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Trade defence instruments in times of financial crisis- The EU Experience

Trade defence instruments in times of financial crisis- The EU Experience. Stefaan Depypere Director TDI DG Trade – European Commission. Outline of the presentation. Background – why do we need TDI? – Role and origin of TDI Economics and TDI

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Trade defence instruments in times of financial crisis- The EU Experience

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  1. Trade defence instruments in times of financial crisis-The EU Experience Stefaan Depypere Director TDI DG Trade – European Commission

  2. Outline of the presentation • Background – why do we need TDI? – Role and origin of TDI • Economics and TDI • Use of TDI during the crisis- WTO and EU Statistics • EU response to financial crisis

  3. 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

  4. 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]

  5. 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)

  6. 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

  7. 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.)

  8. 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)

  9. 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

  10. WTO statistics - increase in AD investigations • July-December 2008, 17 % increase in initiations of AD investigations compared with the corresponding period of 2007 • 208 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

  11. ANTI-DUMPING NUMBER OF INITIATIONS1995 – 2008 (source: WTO) Total 3,427

  12. EU is a moderate user of TDI

  13. 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

  14. EU is a moderate user of TDI • Quantitatively Number of measures:average of 18 measures per year(AD/CVD/undertakings), and 24 new investigations (2000-2008) • % 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

  15. 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

  16. 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

  17. 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

  18. 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)

  19. 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

  20. 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

  21. For more information Consult our website: http://ec.europa.eu/trade/issues/respectrules/index_en.htm

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