Hostname: page-component-848d4c4894-wg55d Total loading time: 0 Render date: 2024-05-27T21:44:38.200Z Has data issue: false hasContentIssue false

PREVENTING THE ANTI-CIRCUMVENTION INSTRUMENT FROM UNDERMINING DEVELOPMENT THROUGH INVESTMENT

Published online by Cambridge University Press:  29 June 2023

Victor Crochet
Affiliation:
Associate at Van Bael & Bellis, Brussels, Belgium and PhD student, Cambridge University, Cambridge, UK, vcrochet@vbb.com (the opinions expressed in this article are my own and do not represent those of my clients);
Weihuan Zhou
Affiliation:
Associate Professor, Director of Research, and Co-Director of the China International Business and Economic Law (CIBEL) Centre, Faculty of Law and Justice, UNSW Sydney, Sydney, Australia, weihuan.zhou@unsw.edu.au.
Rights & Permissions [Opens in a new window]

Abstract

Companies from emerging economies have started internationalizing their production operations; they are following the same path as American, European and East Asian corporations before them, setting up factories in third countries to serve their export markets from closer locations and produce more efficiently. Thus, it is no longer only developed countries’ multinationals which are moving their operations to developing countries, but emerging market companies that are increasingly engaging in production abroad. This is having beneficial effects in countries where these companies invest and might help them start their own industrialization process. This has attracted the ire of developed countries, which are now targeting these downstream production plants abroad by using the so-called anti-circumvention instrument, resulting in trade defence duties imposed on the parent companies being extended to their foreign subsidiaries. This application of the anti-circumvention instrument departs from its historic rationale and might hinder the development of countries in need of foreign investment. Therefore, affected governments should consider taking international legal action to bring developed countries to the negotiating table to put a halt to this abuse of the anti-circumvention instrument.

Type
Articles
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
Copyright © The Author(s), 2023. Published by Cambridge University Press on behalf of the British Institute of International and Comparative Law

I. INTRODUCTION

Trade defence instruments have been described as ‘dull’, of little academic interest, and as mere bread and butter for international trade lawyers.Footnote 1 Yet, these instruments affect a large share of international trade and have been the target in most of the disputes brought to the World Trade Organization (WTO) and under free trade agreements (FTAs).

There are two main trade defence instruments aimed at protecting WTO Members from unfair trade practices: anti-dumping and anti-subsidy (technically known as ‘countervailing’) measures. These allow WTO Members to impose customs duties on imports from specific companies in targeted countries in excess of their agreed WTO bound tariff rates (the maximum import tariffs that a particular WTO Member agreed that it would not exceed when it joined the organization).Footnote 2 While the imposition of trade defence measures has been contentious,Footnote 3 there are relatively clear rules, which WTO Members agreed to, on how they might be imposed. Should any WTO Member consider these rules to be violated, they can have recourse to the WTO dispute settlement system to set things straight.

As China rapidly industrialized, thanks in part to high amounts of investment by Western corporations in its manufacturing sectors, its exports became the main targets of trade defence measures. However, as wages rise, production regulations tighten and freight costs increase, many Chinese companies have started shifting parts of their production abroad.Footnote 4 In undergoing this process, Chinese companies have been walking in the footsteps of American, European and East Asian corporations before them. Such internationalization of production operations has also been increasingly undertaken by companies from other rapidly emerging markets. Yet, developed countries, and the European Union (EU) in particular, now opine that these operations might not be a legitimate business process but, instead, a cover to avoid trade defence duties on their exports.

These countries have found the anti-circumvention instrument to be a potent tool to target this phenomenon. The anti-circumvention instrument is a little-known mechanism devised by the European Communities (EC) (the precursor to the EU) and the United States of America (US) in the 1980s to address the issue of Japanese companies trying to avoid trade defence measures by setting ‘screwdriver’ plants abroad to assemble parts and components of products targeted by trade defence measures at little cost.Footnote 5 It was used to extend trade defence duties imposed on imports from Japan to products assembled abroad by using parts originating from Japan. The anti-circumvention instrument was one of the thorniest issues in the negotiations leading to the establishment of the WTO in 1995. It was so contentious that no agreement could be reached on the matter. The negotiators merely agreed to refer the issue for further discussions.

