This is a guest post from Florin D. Dascalescu[i]
- Introduction
On 4 October 2023, the European Commission (EC) initiated an anti-subsidy (AS) proceeding concerning imports of new battery electric vehicles (EVs) originating in China.[ii] The investigation has been anticipated by the EC President, Ursula von der Leyen, in her State of the Union address on 13 September 2023, in connection with fairness in the global economy and recalling also “how China's unfair trade practices affected our solar industry”.[iii]
Since AS investigations imply the assessment of a third country governmental policies and provide for the participation of the relevant government in the procedures, such procedures inherently contain a political element.
At the same time, the current AS investigation includes a lot of interesting aspects on the technical side, which make the case attractive to watch for the trade defense measures afficionados. First, the AS investigation has been initiated “ex-officio”, and not further to domestic industry’s complaint, which is a rather rare instance (although, in our view, this may be linked to preserving the confidentiality of some EU actors, due to retaliation concerns, which have been previously encountered in trade defense procedures). Second, the initiation was based on a “threat of injury” claim (as opposed to actual injury where injury already occurred), which requires by its very nature, a prospective analysis and a higher standard of proof. Third, the AS investigation concerns a relatively new product, EVs under the combined nomenclature (CN) code 8703 80 10,[iv] so one cannot exclude that interested parties may claim various exclusions from the investigation scope.
As regards the relevant periods for which data will be collected, the investigation period (IP) for the purpose of the subsidization and injury determinations will be 1 October 2022 – 30 September 2023. The period considered for the examination of the trends relevant for the threat of injury assessment will be 1 January 2020 – 30 September 2023.
All these will render, in our opinion, this AS investigation a delicate matter, since the “threat of injury” assessments by the EC in similar circumstances have been sometimes annulled by the courts of the European Union (EU).
- Some preliminary data on imports of EVs into EU
The import statistics between 2020-2023[v] do show a certain increasing trend of imports of new EVs from China into EU. This may mean that Europe has become the key target for Chinese EV makers searching for new markets,[vi] with China taking advantage of the EU bloc’s promotion of EVs and various governmental incentives.[vii]
Such data is very preliminary and needs to be further refined and analyzed. Based on the overall preliminary statistics, the average price of imports from China into the EU appears prima facie to be below the average price of total imports, with 62% in terms of market share of total imports in volume (units) and only 54% in value (EUR). However, since the CN code may cover a product mix, the specific analysis of the imports’ prices will depend on the how the EC will construct and use the product control numbers (PCNs) for the purpose of the AS investigation. More importantly, prices of imports from China will have to be compared with the prices of the EU domestic producers, for the purpose of the injury analysis.
- Legal basis for the imposition of countervailing (CVD) duties and similarities with anti-dumping proceedings as regards material injury
The legal basis is the Council Regulation 2016/1037 on protection against subsidized imports from countries not members of the EU. [viii] In the EU terminology, the anti-subsidy regulation is referred to as the “Basic Regulation”. The EU anti-subsidy rules are based on the WTO Agreement on Subsidies and Countervailing Measures (ASCM), that allows remedial action to be taken at national level against subsidies that are considered an unfair trade practice.
The imposition of anti-subsidy measures under the Basic Regulation, which reflects the ASCM rules, requires three main conditions: (i) the existence of dumping, (ii) material injury and (iii) the nexus between subsidized imports and the damage inflicted to the domestic industry. As a particularity, the Basic Regulation imposes a fourth one, since countervailing measures may not be applied where the investigating authorities conclude that it is not in the Union's interest to apply them (article 31).
Similarly to anti-dumping investigations, the assessment of whether the European producers are experiencing material injury represents a crucial step in anti-subsidy proceedings carried out by the EC. Article 2 of the Basic Regulation (“Definitions”) provides for three forms of material injury: (i) actual material injury; (ii) threat of material injury; (iii) material retardation of the establishment of an industry. Regulation 2016/1036 on protection against dumped imports (AD Regulation) provides an identical requirement in Article 3 (Determination of injury).[ix]
The elements in the threat of injury analysis are almost identical in both types of proceedings. More generally, there are fewer anti-subsidy investigations, as opposed to anti-dumping, that is why the latter may provide more abundant guidance. Thus, in our view, the findings as regards “threat of injury” in AD investigations are relevant and applicable to the AS investigations and vice-versa.
