EU anti-dumping probes: The challenges for Chinese exporters

The EU is the most valuable market for Chinese exporters. It is also one of the regions that initiates the most anti-dumping investigations against China.

Most of these EU investigations against China end with high anti-dumping duties. This is primarily due to the EU adopting the “surrogate country” approach to calculate products’ normal values during investigations.

Methods of investigation

In 2017, the EU amended its regulation with new measures for anti-dumping and anti-subsidy, formally introducing the concept and standards of “market distortion”.

Previously, when the EU adopted the surrogate country approach, Chinese companies were required to submit market economy questionnaires to prove their market economy status. After the 2017 amendment, the EU – drawing from the US – adopted factors of production to determine the normal value of products under investigation. Against this backdrop, this article briefly addresses several of the highlights and difficulties that Chinese exporters face in EU anti-dumping investigations.

Challenges

Separate duty rates. Like most other countries, the EU adopts sampling methods to determine mandatory respondents in anti-dumping investigations and imposes separate duty rates, while other non-sampled operators are given weighted average duty rates.

In practice, the EU investigation authority generally selects large enterprises, ranking in the top three in export value, to use as sampling enterprises. According to EU law, non-sampled enterprises can voluntarily submit an anti-dumping answer sheet for separate rates, which the EU investigation authority will review if time permits.

However, in most cases, the authority will refuse to accept voluntary applications from non-sampled enterprises due to insufficient time for review. Therefore, non-sampled enterprises are not very likely to obtain separate duty rates in anti-dumping investigations.

Tight timelines. The EU has noticeably accelerated anti-dumping investigations in recent years. On the announcement of a case, Chinese exporters must submit the sampling questionnaire within seven days. Subsequently, the EU investigation authority will announce sampling results in one or two days, followed by the requirement for sampled enterprises to submit their anti-dumping questionnaire answer sheets and all supporting materials within 30 days. Due to the numerous data and materials demanded by the questionnaire, respondents need plenty of time to complete it.

Now that the EU has adopted factors of production (FOP), respondents need to provide highly detailed cost data to reasonably allocate the quantity of FOP for products under investigation.

Although drawing on the US experience, the EU still retains some previous practices, such as using certain evidential materials to prove market economy status, imposing unreasonable burdens on respondents. Thus, even if a Chinese exporter promptly assembles a legal team, getting all materials ready within the stipulated time is challenging, particularly for large enterprises with more involved affiliates.

Material content. The required financial data is extensive and intricate, and the data in tables is highly interrelated. This is especially so for the data of table F.3 for the cost of manufacturing (COM); it involves much content and great difficulty, which means mistakes may easily be made. This situation reduces data accuracy and completeness. In severe cases, it may even lead to the data being rejected during field verification, leading to the respondent being subjected to the highest duty rate.

Specifically, COM tables are extremely complex. They require not only COM details based on product specifications and product control numbers (PCNs) determined by the EU investigation authorities, but also an overview of COM and consumption for products under investigation, and various supporting tables like raw material purchases, energy purchases, electricity purchases, labour and material stocks.

For COM PCN tables, if a respondent manufactures various product types, they must provide detailed specifications and stocks of PCNs, along with transport costs for each factor. If multiple steps are involved in the production, the workload increases.

COM overview tables are also extremely demanding and consist of COM overview table 1 and Consumption overview table 2. Table 1 requires not only data from the investigation period and the previous financial year, but also the COM for all investigated products or product divisions during the investigation period. If a respondent has a large variety of products under investigation, or if the production involves multiple steps, the workload is multiplied accordingly.

Stringent oversight. The EU has initiated plenty of anti- dumping cases against China, endowing investigation authorities with extensive experience and a thorough understanding of the sales patterns and financial accounting methods of Chinese enterprises. Thus, any incomplete or inaccurate financial data is easily detected.

For example, during one investigation the EU authorities required respondents to explain in detail the operation of China’s Golden Tax System, export lists of all sales and procurement invoices for raw materials from the VAT system, and provide the VAT exemption, credit and refund declaration forms for the past three years, as well as detailed income tax declaration forms. This stringent approach basically eliminated any possibility for respondents to modify and adjust their financial data.

Enterprises must accurately fill in the data and explain unusual operations in financial accounting processes with sufficient reasons.

Summary

In conclusion, the EU anti-dumping questionnaires and tables are too complicated, without reasonable consideration for the basis and principles for dumping margin calculations. They result in unnecessary workload and responding costs.

Wang Jiesan is a partner at W&H Law Firm. He can be contacted by +86 138 1078 6931or by e-mail at wangjiesan@weihenglaw.com