Developed countries, especially the EU, have recently started using this instrument to target emerging countries’ downstream factories abroad. They have stretched the original scope of the anti-circumvention instrument to cover not only ‘screwdriver’ plants but also fully scoped downstream factories abroad, resulting in the automatic extension of the trade defence duties imposed on the parent companies to such overseas investments. This is problematic under WTO rules which impose conditions that must be satisfied before trade defence measures can be imposed.

Compared to anti-dumping and countervailing measures, the anti-circumvention instrument is now more commonly used by the EU against third countries other than China. This instrument, therefore, is being increasingly used against investment which benefits the development of host countries and can play a major role in facilitating these countries’ industrialization process. By unjustly targeting foreign investment in production operations with the anti-circumvention instrument, developed countries thus risk hindering these countries’ opportunities to integrate in the global economy.

These countries are not left without means of redress, however. In the absence of WTO rules expressly allowing anti-circumvention measures, a legal challenge against the anti-circumvention instrument would have a high chance of success. This is because this instrument typically leads to the application of import tariffs beyond a WTO Member's bound tariff rates without complying with the relevant conditions contemplated under WTO rules. WTO litigation, therefore, could be used as a stepping stone to bring developed countries to the negotiating table and, hopefully, have them agree to put the lid back on the anti-circumvention instrument.

This articles describes how companies from emerging markets, and China in particular, have been internationalizing production operations following the same approach that Western companies took before them (Section II). This is followed by a discussion of the evolution of the anti-circumvention instrument since its introduction in the EC and the US in the 1980s and the negotiations of multilateral rules on this instrument in the WTO (Section III). It is then explained how the EU is increasingly broadening the scope of this instrument to target legitimate internationalization of production activities and its potential impact on foreign companies seeking to integrate further into global supply chains as well as developing countries in need of foreign investment (Section IV). Finally, several options are put forward that affected countries could use to put a halt to this practice while ensuring that the anti-circumvention instrument remains available to address illegitimate situations of internationalization of production operations which bring little economic benefits for the host country and primarily aimed at avoiding trade defence duties (Section V). In the concluding section, some final remarks on this development in a broader context are provided (Section VI).

II. LEGITIMATE INTERNATIONALIZATION OF PRODUCTION ACTIVITIES

Companies from emerging markets have started internationalizing their production operations, becoming multinationals on a par with Western corporations.Footnote 6 This is particularly the case of Chinese enterprises. While the first foreign ventures of Chinese companies took place in the late 1970s, Chinese outward investment used to be heavily restricted and, therefore, remained limited. The enactment of China's ‘Going Out’ policy in 1999, which was aimed at enhancing the global presence of Chinese firms,Footnote 7 stimulated rapid growth of outward investment by Chinese companies. The launch of China's Belt and Road Initiative (BRI) in 2013 further accelerated Chinese investment overseas.Footnote 8 While such investment focused primarily on natural resources in the early days, Chinese companies have increasingly invested in manufacturing abroad. They have established production subsidiaries in third countries, acquired foreign plants and merged with foreign competitors with production operations overseas.Footnote 9 These activities are motivated by a range of factors, including rapidly increasing labour costsFootnote 10 and stricter production regulations in China,Footnote 11 rising trade barriers on Chinese exports in foreign markets and China's lack of free and preferential trade deals,Footnote 12 lowered freight costsFootnote 13 and enhanced access to resources and potential markets, as well as support provided by the Chinese government to alleviate excess industrial capacity at home.Footnote 14 While Chinese companies have been at the forefront of the internationalization process of emerging market corporations, they are not the only ones doing so. Amongst others, Russian, Saudi and Indian companies are walking in their footsteps.Footnote 15

