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APRIL 22, 2007
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Business Today,  April 8, 2007
EU Rules
The European Union (EU) is considering revamping its rules to make it harder to slap anti-dumping fines on cheap imports. This could greatly benefit low-cost manufacturers like China and India. European Commissioner for Trade Peter Mandelson's move follows rising global criticism of the EU's rules for imposing fines on exporters selling cheap goods. Asian and Latin American states have said the legislation is protectionist.

EU trade chief Mandelson has asked lawyers, diplomats and others to a conference to testify on how the EU evaluates complaints against dumping. Mandelson hopes to make changes that could lessen the divisions within Europe about the validity of dumping complaints. However, in a recent interview, he declined comment on what changes he will make in the rules.

European manufacturers, however, backed by governments in Italy, Spain and France, argue that the EU rules are not tough enough to shelter them from unfair competition. However, given rapid changes in the global economy, the EU needs to modernise and update its trade defense rules to reflect new realities. To address the issues effectively, the EU is launching a wide-ranging public consultation on how best to overhaul anti-dumping rules. Talks are likely to be held with European industry, but also with consumers and retailers who oppose such price-hiking duties sometime soon.

The EU officials say a range of new developments need to be discussed during the consultations, including the fact that a growing number of European companies produce goods outside the EU and then import them into the bloc. European firms are also outsourcing some steps in the production process, or operated supply chains that stretch beyond the EU market. The EU trade chief denied that he wanted the EU to use trade defense tools less often or to weaken the current regulation. Instead, the focus is on making anti-dumping legislation is 'fit for its purpose'.

Trade lawyers say there are several ways in which the EU's commissioner for trade could change the current rules in order to make sure that fewer narrowly supported anti-dumping cases get approved. To obtain an anti-dumping penalty, an association of companies representing more than 25 per cent of a sector must support an anti-dumping complaint and show that it has cut into their market share.

Thus by requiring broader and firmer support for anti-dumping measures, the EU's goal is to get politics out of dumping. Moreover, the EU can't force companies to publish changes in their market share and other evidence they provide to support their claims for protection. That also could be changed, to make the penalty process more transparent and deter countries from lobbying for weak cases.

In the current voting system, in which EU member countries decide whether to accept claims, abstentions count as a vote for introduction of penalties. That rule also could be altered, trade lawyers say. The EU, a 27-nation bloc that imports more than $1 trillion in goods every year, makes relatively scarce use of anti-dumping duties. The EU imposed 13 measures in 2006, affecting less than 0.5 per cent of all imports.

There's another angle to the anti-dumping issue. Last October, when the EU imposed anti-dumping duties on Asian shoe imports, European retailers cried foul.

The retailers were against the anti-dumping penalties because the penalties pushed retail prices higher. The retailers have since asked that the EU take into account the impact the penalties would have on "community interest", which actually means the prices the end consumer will have to cough up.

So, while framing the new rules, the EU will have to keep in mind that anti-dumping penalties also hurt the profitability of big retailers in EU. EU states voted 13 to 12 to support duties of 16.5 per cent on shoes made in China and 10 per cent on those made in Vietnam. When Mandelson visited China in November, he was reminded about the EU's new anti-dumping duty on shoes. The EU is currently negotiating new terms of trade with China and India.

Also in October, the EU imposed anti dumping duties on imports of frozen strawberries from China, only to lift them again in March. An EU report concluded that Polish strawberry producers, who brought the complaint, hadn't been harmed by Chinese competition, but by poor weather and higher labour costs. After collecting opinions on the dumping issue, Mandelson's office will publish recommendations in the next few months. The EU member states will then vote on the proposal.

Notwithstanding the criticisms from the member countries, the changes in anti-dumping rules will put the EU in a better stance with trading partners. In future it will give the body better bargaining powers inn trade negotiations with developing countries. On the other hand access to markets in the EU will prove to be a win-win situation for the developing countries as it has been a long-standing demand.