- Interplay between the various forms of material injury in AS/AD cases
At the outset, it is noteworthy that the Basic Regulation does not contain any definition of “material injury”. Experts in the field have described this concept in the anti-dumping context in a figurative manner: “the assessment of whether dumped imports have caused injury is not an exact science”.[x]
The reason for putting forward a threat of injury claim is simple: the domestic industry should not wait until it is irreversibly harmed in order to submit a complaint.[xi] Thus, this provision forms the basis of a preventive mechanism which allows in specific conditions the investigating authorities to act before actual material injury is inflicted on the domestic industry.[xii]
In the context of analyzing the different types of injury, experts agreed that “threat of injury” involves a complex analysis, which cannot simply replace the lack of evidence for actual material injury: “[i]t should be noted that the concept of threat of material injury is a different (and more demanding) test from that of material injury […]. It is not a concept on which the Community institutions can simply fall back upon to justify imposing measures in circumstances where material injury has not been established.”[xiii]
The existence of one form is sufficient for an injury finding and such finding cannot be based simultaneously on all three forms of injury.[xiv] If the investigating authorities decide that the domestic industry suffered material injury, they cannot find that there was also a threat of material injury (which assumes that material injury has not yet occurred).
- Principles to be followed in AS/AD threat of injury investigations
Article 8(8) of the Basic Regulation concerning the threat of injury form[xv] is based on Article 15.7 of the ASCM.
Incidentally, one should note that with the exception of an additional point (a), the requirements in Article 8(8) points (b) to (e) mirror the article 3(9) of the AD Regulation. The main elements that must be considered when assessing a threat of injury case in an anti-subsidy investigation are: (i) the standard of evidence required; (ii) a clearly foreseen and imminent change in circumstances; and (iii) the five specific factors and eventually supplementary ones, so as to decide whether in the absence of countervailing measures material injury will occur. [xvi]
As regards this latter point, Article 8(8) implies that other factors may be also considered if relevant (“consideration should be given to such factors as: […]”). Thus, according to the WTO Panel’s decision in an anti-dumping case, Mexico HFCS, the assessment of a threat of injury claim must be carried out by analyzing both the factors set forth in Article 3.7 and the indicators referred to in Article 3.4 of the WTO Anti-dumping Agreement (ADA).[xvii] The aim of this analysis is to examine the potential impact of the dumped imports on domestic producers.[xviii]
In a first phase, the investigating authorities are under an obligation to examine the factors provided by Article 15.4 ASCM or Article 3.4 of the ADA, as applicable, so as to determine the situation of the domestic industry. Indeed, according to the WTO case-law, the investigating authorities are required to demonstrate that the change in circumstances (and especially an increase of the subject imports) is likely to have a negative impact on the domestic producers’ situation, as reflected by the injury factors listed in the relevant articles of the ASCM or ADA. According to the WTO settled case-law, where the economic situation of the domestic producers is very good, it is more difficult to find that a threat of injury occurred.[xix] In a second phase, the specific five factors in ASCM Article 15.7 or Article 3.7 of the ADA need to be analysed as well. Such analysis would have to lead to the conclusion that unless protective action is taken, material injury will occur in the near future.[xx]
Another crucial point is to our mind the use of the post-investigation period (IP) data, i.e. the data which the EC may collect after the initiation of the AS/AD proceeding. Such post-IP data is not included either in the complaint of the domestic industry or in the case of ex-officio investigations, like the one at hand, in the EC memorandum on sufficiency of evidence containing the EC's assessment on all the evidence at its disposal concerning the country concerned. The European Courts clarified that the EU legislature did not intend to exclude entirely the consideration of such post-IP data (see the Section 6.3 below).
