Brussels – July 1, 2020
As China’s exports have grown over the last 15 years, Chinese exporting producers have increased actions to circumvent anti-dumping and anti-subsidy measures imposed by the EU on direct imports from China. The European Commission has responded by making enforcement a top priority, in particular through the use of the anti-circumvention tools under the Basic Anti-dumping Regulation and the Basic Anti-subsidy Regulation. To help our industry and its trading partners better understand the EU anti-circumvention instrument and the risks of doing business with companies engaging in circumvention, this document provides valuable background information and corrects the most common misconceptions found among economic operators.
What is circumvention?
Circumvention is any change in pattern of trade between third countries and the Union or between individual companies in the country subject to measures and the Union, that stems from a practice for which there is insufficient due cause or economic justification other than the imposition of the anti-dumping/anti-subsidy measures. The most common forms of circumvention are:
- Transhipment, i.e. re-routing shipments through a third country;
- Assembly operations in a third country with limited added value below the threshold set under the Regulations in an operation started or substantially increased since, or just prior to, the initiation of the anti-dumping/or anti-subsidy investigations;
- Channelling, i.e. re-routing exports through a producer with a lower anti-dumping /anti-subsidy duty; and
- Small product alterations to make the product fall outside the scope of the initial anti-dumping / anti-subsidy measures.
How is an anti-circumvention investigation opened?
An anti-circumvention investigation is normally opened upon request by an EU industry. However, the Commission (DG Trade) can and does open investigations ex officio, especially in recent years. In 2018, 28 EU anti-circumvention measures were in force and the Commission opened four new investigations ex officio in 2019 and 2020 Q1.
How long do anti-circumvention investigations take to get opened and for anti-circumvention measures to be imposed?
The preparation of an anti-circumvention complaint or ex officio initiation and conduct of an anti-circumvention investigation go very fast. The anti-circumvention investigation itself normally takes 9 to 12 months. Most importantly, imports are registered by national customs authorities from the day the investigation opens, which means that the final anti-circumvention measures apply to all imports from the country (or countries) in question from that date. The measures stay in place as long as the initial measures are maintained.
OK but will it not take years before a big apparatus like the Commission even reacts to circumvention claims and starts an investigation?
No, in recent years, the Commission has put in place a tight monitoring system and sped up its enforcement activities in response to faster and more frequent circumvention activities, especially by Chinese companies.
In Open mesh fabrics from China, for example, Chinese exporting producers had already started circumvention via Malaysia while the initial investigation was still ongoing. The anti-circumvention investigation opened only three months after the imposition of the initial measures. While that investigation was ongoing, Chinese producers had moved on to circumvent the EU anti-dumping measures via Taiwan and Thailand. That led to the opening of another anti-circumvention investigation while the first investigation was still ongoing. While that investigation was ongoing, Chinese producers moved again, this time to India and Indonesia. Again the Commission initiated an anti-circumvention investigation only three months after the extension of the measures to Taiwan and Thailand and made imports from India and Indonesia subject to circumvention measures less than 9 months later. Similarly in Bicycles from China, the Commission initiated a full interim review in March 2012 and while the investigation was still ongoing, opened an anti-circumvention investigation of imports from four countries, Indonesia, Malaysia, Sri Lanka and Tunisia, and subsequently extended them to three more countries, Cambodia, Pakistan and the Philippines.
EU importers who only know ordinary anti-dumping or anti-subsidy investigations (which can take up to 15 months and often do not involve early registration) are often surprised by how quickly the Commission can act.
What kind of measures can the Commission impose in anti-circumvention investigations?
The Commission can extend to the circumventing imports the full residual anti-dumping and anti-subsidy duties imposed on imports from the country subject to the initial measures.
In the case of circumvention via transhipment or assemblies in a third country, only companies in that third country that can prove they are truly genuine producers can get an exemption from the extended measures:
As of what date do anti-circumvention measures become effective?
As noted above, already upon initiation of an anti-circumvention investigation, all imports are made subject to registration. Then, when the existence of circumvention is confirmed, the anti-dumping and anti-subsidy measures imposed in the initial investigation are extended retroactively from the start of the investigation to imports from the investigated countries. In other words, an EU importer must pay the full anti-dumping and anti-subsidy duties on all imports from those countries, whether made during the anti-circumvention investigation or afterwards.
Are EU buyers responsible for the circumvention activities of their suppliers?
Under EU customs law, which is also applied by the national customs authorities, the importer of record is responsible for the compliance of the imported products with EU laws. If an importer for instance declares a product as being made in Malaysia but it is really just transhipped from China – which happened for instance in Solar Panels from China – this is a type of circumvention under the Basic Anti-dumping Regulation and Anti-subsidy Regulation, and the anti-dumping and anti-subsidy duties, as well as ordinary customs duties, imposed on direct EU imports from China are due on these products as well. In addition, making a false origin declaration constitutes customs fraud, which is punishable by high fines and even imprisonment.
It is even more dangerous for importers to rely on assurances regarding the genuineness of assembly operations opened by Chinese producers in third countries following the imposition of anti-dumping or anti-subsidy measures on direct EU imports from China. The underlying calculations to establish whether the assembly operations have sufficient value added in order not to be considered a circumvention practice are very technical, and require detailed knowledge of the underlying production costs and origins of all inputs. As unrelated suppliers usually do not share this information with their customers, for an importer to put its trust in assurances about such assembly operations is playing Russian roulette with its reputation and possibly its future existence. And even if an importer can establish that it bought bona fide from a company engaging in circumvention activities, it will still be liable at least for payment of the customs, anti-dumping and anti-subsidy duties foregone. If an importer knows about the circumvention activities, it may subject itself even to criminal liability. There have been numerous cases before national and EU courts where importers of bicycles, solar panels, footwear, steel and many more products have been and are being sued for large sums of duty payments and have had additional penalties and imprisonment as well, because they relied on the information provided by a circumventing assembler.
In sum, circumvention activities are monitored carefully and the Commission has acted with increasing speed and effectiveness in recent years to cut off attempts to avoid the impact of measures intended to address unfair trade and to provide EU producers with a level playing field. We would highly recommend that importers not take the risk of engaging in activities with companies in third countries that have clearly been set up to circumvent EU anti-dumping and anti-subsidy measures.
Please do not hesitate to contact us if you have any questions or would like to learn more.