In this internationalization process, emerging market corporations are following a similar path to that taken by American, European and East Asian companies before them.Footnote 16 American companies were the first to internationalize their production operations in order to remain competitive in markets they originally exported to. As early as the end of the nineteenth century, they started investing and opening factories in Europe and Latin America.Footnote 17 They were joined by European companies investing in production operations in other European countries and North America shortly thereafter.Footnote 18 Their main reasons for doing so were to maintain markets they had conquered through exports in the face of growing competition from domestic companies and rising tariffs on imports.Footnote 19 Following the end of World War II, as European industries had been decimated by the war, American companies accelerated the process of internationalizing their manufacturing operations to meet growing demand for industrial and commercial goods as well as to respond to the world's shortage of US dollars, which limited exports from the US.Footnote 20 In subsequent years, European businesses recovered. They then, together with American companies, established manufacturing plants in Japan and South Korea to serve their nascent consumer markets.Footnote 21 At the same time, in response to import-substitution policies implemented by governments in most of the developing world, and particularly in South America, American and European companies started investing in production factories to serve developing countries’ markets from within.Footnote 22

Towards the 1970s an increasing amount of investment by American and European companies became targeted at improving efficiency.Footnote 23 Underdeveloped countries were used as a cheap labour pool to produce goods for exports to rich countries, while rich countries focused on more comfortable or profitable activities.Footnote 24 Indeed, through investment, in particular in Asia, subsidiaries were set up for producing labour-intensive goods to be exported to developed countries’ markets.Footnote 25 This process accelerated from 1970 to 2000 as American and European companies increasingly sought to localize stages of their production process where the conditions for that stage of the process would be the most efficiently conducted in terms of cost.Footnote 26 This led American and European companies to establish plants for the most labour-intensive parts of the production process in developing countries with low labour costs and loose labour rights or energy-intense operations in places with cheap energy sources. These companies also took advantage of less stringent environmental and other production regulations in developing countries to outsource downstream production operations therein. However, they maintained research and development operations as well as more technologically advanced production processes primarily in the US and Europe.Footnote 27

East Asian companies soon followed suit in internationalizing their production activities. When Japan rapidly (re)industrialized in the second half of the twentieth century, Japanese goods were hit by trade defence measures in their export markets.Footnote 28 Japanese companies were also facing labour and industrial land shortages and increasing regulations on production at home. Consequently, they started exporting labour-intensive and low-productivity industries, mostly in downstream production of semi-finished products of Japanese origin,Footnote 29 to neighbouring developing countries in Asia. This allowed Japan to keep these industries internationally competitive and to redeploy domestic resources to more advanced sectors.Footnote 30 The internationalization of more advanced technology industries, such as the automotive, followed in order to increase their competitiveness in developed markets, promote demand for Japanese inputs abroad and maintain research and development operations in Japan.Footnote 31 Korean companies followed a rather similar pattern of internationalization of production some years later.Footnote 32 Korea's rapid industrial development in the last years of the twentieth century was quickly followed by the export of downstream production plants abroad in order to avoid raising trade barriers and increase exports of semi-finished products from Korea while maintaining higher value-added industries at home.Footnote 33

The internationalization of production activities is thus a legitimate business phenomenon once companies reach a certain size domestically.Footnote 34 Firms internationalize their production activities to remain competitive in foreign markets which they originally supply through exports from their homebase (market-seeking internationalization) or to improve efficiency by taking advantage of differences in the availability and relative cost of carrying out different activities in different countries (efficiency-seeking internationalization).Footnote 35 There is also a certain pattern to the internationalization of production operations by companies. To start, a sales and service facility is set up abroad to promote exports, which is then replaced by downstream production overseas using imported inputs made by the mother company, followed eventually by entire production chains abroad.Footnote 36

