IBTBlog

The International Business Transactions Blog

Negotiations Continue in EU Countervailing Duties on Chinese-Made Electric Vehicles

By Kelsey McGillis
Law Student Editor

This week, the European Union (EU) and China agreed to hold consultations regarding the EU’s proposed tariffs to be imposed on Chinese-made electric vehicles (EVs) entering the European market. This decision signals a potential resolution in the months-long contentious subsidy dispute between the two regions.   The current tensions trace back to a probe launched by the European Commission last year, to determine if Chinese subsidies directed to Chinese EV manufacturers were allowing such EV manufacturers to sell vehicles within the EU at artificially low prices, thus harming their European competitors. China has vehemently denied these claims, insisting that its EV industry’s growth is a result of fair competition and not subsidy supported. That China has a command economy inevitably complicates the analysis of competitive cost. The Commission’s findings led to an announcement of potential tariffs; up to 48% of the value of imported Chinese EVs. These tariffs directed at the manufacturers are set to come into force on July 4, with the proposed application of duties, levied on the consumers, expected by November, 2024.

While the European Commission describes the tariffs as corrective measures to level the playing field, critics argue that such tariffs may trigger a broader trade war. Germany, whose economy heavily relies on the Chinese market, has shown reluctance to support countervailing duties.  European automakers have also voiced concerns in claiming that such tariffs directly contribute to global trade fragmentation. Conversely, the United States has adopted a much more aggressive stance, recently imposing a 100% tariff on Chinese EV imports in an effort to offset the alleged subsidies.

China, not surprisingly, has responded to the EU’s actions by threatening reciprocal tariffs on a variety of EU goods, and have indicated they may file a claim the World Trade Organization (WTO) Dispute Settlement Body if its concerns are not addressed. Amid the tensions, the agreement to hold technical talks in Brussels offers a glimmer of hope. European Commission Spokesperson Johanna Bernsel confirmed that there would be technical discussions aimed at finding a solution that addresses the perceived subsidization of Chinese EVs. This move is seen as a step towards de-escalating the situation and finding a mutually acceptable resolution.

New U.S. Regulations Enhance the Commerce Department’s Power in Antidumping and Countervailing Duties

By Kelsey McGillis
Law Student Editor

The U.S. Department of Commerce has recently amended its regulations to enhance enforcement of antidumping (AD) and countervailing duty (CVD) laws. The “Regulations Improving and Strengthening the Enforcement of Trade Remedies Through the Administration of the Antidumping and Countervailing Duty Laws” went into effect on April 24, 2024, following a public notice and comment period. The amendments introduce several changes to the regulations, including adjustments to the process of determining dumping and countervailable subsidies, enhanced enforcement mechanisms, and updates to the calculation methodologies for duties.  The amendments make the following specific changes: expanded scope of Particular Market Situations (PMS) and improved investigation into transnational subsidies, which are subsidies that a foreign government gives to a recipient outside its borders.

A Particular Market Situation (PMS) refers to market conditions allegedly affecting price accuracy in comparisons between a foreign market and the United States for antidumping and countervailing duty investigations. Under the 2015 Trade Preferences Extension Act, in considering the dumping margin or countervailable subsidy, Congress directed Commerce to consider sales to be outside the “ordinary course of trade” when there are situations in which Commerce “determines that the particular market situation prevents a proper comparison with the export price.”  Under the regulations now adopted, Commerce may consider factors such as weak property rights, inadequate intellectual property protection, poor human rights or labor standards, and ineffectual environmental regulations in assessing the dumping margin or countervailable subsidy, thereby increasing import duties to reflect putative advantages to foreign exporters caused by the identified practices. 

For example, if labor rights violations or unimpeded intellectual property infringement lower the cost of production in an exporting country, Commerce may consider this a PMS that justifies treating imports from that country as having an artificially low price and impose correspondingly increased import duties.

The changes also broaden the regulations’ scope, remove confusing language, adopt a more flexible approach to identifying price distortions, and include non-governmental entities in considerations of relevant factors in determining the export price. Commerce clarified that these changes are not intended to influence foreign policies (e.g., to impugn foreign labor, environmental, or human rights practices) but to evaluate whether prices or costs are distorted by the policies.