- Prior European case-law that may be relevant – AD case on Seamless pipes and tubes
6.1 EC’s assessment
The “threat of injury” assessment made by European investigating authorities has been already challenged before the European Courts, in a very interesting case concerning the imposition of anti-dumping duties on imports of certain seamless pipes and tubes of iron or steel originating in China in 2009.[xxi]
The EC analyzed the injury factors and found that while the EU industry has not suffered material injury in the IP within the meaning of Article 3(5) of the Basic Regulation, it was in a vulnerable state at the end of it. Further to the analysis of the specific threat of injury factors in Article 3(9) of the Basic Regulation, the EC concluded that in the absence of measures the Chinese dumped imports would imminently cause material injury to the “vulnerable” EU industry. The Council, in the regulation imposing definitive duties, expressly confirmed the EC’s conclusions in that respect.[xxii] It is precisely this finding which has been challenged in an appeal before the General Court by one company subject to AD duties of 15.6%.[xxiii]
6.2 General Court
The General Court supported the applicant’s claim and found that “besides the decrease of the EU industry’s market share, the economic factors referred to above [in Article 3(5) of the Basic Regulation] are all positive and, on the whole, paint a picture of an industry in a situation of strength, not of fragility or vulnerability. […] Therefore, in view of all of those factors, it must be found that the institutions’ conclusion that the Community industry was in a vulnerable situation at the end of the investigation period was not supported by the relevant economic data in the present case.” (recital 61)
The General Court examined the applicant’s arguments focused on the specific threat of injury requirements of Article 3(9), with respect to the existence of a threat of injury. The main contentious points in this respect were based on the use and assessment of the post-IP data (July 2008 to March 2009), considering that the threat of injury requires a prospective analysis and the data available at the moment of the beginning of the investigation may differ from the moment when definitive duties are finally imposed (sometimes a data lag of over one year).
In the Seamless Tubes and Pipes case, according to the data set out in the Regulation imposing definitive duties, the volume of imports originating in China decreased significantly in the post-IP, a decrease which was very large in absolute terms (imports decreased by 24.6%). At the same time, due to a contraction in demand, in relative terms, the increase of the market share held by these imports was small, namely 0.7 percentage points over that period. The General Court considered that there was a significant difference between the EC’s estimates in the provisional regulation and the economic data from the post-investigation period which were later taken into account by the Council. Contrary to Council’s findings, the slight increase, in relative terms, and the significant decrease, in absolute terms, of imports originating in China did not support the conclusion that a significant increase of imports was likely. (recital 78)
The General Court also retained that the EU Institutions did not at any time consider the Chinese internal market and the possible effect of that market on the potential absorption of additional production capacity. As regards the prices of imports originating in China, the post-IP data show that, contrary to what was asserted by the EC, they significantly increased in a context of contraction of the EU market.
The General Court concluded that as regards the four threat of injury factors in Article 3(9) “one factor is regarded as irrelevant by the institutions (stocks), two factors show inconsistencies between the Commission’s estimates, confirmed by the Council in the contested regulation, and the relevant post-investigation period data (volume of imports and price of imports) and one factor (capacity of the exporter and risk of redirection of exports) is incomplete in respect of the relevant evidence to be taken into account. Those inconsistencies and lacunae must be viewed in the context of the requirements laid down by the basic regulation that the threat of injury must be based ‘on facts and not merely on an allegation, conjecture or remote possibility’ and that the change in circumstances which would create a situation in which the dumping would cause injury must be ‘clearly foreseen and imminent’.” (recital 91)
6.3 Appeal before the European Court of Justice
The relevant EU Institutions, as well as the EU domestic industry, appealed the General Court’s findings in the case T‑528/09.[xxiv] These appellants submitted analogous arguments, which overlapped to a large extent, the pleas being in essence that the court of first instance (i) infringed Article 3(5) and distorted the clear sense of the evidence; (ii) misinterpreted Article 3(7); (iii) misinterpreted Article 3(9); and (iv) committed an error of law in that it substituted its own assessment of the economic factors for that of the EU institutions.
The European Court of Justice (ECJ) rejected all the pleas in the appeal and upheld the General Court’s position. In our view, the ECJ’s findings cement the practice as regards threat of injury in AD/AS procedures with respect to the contested points.