The expansion of production activities has benefits for both home and host countries.Footnote 37 As acknowledged by the International Labour Organization, ‘[t]hrough international direct investment, … enterprises can bring substantial benefits to home and host countries by contributing to the more efficient utilization of capital, technology and labour’.Footnote 38 For the home country, this process allows industrial upgrading by freeing up resources, such as land and labour, which can then be used for higher value-added activities, thereby enabling development and economic growth.Footnote 39 For the host country, attracting labour-intensive downstream activities can help advance its industrialization and more profitable operations.Footnote 40 Indeed, cheap and flexible labour is often the main competitive advantage of low-income countries which they can use to attract foreign direct investment. This investment can generate tax revenues, create jobs and further investment in basic infrastructure, thereby contributing to the host country's industrial upgrading and economic development.Footnote 41 This is so because foreign production subsidiaries in third countries train local employees and invest in technologically advanced production facilities that could not have otherwise been achieved without foreign funds and know-how.Footnote 42 Furthermore, these production subsidiaries also bring indirect positive spill-over effects as they stimulate the local economy, which may result in further investment.Footnote 43

A clear example of the positive effects of this integration in global value chains is China. China became the workshop of the world thanks to its large and cheap workforce at the beginning of the twenty-first century and after joining the WTO.Footnote 44 China received vast amounts of foreign direct investment in downstream manufacturing operations to produce goods, which were subsequently exported to advanced economies.Footnote 45 It managed to use this investment as a stepping stone to build and upgrade its own industrial capabilities, hence readjusting its place in the international division of labour in just a few decades.Footnote 46

Companies from emerging markets, and China in particular, are thus now internationalizing just as other countries’ industries did a couple of decades ago. They are investing significant amounts in setting up downstream production plants abroad and sending inputs thereto from their home base in order to produce finished products that are then sold in the host country and other markets. These investments are starting to yield beneficial development effects in host countries. For example, while sometimes criticized, foreign direct investment by Chinese companies has led to job creation, additional tax revenue, increased investment in infrastructure and technology transfers in host countries. It has set the path for these countries’ own industrial development.Footnote 47 Yet, the legitimate internationalization of emerging market corporations has attracted the ire of developed countries, and especially that of the EU, which has recently broadened the scope of their anti-circumvention instruments to target Chinese factories in third countries in particular.

III. THE GENESIS AND HISTORY OF THE ANTI-CIRCUMVENTION INSTRUMENT

A. A Brief Introduction to Trade Defence Instruments

The anti-circumvention instrument is a specific tool designed to target activities by companies seeking to avoid trade defence duties, namely anti-dumping and countervailing measures, on their exports. Trade defence duties are expressly allowed under WTO rules by Article VI of the General Agreement on Tariff and Trade (GATT), as further elaborated under the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994Footnote 48 (Anti-Dumping Agreement) and the Agreement on Subsidies and Countervailing Measures (SCM Agreement).Footnote 49 These agreements are, however, silent when it comes to the anti-circumvention instrument, which has raised doubt about the legality of its use.Footnote 50

Trade defence duties can be imposed on imports from a particular country when the relevant authorities (in the EU, this is the European Commission) establish that exporting producers in that country are dumping or are subsidized, and that the dumped/subsidized imports cause or threaten to cause injury to the domestic industry of the importing country.Footnote 51 Trade defence measures can be used indiscriminately. Nevertheless, they have often been used to target nations on the path to industrialization. For instance, from the 1970s to the 1980s, Japan was the main target of US and EU trade defence measures,Footnote 52 followed by Korea. Since the beginning of the new millennium, China has topped the chartFootnote 53 and is now the most common target of trade defence measures,Footnote 54 with up to 10 per cent of Chinese exports to the US being covered by trade defence duties.Footnote 55

Dumping occurs where an exporting producer sells the goods concerned at a lower price in its export market (the export price) than the price of the goods in its domestic market (known as the normal value).Footnote 56 The extent of this price discrimination is called the dumping margin. In certain cases, when investigating authorities consider that the exporting country is not functioning in accordance with market economy principles (which is commonly the case in investigations targeting China), WTO rules allow the authorities to depart from basing the normal value on a producer's actual prices and to use alternative methodologies instead.Footnote 57 Typically, these alternative methodologies use surrogate data from a third country as domestic prices.Footnote 58 This usually results in a much higher normal value and, hence, a much higher dumping margin.