In addition, Commerce was previously constrained by a regulation, 19 C.F.R. § 351.527, which limited its ability to investigate transnational subsidies. Countervailable subsidies were primarily limited to those given a state government to business firms within that state.  With the removal of this restriction, Commerce is now empowered to delve into allegations of cross-border subsidies by foreign governments. This means that Commerce can scrutinize instances where foreign governments are suspected of providing subsidies in third states that unfairly benefit their own, or the third state’s, industries and distort international competition. By lifting this regulation, Commerce can more effectively address and combat allegedly unfair transnational trade practices that have emerged since the Uruguay Round Agreements. However, the lack of clear guidance or explicit text on how to address these investigations, leaves this change’s implementation somewhat uncertain.

According to the Commerce Department, the rationale for these changes is to strengthen the enforcement of antidumping and countervailing duty laws. The regulations align with the Biden administration’s “new story on trade”, emphasizing fairness and sustainability concerns. U.S. Secretary of Commerce Gina M. Raimondo has asserted that these changes demonstrate the Commerce Department’s commitment to safeguarding American workers and producers against unfair trade actions.  However, the compatibility of these new regulations with the WTO Agreements, especially the Agreement on Subsidies and Countervailing Measures, is open to debate.  It is possible, perhaps likely, that the new measures will be challenged under the WTO’s Dispute Settlement Understanding.

India Signs Historic Treaty with EFTA

By Kelsey McGillis
Law Student Editor
&
Prof. Aaron Fellmeth
Faculty Editor

After nearly two decades of negotiations, India has signed a landmark trade and investment treaty with the European Free Trade Association (EFTA), comprising Iceland, Liechtenstein, Norway, and Switzerland. This deal, the Trade and Economic Partnership Agreement (TEPA), is expected to bring investments worth $100 billion into India across various sectors over the next 15 years.

The TEPA is, first, a free trade agreement under Article XXIV of the GATT and Article V of the GATS.  It reaffirms GATT commitments, harmonizes customs regulations, and eliminate customs duties according to schedules of commitments in the annexes.  It also includes more detailed regulations on sanitary and phytosanitary measures, technical barriers to trade, and liberalization of trade in services.  In addition, the TEPA incorporates foreign direct investment protections between the EFTA states and India, and investment promotion obligations and expectations. 

Unlike free trade agreements negotiated by the United States, the TEPA includes no TRIPS-plus obligations.  However, consistent with recent EU practice, the TEPA does include obligations relating to trade and sustainable development, including some relating to climate change, compliance with International Labor Organization (ILO) standards, and cooperation in achieving and promoting sustainable development. 

The TEPA is anticipated to bring substantial investment, with the EFTA bloc committing $100 billion over 15 years in sectors like pharmaceuticals, food processing, engineering, and chemicals. Although this investment commitment, primarily sourced from provident funds in EFTA countries, is not expected to be legally binding, it is an expected result of the conclusion of the treaty.

Prime Minister Narendra Modi emphasized the importance of this agreement in boosting economic progress and creating opportunities for Indian youth. Ratification by both parties is required for the agreement to take effect, with Switzerland aiming to complete the process as soon as next year.

India’s decision to sign TEPA marks a significant departure from its historical stance on import substitution policies.  While political factors still influence some protectionist measures, economic imperatives may eventually lead to a more open trade approach in the future. The timing of these trade deals coincides with a need to address unemployment, which continues to pose a persistent challenge in India, despite economic growth. The TEPA is expected to generate 1 million jobs in participating countries over 15 years, aligning with the focus on job creation in India’s current election.

The TEPA paves the way for a similar deal between the much larger EU and India.  Although negotiations between these two parties had stalled in the past, they were re-launched in June 2022, along with negotiations for two additional treaties: a bilateral investment treaty and an agreement on geographical indications.  The European Commission maintains a website with the current drafts texts that form the basis of negotiations.