One confirmed finding was that in order for the EU Institutions to be able to determine whether there is a threat of material injury to the EU industry, it is necessary to know the present situation of that industry. (recital 31) Based on the correct assessment of that situation, the EU Institutions can determine whether the dumped or subsidized imports will cause material injury to the EU industry if no trade defence measure is taken.
Another conclusion was that, if in a first step, the factors in Article 3(5) depict a very positive situation of the domestic industry, this does not justify a finding of vulnerability or fragility and, subsequently, in a second step, the existence of a threat of injury is more difficult to demonstrate during the analysis of the specific factors under Article 3(9).[xxv]
Finally, a key point to consider further to this case is the use and analysis of the post-IP data, i.e. the data which the EC may collect after the initiation of the AS/AD proceeding. While as a rule, post-IP data are not to be taken into account for the purpose of the investigation of the dumping and the injury, nevertheless, by using the adverb “normally” in article 6(1) of the AD Regulation,[xxvi] the EU legislature did not intend to exclude entirely the consideration of such data. EU institutions are therefore entitled, in certain circumstances, to take post-investigation period data into consideration. The ECJ concluded that it is particularly so in investigations intended not to find an injury, but to determine whether there is a threat of injury which, by its very nature, requires a prospective analysis. The existence of a threat of injury, like that of an injury, must be established as at the date of the adoption of the anti-dumping measure. In addition, Article 3(9) of the Basic Regulation requires that the finding of a threat of material injury is to be based on facts and not merely allegation, conjecture or remote possibility and that the change in circumstances which would create a situation in which the dumping would cause injury must be clearly foreseen and imminent. Thus, the post-IP data may be used to confirm or invalidate the forecasts in the regulation imposing provisional duties. The EU Institutions’ use of those post-IP data cannot escape review by the EU judicature. Thus, the ECJ found in the appeal that the General Court was entitled to verify whether the post-IP data invoked by the EU Institutions in the regulation imposing definitive duties confirmed the forecasts from the provisional regulation and, consequently, justified the imposition of definitive anti-dumping measures. In the case at hand, the post-IP evidence relied on by the EU Institutions were not capable of supporting the conclusion that there was a threat of injury.
- Some final thoughts
The threat of injury proceedings are sensitive cases, which require a very complex economic analysis. The European Courts recognized that in the area of the common commercial policy and, most particularly, in the realm of measures to protect trade, the EU institutions enjoy a broad discretion by reason of the complexity of the economic, political and legal situations which they have to examine.
Conceptually, such form of injury also reflects more acutely the dichotomy between proponents and opponents of trade defense measures. For example, the former indicate that the proceedings typically take place after the damage is done, and even if the AD/AS complaint is accepted and measures are imposed, compensation for past losses is not available and the market may already have been permanently altered.[xxvii] The latter assert that giving relief for threats of injury involves speculation, not hard facts, and should not be available as second resort when the attempt to prove actual injury appears to be or has been unsuccessful.[xxviii]
In our view, it is beyond any doubt that WTO members are fully entitled to act when subsidies threaten to cause injury to the domestic producers, and ideally corrective measures shall be indeed imposed before the damage is inflicted.
At the same time, while the determination of injury is not “an exact science” in the words of scholars, the investigating authorities should follow strict technical rules, in line with the legal provisions of EU AD/AS Regulations and WTO ADA/ASCM. The recent cases before European courts provide, in our view, useful, objective and rigorous guidance on how investigations shall be conducted in threat of injury AS/AD investigations.
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[i] The author is a Senior legal counsel at the European Investment Bank Group (EIB Group) and is currently undertaking a PhD project focused on subsidies, in particular on the potential impact of EU State aid rules and the Foreign Subsidy Regulation 2022/2560 on SMEs’ access to finance. The content of this post is part of an academic paper currently in progress and strictly reflects the personal views of the author based on the information examined.
[ii] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ%3AC_202300160
[iii] https://ec.europa.eu/commission/presscorner/detail/ov/speech_23_4426
[iv] Sub-heading 8703 reads ”Motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 8702), including station wagons and racing cars”, while the sub-heading 8703 80 reads “ – Other vehicles, with only electric motor for propulsion”, with further digits classifying it in 10 – “new” and 90 - “used”, both being currently subject to a 10% duty rate.