A producer is considered as being subsidized if it has received a financial contribution by a government which confers a benefit on its recipient.Footnote 59 The sum of the benefits received by an exporting producer (that is, the difference between the financial contributions that the exporting producers could have received on the market and those it actually received) divided by that entity's turnover is called the subsidy margin. Chinese companies are often found to be copiously subsidized, as developed WTO Members tend to consider that the provision of raw materials, land and financing, even by private entities in China, constitutes subsidies and then calculate the amount of benefit by comparing prices in China with prices abroad.Footnote 60

To determine whether dumped/subsidized imports have caused a material injury to the relevant domestic industry, authorities must assess the volume of these imports and their effects on price, as well as other factors reflecting the situation of the domestic industry such as market share or profitability. Authorities must then show that the injury was caused by the dumped/subsidized imports.Footnote 61 Finally, although this is not mandatory under WTO rules, some WTO Members require their authorities to assess whether the imposition of trade defence measures is in the overall interest of their economies by balancing the interests of producers, importers and users of the product concerned.Footnote 62

Once these substantive conditions are met, the WTO Member conducting the investigation can impose an individual duty per exporting producer at an amount that cannot be higher than each exporting producer's dumping/subsidy margin.Footnote 63 Investigating authorities establish individual duties per exporting producer which cooperated in the investigation as well as a rate for ‘all other companies’ which did not manifest themselves during the investigation. This rate is usually equal to, or higher than, the highest duty established for cooperating exporting producers.Footnote 64

In addition to these substantive conditions, the Anti-Dumping Agreement and the SCM Agreement set forth a range of procedural rules. For instance, authorities may normally only initiate trade defence investigations based on a complaint from their domestic industries which provide sufficient prima facie evidence that the conditions for the imposition of trade defence measures are present.Footnote 65 This complaint must also be supported by a certain share of the domestic industry.Footnote 66 Investigations, once initiated, should be concluded within 18 months.Footnote 67 If certain conditions are met,Footnote 68 it is possible for the authorities to register imports and to levy the duties retroactively on products which were imported within 90 days from the date of application of provisional measures.Footnote 69

B. Illegitimate Third Country Production Operations: The Development of EU Law and WTO Negotiations

In the 1980s, the EC and the US were faced with Japanese companies internationalizing their production activities in order to avoid trade defence duties imposed on their exports. These companies did not follow the legitimate market and efficiency-seeking internationalization path described in Section II, but instead set up ‘screwdriver’ plants abroad to circumvent the imposition of trade defence duties. A growing number of Japanese firms established factories in the EC with the sole aim of assembling parts of electronic goods, such as photocopiers or typewriters, which when imported into the EC from Japan were subject to trade defence measures. These companies continued to manufacture all the necessary parts in Japan and exported these parts to the EC for assembly into finished goods by their ‘screwdriver’ plants. As these parts were not covered by the trade defence measures, this practice allowed them to avoid paying any duty at minimal costs and, due to the lack of investment, yielded little benefits to the EC's economy.Footnote 70 Around the same time, the US faced similar circumventing practices by Korean and Japanese producers establishing assembly operations in the US or a third country to produce goods subject to US trade defence measures.Footnote 71

These practices triggered the EC and the US to introduce anti-circumvention provisions in their trade defence regulations in the late 1980s to target such illegitimate internationalization of production. The EC's anti-circumvention provision was aimed at assembly operations taking place in the EC provided that the firms in the EC were related to foreign producers subject to trade defence duties. If certain conditions relating to the value of the imported parts were met, the authorities could decide to extend the trade defence duties imposed on imports by the related foreign producer to the products manufactured in the EC.Footnote 72 The US anti-circumvention provision went further as it also targeted assembly operations taking place in third countries.Footnote 73

