Introduction
Designed and modernized to protect EU producers, the EU trade defence toolbox – including anti-dumping and countervailing (anti-subsidy) duties and safeguards – has allowed to accelerate the proceedings by shortening the investigation period, impose higher duties by suspending in some cases the lesser duty rule, and reflect on social and environmental standards and market distortions induced by foreign subsidies. Recent global trade developments,[i] however, showed the limits of the existing toolbox. They forced the EU to review its priorities and to adopt a less naïve attitude vis-à-vis unfair trade practices.
As a result, the European Commission (“Commission”) has been active in further fine tuning its trade defence toolbox. A more assertive EU trade policy has been thus supplemented by reinforced foreign direct investment screening, modernized enforcement regulation, proposals for instrument to guarantee access to public procurement markets[ii] and for anti-coercion mechanism to retaliate against actions of certain third countries.[iii] This also includes, as the Commission announced in its communication of last February,[iv] a proposal to track new forms of subsidies by third countries, and address them with countervailing measures.
In that regard, the anti-subsidy measures imposed by the Commission on imports of glass fibre fabrics and reinforcements from China and Egypt (“Glass fibre cases”) last year are perfect examples that demonstrate the Commission’s willingness to broaden the scope of its tools when it comes to tackling subsidies provided by third countries that affect the EU economy. The two proceedings were followed by the publication of the White Paper on foreign subsidies and a proposal for a Regulation revealed on 5 May 2021.
This article briefly describes Glass fibre cases and provides insight into the announced instruments to tackle foreign subsidies.
1. Where Glass fibre cases set a precedent
In 2019, the Commission initiated three anti-subsidy investigations targeting Chinese subsidies provided to exporting producers of glass fibre fabrics (“GFF”) and glass fibre reinforcements (“GFR”) in Egypt and of hot-rolled stainless steel flat products in Indonesia.[v] The latest was terminated by withdrawal of the complaint by EU producers (Eurofer) and thus brought no light as to the Commission’s thinking. Instead, two Glass fibres cases were terminated by the imposition of countervailing measures.[vi] Nothing unusual so far: the basic Anti-subsidy Regulation[vii] allows the EU to act against subsidised imports of goods from a third country. What triggers the attention is that the definitive measures were imposed not only to counteract foreign subsidies granted by China and Egypt to exporting producers located in their respective territories, but foremost to countervail subsidies provided by the Chinese Government to exporting producers located in Egypt.
The proceedings targeted two Egyptian producers of GFF, Hengshi Egypt and Jushi Egypt, the latest being also the producer of GFR, which is the main raw material used in the production of GFF. Both companies are subsidiaries of the Chinese state-owned enterprise, Jushi China, and both are headquartered in the China-Egypt Suez Special Economic Zone (SEZone).
During the proceedings, the Commission examined subsidies granted by (i) the Chinese public authorities to Chinese exporters (preferential financing); (ii) Egypt directly to both GFF and GFR producers in the form of supply of land and tax incentives; and (iii) Chinese public authorities in the form of preferential financing to its Egyptian subsidiaries.
The Commission concluded that subsidies granted by the Government of China to its Egyptian subsidiaries must in fact be attributed to the Government of Egypt, as they constitute a key part of a far-reaching Cooperation Agreement between both countries. As a result, the Commission imposed anti-subsidy measures of between 17% and 30.7% on imports of GFF from China, 10.9% on imports from Egypt, and 13.7% on GFR imports from Egypt. Combined with anti-dumping measures imposed on GFF imports almost at the same time, Egyptian exports of glass fibre were severely impacted. [viii]
Glass fibre cases are of particular interest as they set a precedent for similar actions against subsidies made by foreign governments or parent state-owned corporations for the development of infrastructure for manufacturing products, which are then exported to the EU. The publication of the White Paper and legislative proposal that followed only confirms this.
2. Where White paper on foreign subsidies triggers a concrete response
Interestingly enough, just between the imposition of definitive measures in GFF and GFR cases respectively, the Commission published a White Paper,[ix] with a proposal to complement the existing tools to specifically address foreign State subsidies that affect the EU internal market. Indeed, EU State aid rules only apply to subsidies granted by EU Member States. Trade defence tools may target only subsidies related to imports of goods. The Foreign Direct Investment Screening mechanism tackles only security and public order concerns. The EU public procurement framework does not address the distorting effects of foreign subsidies in public procurement.