[v] Data for 2023 has been annualized based on the first eight months (January to August) available at the time of the extractions on Eurostat.
[vi] June Yoon, China’s electric vehicles threaten to leave Europe in the dust, 04.10.2023, Financial Times; available at: https://www.ft.com/content/5f385b83-18d6-44da-891d-4c09c1360fff
[vii] Hitoshi Suzuki, How electric vehicles became subject to EU economic security, 07.11.2023, The Japan Times; available at: https://www.japantimes.co.jp/commentary/2023/11/07/world/european-union-electric-vehicles/
[viii] Regulation (EU) 2016/1037 of the European Parliament and of the Council of 8 June 2016 on protection against subsidised imports from countries not members of the European Union (codification). https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02016R1037-20200811
[ix] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02016R1036-20200811
[x] W. Muller, N. Khan, H-A. Neumann, EC Anti-dumping Law, A Handbook, Oxford University Press, 2009, p. 266.
[xi] Florin Dascalescu, Threat of Injury in Anti-dumping Investigations: Some Comments on the Current Practice at EU and WTO Level, “Journal of World Trade”, Kluwer Law International, volume 45 (2011), issue 4, p. 880. Available at SSRN: https://ssrn.com/abstract=4059444
[xii] D. Feaver, Threat of Material Injury: One Ingredient in the Witches’ Brew, World Competition, Vol. 20, September 1996, p. 94.
[xiii] W. Muller, N. Khan, H-A. Neumann, EC Anti-dumping Law, A Handbook, Oxford University Press, 2009, p. 344.
[xiv] See W. Muller, N. Khan, H-A. Neumann, EC Anti-dumping Law, A commentary on Regulation 384/96, John Wiley& Sons, 1998, p. 181.
[xv] A determination of a threat of material injury shall be based on facts and not merely on allegations, conjecture or remote possibility. The change in circumstances which would create a situation in which the subsidy would cause injury must have been clearly foreseen and must be imminent.
In making a determination regarding the existence of a threat of material injury, consideration should be given to factors such as:
(a) the nature of the subsidy or subsidies in question and the trade effects likely to arise therefrom;
(b) a significant rate of increase of subsidised imports into the Union market indicating the likelihood of substantially increased imports;
(c) whether there is sufficient freely disposable capacity on the part of the exporter or an imminent and substantial increase in such capacity indicating the likelihood of substantially increased subsidised exports to the Union, account being taken of the availability of other export markets to absorb any additional exports;
(d) whether imports are entering at prices that would, to a significant degree, depress prices or prevent price increases which otherwise would have occurred, and would probably increase demand for further imports;
(e) inventories of the product being investigated.
No one of the factors listed above by itself can necessarily give decisive guidance, but the totality of the factors considered shall be such as to lead to the conclusion that further subsidised exports are imminent and that, unless protective action is taken, material injury will occur.
[xvi] Florin Dascalescu, Threat of Injury in Anti-dumping Investigations: Some Comments on the Current Practice at EU and WTO Level, “Journal of World Trade”, Kluwer Law International, volume 45 (2011), issue 4, p. 880; available at SSRN: https://ssrn.com/abstract=4059444
[xvii] Article 3(5) of the AD Regulation provides the injury factors for the determination of actual material injury and is based on Article 3.4 of the Anti-dumping Agreement. Article 3(5) reads as follows: “[t]he examination of the impact of the dumped imports on the Community industry concerned shall include an evaluation of all relevant economic factors and indices having a bearing on the state of the industry, including the fact that an industry is still in the process of recovering from the effects of past dumping or subsidization, the magnitude of the actual margin of dumping, actual and potential decline in sales, profits, output, market share, productivity, return on investments, utilization of capacity; factors affecting Community prices; actual and potential negative effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investments. This list is not exhaustive, nor can any one or more of these factors necessarily give decisive guidance.”
