Completely Win the Sino European Fastener Dispute

2016 01/19
China's overall victory in the fastener dispute has shaken the legal foundation of the substitute country system in the EU anti-dumping investigation against China,and will also have a profound impact on the legislation and practice of the EU and other countries in anti-dumping investigations against China.

For domestic fastener exporters,as well as export enterprises with Europe as their main market,and even the vast number of Chinese foreign trade enterprises involved in international trade anti-dumping investigations,January 18,2016 is a day worth celebrating and encouraging.On that day,the WT Executive Appeals Body announced its full support for China's position and propositions in the 7-year dispute over fasteners between China and the EU,and confirmed that the EU violated WTO rules in terms of procedural transparency,fair comparison,calculation of dumping margins,and definition of domestic industries.This is the first case of China suing the EU in the WTO since China's accession to the WTO,shaking the legal foundation of the surrogate country system in the EU anti-dumping investigation against China,and will have a profound impact on the future legislation and practice of the EU and even other countries in anti-dumping against China.This also has important reference significance for Chinese export enterprises to respond to foreign anti-dumping investigations.The

fastener dispute between China and the EU during the

"Seven Year War of Resistance"can be traced back to November 9,2007.At that time,the European Commission launched an anti-dumping investigation against steel fasteners originating in China.After nearly a year and a half of investigation,the European Union made a final ruling on January 26,2009,announcing a five-year anti-dumping duty of up to 85%on Chinese fastener products.Since then,China's export of fasteners to the EU has plummeted,with its market share in the EU dropping from 26%in 2008 to 0.5%currently;The volume of trade has plummeted from$1 billion before taxation to$80 million,a decline of up to 85%.The EU anti-dumping measures against fasteners in China have directly affected China's fastener exports to the EU of nearly US$1 billion,the survival of thousands of fastener enterprises,and the employment of over 100000 people,causing huge economic losses to the domestic industry.At the request of the industry,the Chinese government appealed the European measures to the WTO side settlement institution on July 31,2009.This dispute includes two rounds of dispute settlement procedures,namely,the original trial and the enforcement action.Regarding the settlement of the original dispute,the WTO ruled that the EU's individual treatment of China and anti-dumping measures against fasteners were illegal.Since then,the EU has amended the basic anti-dumping law and deleted the provisions on individual treatment;At the same time,a review process was initiated to partially rectify the original anti-dumping measures for fasteners.On October 10th,2012,a new anti-dumping measure for fasteners was issued,lowering the anti-dumping duty on fasteners by about 30%.Despite this,considering that there are still many violations in the review and investigation procedures,the Chinese government once again referred the EU fastener review measures to the WTO Dispute Resolution Body("Enforcement Action")in October 2013,requesting the EU to completely correct all violations in the fastener case and completely eliminate anti-dumping measures.On January 18,2016,the WTO finally ruled that the EU's anti-dumping measures against China's fasteners violated WTO rules,and China won a comprehensive victory.At this point,the anti-dumping dispute over fasteners between China and the EU has settled.The

victory

of the original trial:"Individual treatment"was ruled illegal.After the Chinese government resorted to the WTO dispute mechanism for anti-dumping measures against EU fasteners in July 2009,the WTO expert group and the appellate body issued rulings on December 3,2010 and July 15,2011,respectively,declaring that the legislation on individual treatment by the EU against China,as well as the definition and information disclosure of EU anti-dumping measures against China's fasteners in domestic industries,violated WTO rules in many aspects.Among them,the WTO's confirmation of the illegality of"individual treatment"has had a very important impact on the subsequent EU anti-dumping legislation and practice against China.For a long time,there have been discriminatory provisions in EU anti-dumping legislation against China,and individual treatment is one of them.According to Article 9.5 of the original EU Basic Regulations on Anti dumping,Chinese enterprises must submit a written application to prove that they have simultaneously met five conditions(That is,foreign capital or joint ventures are free to return capital and profits to their home countries;they are free to determine export prices,quantities,and conditions;they control the vast majority of shares privately,and government officials,although serving on the board of directors or holding important management positions,account for a small proportion,or there is sufficient evidence to prove that the enterprise is not subject to state intervention and has sufficient independence;foreign exchange is settled at market exchange rates;if a single exporter receives different tax rates,they will not Avoidance measures taken due to government intervention)can be used to calculate the dumping margin using their own export prices and obtain a separate tax rate(i.e.,"individual treatment"or"separate tax rate").In anti-dumping investigations,"individual treatment"improperly increases the burden of responding to lawsuits by Chinese enterprises,and artificially overstates the dumping margin of Chinese products,resulting in many cooperative export manufacturers being imposed high national tariffs.According to the decisions of the WTO expert group and the Appellate Body in the fastener dispute,the EU promulgated Regulation No.765/2012 on September 3,2012,amending the legislation on individual treatment in Article 9.5 of the EU Basic Regulations on Anti dumping.In the subsequent anti-dumping investigation initiated by the European Union,responding Chinese enterprises benefited from the new law and could automatically obtain a separate tax rate without filing the above application.As long as they actively respond to the lawsuit,Chinese exporters can usually automatically receive a separate tax rate."