The EC applied this provision in a series of investigations.Footnote 74 It considered that, to be targeted by the instrument, an assembled product had to be made of parts which could be broken down and put back together without damaging the parts, thereby limiting the scope of the instrument to illegitimate ‘screwdriver’ operations.Footnote 75 As Japanese producers subject to trade defence duties imported parts and components of electronic goods for assembling in the EC, the EC extended the trade defence duties imposed on the finished imported goods from Japan to the goods assembled in the EC.Footnote 76

This led Japan to bring a GATT dispute (the predecessor to the WTO) against the EC. In EEC—Parts and Components, the GATT Panel found in favour of Japan that the EC's anti-circumvention provision violated the rules of Article III of the GATT as it discriminated between domestic and imported goods and could not be justified under the general exception provided for in this agreement.Footnote 77 Following this decision, while the EC refused to amend its legislation, it did not use the anti-circumvention instrument again until it introduced a revised provision in 1995 following the creation of the WTO.Footnote 78

At the same time, during the Uruguay Round negotiations which led to the creation of the WTO, the EC and US lobbied intensively for the development of global rules on anti-circumvention. Both put forward detailed proposed texts based on their own domestic practices.Footnote 79 While their proposals received support from traditional users of trade defence measures, they faced strong resistance from export-oriented countries/territories such as Japan, Singapore, South Korea and Hong Kong.Footnote 80 The last draft on the issue, known as the Dunkel draft, sought to reach a compromise by allowing anti-circumvention measures but limiting their scope to allow only the extension of trade defence duties to assembly and completion of parts and components in the importing country by a company related to or acting on behalf of an exporting producer subject to anti-dumping duties.Footnote 81 With regard to assembly operations in third countries, the draft did not allow the imposition of anti-circumvention measures. It provided, instead, that, in the case of an initial trade defence investigation targeting a producer conducting assembly operations in a third country which was related to an exporting producer already subject to trade defence measures in another country, these measures could be levied retroactively up to 150 days (instead of 90 days in other cases) prior to the imposition of the provisional measures.Footnote 82 The Dunkel draft did not satisfactorily address the competing interests among governments. In particular, the US requested that anti-circumvention measures be allowed for assembly operations in third countries,Footnote 83 while the opponents of anti-circumvention rules remained highly sceptical about the need for any rule on the issue.Footnote 84 As a result, no rules on anti-circumvention were adopted when the WTO was created in 1995. Governments merely agreed to refer this matter to the WTO Committee on Anti-Dumping Practices for further negotiation.Footnote 85

Regardless of this lack of agreement, the EU introduced a revised version of its anti-circumvention instrument in 1995 which targeted assembly operations in the EU by allowing the extension of trade defence duties imposed on imported products to imported parts.Footnote 86 It also broadened the scope of the instrument to cover assembly operations in third countries.Footnote 87 Under Article 13(2) of the Basic Anti-Dumping Regulation (that is the provision under EU law which encapsulates the anti-circumvention instrument with regard to anti-dumping measures),Footnote 88 the European Commission thus became able to target assembly and completion operations in third countries if a number of conditions are met.Footnote 89 First, the assembly or completion operations must have started or substantially increased since, or just prior to, the initiation of the initial investigation. Secondly, the parts originating from the country subject to the measures must constitute at least 60 per cent of the total value of the parts of the assembled product, except if the value added to the parts, during the assembly or completion operation, is greater than 25 per cent of the manufacturing cost. Finally, the remedial effects of the duties must be undermined and there must be evidence of dumping/subsidization.Footnote 90 In addition, according to Article 13(1), the assembly operations must lead to a change in the pattern of trade between third countries and the EU and there must be insufficient economic justification other than the imposition of the trade defence duties for it.Footnote 91