[xviii] Mexico – Anti-Dumping Investigation of High-Fructose Corn Syrup (HFCS) from the United States - Report of the Panel, 28 January 2000, at para. 7.127. The findings of the Panel Report were confirmed in Mexico – Anti-Dumping Investigation of High-Fructose Corn Syrup (HFCS) from the United States - Report of the Appellate Body, WT/DS132/AB/RW, 22 October 2001: “[t]urning to the question of the nature of the analysis required, we note that Article 3.4 of the AD Agreement sets forth factors to be evaluated in the examination of the impact of dumped imports on the domestic industry. Nothing in the text or context of Article 3.4 limits consideration of the Article 3.4 factors to cases involving material injury. To the contrary, as noted above, Article 3.1 requires that a determination of "injury", which includes threat of material injury, involve an examination of the impact of imports, while Article 3.4 sets forth factors relevant to that examination. Article 3.7 requires that the investigating authorities determine whether, in the absence of protective action, material injury would occur. In our view, consideration of the Article 3.4 factors in examining the consequent impact of imports is required in a case involving threat of injury in order to make a determination consistent with the requirements of Articles 3.1 and 3.7.” (emphasis added)
[xix] Egypt – Definitive Anti-Dumping Measures on Steel Rebar from Turkey, Report of the Panel WT/DS211/R, 8 August 2002, at para. 7.91: “[t]hus, the text of this provision makes explicit that in a threat of injury investigation, the central question is whether there will be a "change in circumstances" that would cause the dumping to begin to injure the domestic industry. Solely as a matter of logic, it would seem necessary, in order to assess the likelihood that a particular change in circumstances would cause an industry to begin experiencing present material injury, to know about the condition of the domestic industry at the outset. For example, if an industry is increasing its production, sales, employment, etc., and is earning a record level of profits, even if dumped imports are increasing rapidly, presumably it would be more difficult for an investigating authority to conclude that it is threatened with imminent injury than if its production, sales, employment, profits and other indicators are low and/or declining.” (emphasis added)
[xx] Florin Dascalescu, Threat of Injury in Anti-dumping Investigations: Some Comments on the Current Practice at EU and WTO Level, “Journal of World Trade”, Kluwer Law International, volume 45 (2011), issue 4, p. 884; available at SSRN: https://ssrn.com/abstract=4059444
[xxi] Commission Regulation (EC) No 289/2009 of 7 April 2009 imposing a provisional anti-dumping duty on imports of certain seamless pipes and tubes of iron or steel originating in the People's Republic of China, OJ L 94, 8.4.2009, p. 48–74; available at: https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A32009R0289
[xxii] Council Regulation (EC) No 926/2009 of 24 September 2009 imposing a definitive anti-dumping duty and collecting definitively the provisional duty imposed on imports of certain seamless pipes and tubes of iron or steel originating in the People’s Republic of China, OJ L 262, 6.10.2009, p. 19–35; available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32009R0926&qid=1699185942785
[xxiii] Judgment of the General Court (Second Chamber), 29 January 2014, Hubei Xinyegang Steel Co. Ltd v Council of the European Union, Case T‑528/09; available at: https://curia.europa.eu/juris/document/document.jsf?text=&docid=147002&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=893557
[xxiv] Judgment of the General Court (Second Chamber) of 7 April 2016, in Joined Cases C‑186/14P ArcelorMittal Tubular Products Ostrava a.s. and Others v Hubei Xinyegang Steel Co. Ltd and C‑193/14P Council of the European Union v Hubei Xinyegang Steel Co. Ltd.; available at: https://curia.europa.eu/juris/document/document.jsf?text=&docid=175671&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=923493
[xxv] See also Florin Dascalescu, Threat of Injury in Anti-dumping Investigations: Some Comments on the Current Practice at EU and WTO Level, “Journal of World Trade”, Kluwer Law International, volume 45 (2011), issue 4, p. 884; available at SSRN: https://ssrn.com/abstract=4059444
[xxvi] Article 6(1) of the Basic Regulation provides that: “[f]or the purpose of a representative finding, an investigation period shall be selected which in the case of dumping shall, normally, cover a period of no less than six months immediately prior to the initiation of proceedings. Information relating to a period subsequent to the investigation period shall, normally, not be taken into account.” (emphasis added)
[xxvii] A. F. Lowenfeld, International Economic Law, Second Edition, Oxford University Press, 2008, p. 292.
[xxviii] Ibidem.
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