EU strikes deal on stronger trade arsenal against China

European industry argues the deal will not help stem a tide of dumped Chinese steel.

EU countries on Tuesday broke almost four years of impasse over how to hit China with the sort of tough anti-dumping tariffs that are more typical in the U.S.

However, their response was relatively narrow in focus and triggered immediate protests from the European steel industry, which said it would prove powerless to stem dumping from China’s giant mills.

Europe’s inability to retaliate against Chinese dumping has become a heated political subject, with leading industries saying that tens of thousands of jobs are threatened by a flood of imports of ultra-cheap steel, ceramics and textiles. European Commission President Jean-Claude Juncker has complained that the U.S. often imposes anti-dumping duties of about 250 percent, while those in Europe are generally only a 10th of that level.

Europe’s deal to roll out higher tariffs comes amid heightening trade tensions between China on one side and the U.S. and the EU on the other. The move by EU countries comes a day after China decided to sue the EU at the World Trade Organization over the way it calculates tariffs in anti-dumping cases.

The main reason that EU tariffs are lower than those in the U.S. hinges on a peculiarity of EU trade policy called the lesser duty rule (LDR). Tuesday’s deal hinged on waiving the LDR in certain circumstances, in order to allow Brussels to slap higher duties on Chinese companies found to be dumping.

“This is a major breakthrough,” said Peter Žiga, Slovakia’s minister in charge of trade. “Our trade defense instruments have remained largely the same for over 15 years but the situation on world markets has changed dramatically.”

EU Trade Commissioner Cecilia Malmström echoed Žiga’s assessment and added, “The EU stands for free, rules-based trade and we must be able to address unfair subsidies and dumping with determination.”

But industry immediately slammed the deal as insufficient. “The new provision on the LDR is neither efficient or robust, nor effective or balanced, nor is it adequate to address situations in which market conditions do not prevail,” said Eurofer, the lobby representing EU steel.

North versus South

The Commission first proposed reforming trade defense in April 2013.

The logic behind the lesser duty rule is that it does not force the EU to recoup the full difference between the price of a dumped good and the estimated cost of production, which is the more normal methodology in the U.S. Instead, the EU retaliates with a far lower duty intended only to prevent actual harm to European industry.

The U.K. and northern European countries led opposition to the reform of the LDR. They argued that cheap goods often benefit companies further up the value chain that buy them.

Southern European countries, Italy first and foremost, sought stronger weapons to hit back at China.

Tuesday’s compromise means EU countries will be able to waive the LDR — and hike up anti-dumping duties — but only in very narrowly defined cases.

The deal brokered by the Slovaks hinges on what level of price “distortion” in the raw material and energy inputs that go into a dumped product are acceptable.

The compromise states that the lesser duty rule can be waived when a “distorted” raw material makes up 7 percent or more of a dumped good and the sum of all the distorted raw materials in the dumped product exceeds 27 percent.

A second issue of contention among EU countries was the so-called “pre-disclosure,” a guaranteed timeframe that ensures importers are informed about impending higher tariffs before a decision on higher duties comes into effect. The Slovaks proposed three weeks as a timeframe, but the final proposal is likely to be longer.

Countries also agreed on the caveat that “a union interest test” must apply before a waiver takes effect, meaning that it must be broadly in the EU’s strategic interest.

The Council compromise will now pass to the European Parliament, where lawmakers are expected to propose amendments.

Christofer Fjellner, a Swedish center-right MEP, called for quick resolution.

“I am ready to enter into negotiations on the Parliament’s behalf but both institutions need to tread carefully as we cannot afford another stalemate, turning the reform into a Sleeping Beauty.”