Winning Execution:

Significantly raising the threshold for a"substitute country",the WTO Implementation Expert Group and the Appellate Body issued their findings on the China-EU fastener implementation dispute on August 7,2015 and January 18,2016,respectively.".As a final result,the enforcement appeals body supported all the claims made by the Chinese government and ruled that the EU anti-dumping review measures against China's fasteners violated WTO trade rules in terms of fair comparison,calculation of dumping margin,definition of domestic industries,interested parties,and information disclosure.These problems are precisely the inherent defects that are difficult to avoid in calculating the normal value and dumping margin of Chinese exporters using the non market economy substitute country method.According to the decisions of the WTO Expert Group and the Appellate Body,it will be quite difficult for the EU to continue to adopt such alternative country approaches in the future.First,the WTO ruling has raised the threshold for cooperation between enterprises in alternative countries.According to the ruling of the WTO,as the enterprises of the substitute country are interested parties,they must actively cooperate with the investigation like the responding enterprises,and fulfill the requirements for procedural transparency in the WTO Anti dumping Agreement.In short,a substitute country enterprise must have a legitimate reason and be able to provide a non confidential summary in order to conduct confidential processing of relevant information.Otherwise,the information provided shall not be used by the investigation authority.This ruling has raised the threshold for cooperation among enterprises in alternative countries,and many foreign producers who previously wished to become such enterprises may be deterred.These enterprises must weigh whether they are worth investing significant human and financial resources to fully cooperate with the investigation,as inadequate cooperation may lead to the termination or invalidity of the anti-dumping investigation,and put themselves on the"blacklist"of the investigating authorities that do not cooperate with the investigation.According to the WTO ruling,when calculating the dumping margin for Chinese enterprises,the EU must cover all export transactions.Previously,when calculating the dumping margin of Chinese enterprises,the European Union had excluded a large number of export transactions that could not match the product models of the substitute countries because only some of the product models of the substitute countries were the same or similar to those of Chinese products.In the fastener review survey,48%of export transactions were excluded.In the enforcement lawsuit,the EU's practice was ruled illegal by the WTO.In the future,for unmatched product models,the EU must adjust prices for product differences or adopt a weighted average method to ensure that the calculation of the dumping margin can cover all export transactions.This will undoubtedly bring a huge workload to the investigation authorities.According to the WTO ruling,when calculating the normal value of Chinese products using substitute country prices or cost data,the EU must make necessary adjustments to cost differences that affect price comparability in order to ensure that the adjusted products are price comparable.In the case of fasteners,Indian enterprises in the substitute country used self generating electricity and imported raw materials(wire rods)to produce fasteners,while Chinese exporters used grid power supply and domestic wire rods;In addition,Indian companies have higher raw material consumption efficiency and power consumption efficiency than Chinese companies,while employees'production efficiency is lower than Chinese companies.Therefore,the production costs of enterprises in alternative countries in India are significantly higher than those of Chinese enterprises.However,in the fastener review investigation,the EU refused to adjust the five cost factors of"raw material consumption efficiency","wire rod import tax difference","power consumption","self generated electricity",and"productivity"on the grounds that the production costs of Chinese products were distorted.Instead,it directly used the price and cost data of Indian enterprises to calculate the normal value of Chinese enterprises.The EU's practice was ruled illegal by the enforcement appeals body.In future anti-dumping investigations,the EU must adjust product differences that affect price comparability.This will significantly reduce the calculation results of the normal value and dumping margin of Chinese enterprises,while increasing the operational difficulty of anti-dumping in EU substitute countries.According to the WTO ruling,the EU should explain to Chinese exporters what information is necessary for a fair comparison,so that Chinese exporters can provide relevant information to support their adjustment requests.In short,when calculating the normal value of Chinese products using substitute country price and cost data in the EU,Chinese enterprises must know the product characteristics of the substitute country's enterprises in order to determine whether the product is similar to Chinese products and can be used as the basis for calculating the normal value of Chinese products without adjustment.The EU has long refused to disclose product characteristics of companies in alternative countries on the grounds of confidential information.In the review investigation,the EU was forced to disclose some product features of enterprises in the substitute country,but for other product differences requested by China for adjustment,the EU refused on the grounds that China had failed to confirm its claim.This practice was again ruled illegal by the enforcement appeals body.The Appellate Body pointed out that as the first step in fair comparison,the European Commission should first disclose the product characteristics of the substitute country's enterprises to Chinese enterprises.Even if product features are classified as confidential information,the European Commission should still make necessary disclosures to Chinese companies so that China can decide whether further requests for adjustments are needed.In fact,the European Commission has refused to disclose some features of substitute country products because Indian companies are only willing to provide limited cooperation in the original and review investigations.In the original investigation,Indian enterprises did not fill out the questionnaire according to the requirements of the European Commission;During the review investigation,Indian companies even threatened the European Commission that if the latter disclosed the list and characteristics of Indian products,Indian companies would suspend cooperation.As mentioned earlier,the enforcement appeals body has ruled that the enterprises of the substitute country are interested parties,and therefore must comply with the relevant obligations under the WTO Anti dumping Agreement,and must not treat information confidentially without justifiable reasons.Therefore,in the future EU anti-dumping investigation against China,there will be great uncertainty about the choice of substitute country enterprises.On the one hand,foreign manufacturers may not be willing to become substitute enterprises due to the enormous effort and financial resources required to cooperate with the investigation;On the other hand,even if a substitute country enterprise is identified at the beginning of the investigation,once the enterprise retracts,the investigation authority will face the dilemma of not being able to obtain the necessary data and terminating the investigation.On February 27th,the EU has withdrawn anti-dumping measures against fasteners in China,and may rectify other existing anti-dumping measures against China.Therefore,Chinese exporters who have previously responded to lawsuits should pay close attention to the recent official notices and review notices issued by the European Commission,and actively participate in relevant procedures.In the review investigation,based on the jurisprudence of fastener disputes,they should request the EU to correct illegal measures,so as to strive for the maximum legal rights and interests for themselves.