As a result and a follow up to the White Paper, the Commission adopted a legislative proposal for an instrument against unfair foreign subsidies presented on 5th May. According to the proposal,[x] companies benefitting from foreign subsidies would face investigations initiated by the Commission on its own initiative that may result in interim measures, fines for non-cooperation and non-compliance. As a threshold, any company that receives more than 5 million euros ($6 million) from a foreign State over three years would be subject to the Commission’s investigation.
Once the investigation confirms the existence of a subsidy, the Commission will then assess on a “case-by-case” whether such a subsidy distorts the EU internal market. To do so, the Commission will consider the “amount and nature of the subsidy, the purpose and conditions attached to the foreign subsidy as well as its use in the internal market.”[xi] The proposal, if approved by the European Parliament and the Council, will have far-reaching consequences on foreign investments in the EU.
Conclusion
Clearly, Glass fibre cases mark a trend where the EU defends its rights more assertively, using the existing trade defence tools but with determination to create new tools. The proposal on foreign subsidies to be presented by the Commission in May leaves no doubts as to the Commission’s will to make use of the existing and new trade arsenal.
For exporting producers, the lesson is that global supply chains will be the main target of the EU’s trade policy in the post-Covid-19 economic context. Therefore, not only producers that export to the EU, but also the EU exporting producers located in economic zones should reassess their export strategy. Especially, given recent trends, third countries will not hesitate to retaliate any EU attempts to use and enforce trade defence tools.
[i] These include, but not limited to, the COVID-19 pandemic, the rise of unilateralism and economic nationalism, the crisis of multilateralism, the digitalisation of the economy, and higher expectations to ensure sustainability of global trade [ii] More on the EU’s proposal for an International Procurement Instrument, see: European Union, ‘International Public Procurement’ https://ec.europa.eu/growth/single-market/public-procurement/international_en accessed 9 May 2021 [iii] More on the EU’s proposal for instrument to counteract coercive actions, see: European Parliament, Instrument to Deter and Counteract Coercive Actions by Third Countries’ https://www.europarl.europa.eu/legislative-train/theme-an-economy-that-works-for-people/file-instrument-to-deter-and-counteract-coercive-actions-by-third-countries accessed 9 May 2021. [iv] European Commission, Trade Policy Review - An Open, Sustainable and Assertive Trade Policy (COM (2021) 66) [v] Notice of initiation of an anti-subsidy proceeding concerning imports of certain woven and/or stitched glass fibre fabrics originating in the People's Republic of China and Egypt, OJ C 167,16.5.2019, p. 11; Notice of initiation of an anti-subsidy proceeding concerning imports of continuous filament glass fibre products originating in Egypt, OJ C 192, 7.6.2019, p. 30; Notice of initiation of an anti-subsidy proceeding concerning imports of certain hot rolled stainless steel sheets and coils originating in the People’s Republic of China and Indonesia, OJ C 342, 10.10.2019, p. 18 [vi] Commission Implementing Regulation EU 2020/776 of 12 June 2020 imposing definitive countervailing duties on imports of certain woven and/or stitched glass fibre fabrics originating in the People's Republic of China and Egypt and amending Commission Implementing Regulation (EU) 2020/492 imposing definitive anti-dumping duties on imports of certain woven and/or stitched glass fibre fabrics originating in the People's Republic of China and Egypt, OJ L 189, 15.6.2020, p. 1; Commission Implementing Regulation EU 2020/870 of 24 June 2020 imposing a definitive countervailing duty and definitively collecting the provisional countervailing duty imposed on imports of continuous filament glass fibre products originating in Egypt, and levying the definitive countervailing duty on the registered imports of continuous filament glass fibre products originating in Egypt, OJ L 201, 25.6.2020, p. 10. [vii] 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, OJ L 176, 30.6.2016, p. 55 [viii] Combined with anti-dumping measures on GFF, overall duty levels are now between 54.6% and 99.7% on GFF imports from China, and 30.9% on GFF imports from Egypt [ix] European Commission, White Paper on levelling the playing field as regards foreign subsidies (COM (2020) 253) [x] European Commission, Proposal for a Regulation of the European Parliament and of the Council on foreign subsidies distorting the internal market (COM (2021) 223) [xi] Ibid
