively apply different types of trade-restrictive measures, including trade remedies, particularly when the United States, EU and China are actively raising the barriers to imports from other countries (although the validity of such measures remains a big question).
EAEU exports to the neighbouring countries will possibly suffer from new trade defence measures, taking into account the EU's changes to TDI regulations enacted in May 2018 and Ukraine's new versions of the laws on TDIs currently waiting in parliament for approval.
The EU's regulation changes will allow trade remedies to be more efficiently applied on imports from all countries of the world, and not only from China, against which the lion's share of the EU trade restrictive measures is applied. In addition to the report on China, which has already been published and is the basis for taking protective measures, a similar report on Russia is being prepared, which will also serve as an occasion for protecting the European market from Russian imports.
Another threat to the global trade flows, including from the EAEU, is the efficiency or rather threatening inefficiency of the WTO dispute settlement mechanism (DSM). If the problematic situation with the appointment of Appellate body members is not resolved in the near future, this may lead to a drop in efficiency of DSM application for WTO members, therefore become a stimulus for unscrupulous parties to brake the trade rules with impunity for themselves.
This is probably one of the reasons why China and the EU jointly announced on 16 July 2018 the establishment of a working group on WTO reforms.23 At a meeting with Chinese Premier Li Keqiang, European Council President Donald Tusk stated:
It is the common duty of Europe and China, but also America and Russia, not to destroy this order but to improve it, not to start trade wars, which turned into hot conflicts so often in our history, but to bravely and responsibly reform the rules based international order.24
1 Sergey Lakhno is a counsel at International Law Firm Integrites.