It is certain that in the future,for anti-dumping investigation authorities,it will become very difficult to meet the requirements of WTO rulings in terms of procedural transparency and fair comparison using a non market economy substitute country approach:they must spend a lot of time and energy persuading substitute country enterprises to fully cooperate with the investigation,and also need to make necessary adjustments to the data provided by substitute country enterprises in accordance with regulations,In order to enable fair comparison of products of different models and characteristics after adjustment,and ensure that the calculation of dumping margin covers all export transactions.The most convenient way to avoid the above difficulties is to abandon the substitute country approach and recognize China's market economy status in anti-dumping investigations.Especially in the context of many differences within the EU regarding China's market economy status,the ruling result of the fastener enforcement lawsuit is likely to force the EU to quickly abandon the anti-dumping methods of substitute countries and recognize China's market economy status.In addition,the jurisprudence of fastener disputes will also have an impact on anti-dumping actions against China by other countries or regions.For example,if India,Brazil and Türkiye imitate the EU in adopting the non market economy substitute country approach to anti-dumping against China,WTO members need to re-examine the legislation and practice of anti-dumping against China,so as to avoid being ruled illegal by WTO in the future and losing international reputation like the EU,and facing trade retaliation.

In the Sino European fastener dispute,China's six major litigation points and over 20 issues have all received the support of the executive appeals body.This is extremely rare in China and even in the history of WTO dispute settlement.China's success in this case is mainly based on the joint efforts of various parties.The first is the determination and foresight of the Chinese government.

According to WTO trade rules,only member governments can initiate dispute settlement procedures and become parties to disputes.At the request of the industry,our government has resorted to the WTO for anti-dumping measures against EU fasteners.The fastener dispute has continued since the consultations in 2009 and has gone through all the legal relief procedures granted to members by the WTO,reflecting the determination and foresight of the Chinese government to use the rules of the multilateral system to resolve trade disputes.The second is the full cooperation of the industry.In the process of resolving fastener disputes,domestic export manufacturers and industry associations(such as the Chamber of Commerce for Import and Export of Mechanical and Electrical Products and the Fastener Industry Association)have closely cooperated with the Chinese government and provided a large amount of industry data and expert opinions.As a result of the original dispute resolution,the EU was forced to reduce the anti-dumping tax rate on fasteners by about 30%,but the tax rate remains high,resulting in the inability of Chinese fastener manufacturers to resume exports to Europe.In this context,the industry has not given up,and the industry association has called on major export manufacturers to continue to actively support the government led dispute resolution process,culminating in a comprehensive victory for China in early 2016.For export manufacturers,they must learn to"save themselves"before they have the opportunity to wait until the"sunrise".In the face of anti-dumping investigations,export manufacturers should actively respond to the lawsuit,adopt effective strategies,submit targeted information required by the investigation authority,and pay attention to the collection and retention of evidence;At the same time,actively participate in the harmless defense organized by industry associations,and strive for legitimate rights and interests for themselves and the entire industry.

Finally,the lawyer's accurate grasp of the point of action and evidence.The Ministry of Commerce of China has repeatedly convened Chinese and foreign lawyers to conduct repeated analysis and discussion before determining China's litigation points and strategies.Evidence is the core issue of legal proceedings,and the dispute resolution process is also conducted around the collection and application of evidence.The earliest evidence preparation in this case can be traced back to every document issued by the European Commission and all information submitted by export enterprises after the original anti-dumping investigation was filed in 2007.During the dispute resolution process,the EU has repeatedly argued that due to the rotation of case handling officials,it is difficult to find the investigation data nine years ago,so it is unable to answer some of the judges'questions and comment on some of the evidence provided by China.In the view of the WTO dispute settlement body,the EU's arguments were invalid,so they ultimately adopted the Chinese perspective.

This article is translated by software translator for reference only.