EU imposes first anti-subsidy duties on China

June 2011

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Introduction

Following a 15 month investigation the European Union (EU) has recently decided to impose anti-subsidy duties against Chinese imports of high quality paper, used mainly for magazines and brochures. This is the first ever antisubsidy proceeding launched by the EU against Chinese products.

In particular, during the anti-subsidy investigation the EU found that the Chinese government was significantly subsidising its coated fine paper industry by giving cheap loans, allocating land below market value and granting various tax incentives which are in violation of WTO rules. As a result, the EU has imposed countervailing measures ranging from 4 to 12 per cent on this high quality paper imported from China.

Under Council Regulation 597/2009, the EU authorities are entitled to impose countervailing measures on subsidised imports causing material injury to industry in the EU. The application of these measures requires the existence of economic contributions from public bodies to the company or industry under investigation. As with anti-dumping, the European Commission has to establish the following four elements before countervailing measures can be imposed on subsidised imports: subsidisation, injury, causality (between the two first elements), and Union interest.

Dual investigation

Following a complaint by the Confederation of European Fine Paper Industries the Commission initiated an anti-dumping and an anti-subsidy investigation on 17 February and 18 April 2010 respectively. According to the dual investigation, the Chinese exports under assessment were found to exert undue price pressure on the EU market which had a significant negative impact on the financial and operational performance of European producers of high quality printing paper.

Therefore, in addition to the anti-subsidy duties, the EU decided to set also antidumping duties, amounting from 8 to 35.1 per cent depending on the producer, on imported paper. Both measures have been imposed for the next five years and can be extended provided that the European Commission, upon request by EU producers or other parties, determines that the expiry of the measures may lead to a recurrence of injury to the European paper industry.

The decision to impose both anti-subsidy and anti-dumping measures on the same goods has been criticised by China’s Ministry of Commerce and Chinese manufacturers which have accused the European Commission of doublecounting. Furthermore, during the investigation, Asia Pulp & Paper, China’s largest paper exporter, also contested the fact that the market share of Chinese manufacturers is very small, concretely less than 5 per cent of the EU market.

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New trend in the EU’s trade policy?

The EU has rarely challenged foreign subsidies to date since proving that a subsidy is harmful to the domestic industry is very complex. There are currently two ongoing EU anti-subsidy investigations one against India (stainless steel fasteners) and another against Saudi Arabia and Oman (polyethylene terephthalate).

The new anti-subsidy decision against China sets a new precedent which may lead to a more aggressive approach by the EU to combat unfair trade practices conducted by China. In particular, the new measures are very likely to encourage European companies to submit similar complaints against Chinese competitors which are benefiting from state financing.

On the other hand, retaliation is expected from China as the EU extensively grants subsidies to its domestic production, particularly in relation to certain economic sectors. As an example, China has recently announced it will levy anti-subsidy tariffs to EU imports of potato starch. This trend may significantly worsen trade relations between both parties.

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