In the following years, the EU initiated a few anti-circumvention investigations targeting assembly operations, covering products, such as weighing scales, bikes and magnetic disks, made of parts from Japan and assembled in the EU or third countries.Footnote 92 In these cases, the EU confirmed that only ‘screwdriver’ operations, whereby the assembled parts can be unassembled without damage, could be targeted.Footnote 93 The US seemed to share the EU's understanding at the time.Footnote 94

At the international level, the WTO Committee on Anti-Dumping Practices has facilitated further discussions on the topic since 1995.Footnote 95 The US and the EU, with the support of some other WTO Members,Footnote 96 have continued to push for the development of uniform anti-circumvention rules to target assembly operations aimed at avoiding trade defence duties, amongst other circumventing practices.Footnote 97 In contrast, opponents, mainly including Japan, New Zealand, South Korea, Hong Kong and Egypt, maintained that third country factories are not necessarily illegitimate, and, even if they are, the existing rules on anti-dumping and rules of origin provide sufficient tools to address these practices.Footnote 98 In response to the concerns about assembly operations, the opposing Members believed that these can be rational activities in a globalized economy as ‘a producer would shift production process to another country for a variety of commercial reasons unrelated to an anti-dumping proceeding’ so as to ‘make the most of the comparative advantages in different countries’.Footnote 99 Accordingly, they criticized the use of anti-circumvention as a disguised way of ‘expanding the scope of the Anti-Dumping Agreement to restrict normal commercial activities’.Footnote 100 Their general position, as stated succinctly by South Korea, is that ‘circumvention of anti-dumping duties … should be treated as a separate dumping case for which a new investigation of dumping and injury determination should be conducted’.Footnote 101 These Members, therefore, questioned the use of the anti-circumvention instrument in the US and the EU, and aimed to ensure that anti-circumvention measures were taken in a way that complies with the substantive requirements of the Anti-Dumping Agreement.Footnote 102

Since 2004, international discussions over the anti-circumvention instrument have become considerably less intense.Footnote 103 While a draft text on anti-circumvention was prepared, the disagreements among the major Members have remained unresolved.Footnote 104 The US has continued to communicate its concerns about circumvention activities.Footnote 105 However, these concerns have continued to face the usual opposition.Footnote 106 As a result, the absence of uniform rules on anti-circumvention has led some other major users of trade defence instruments to adopt their own anti-circumvention provisions. For example, Brazil, India, Australia and Canada introduced anti-circumvention instruments targeting third country assembly operations in 2008, 2011, 2013 and 2018, respectively.Footnote 107

In 2004, the EU further revised its anti-circumvention instrument to include another type of circumvention activity, namely, transhipment of goods via third countries to make them appear as being exported by a country not subject to the duties.Footnote 108 For the next 15 years, most investigations over third country circumventions opened by the EU targeted such cases of transhipments.Footnote 109 A few cases of circumvention through assembly operations in third countries, however, also led to the extension of anti-dumping duties to assembled imported goods. In seven cases between 2004 and 2020, the EU extended the anti-dumping duties imposed on imports from China to products assembled in third countries from parts made in China. In these cases, the EU confirmed that the anti-circumvention instrument was meant to target ‘screwdriver’ operations by targeting products such as lighters or bikes.Footnote 110 Indeed, in all these cases, the final products exported to the EU could be disassembled into parts without significantly damaging these parts.Footnote 111

IV. TARGETING THE LIGITIMATE INTERNATIONALIZATION OF PRODUCTION OPERATIONS

A. Expanding the Scope of the Anti-Circumvention Instrument

While the use of the anti-circumvention instrument to target assembly operations remained a contentious issue, no further legal action was taken at the WTO after the EEC—Parts and Components case. Indeed, WTO Members appeared to have stopped contesting that such illegitimate internationalization of production such as ‘screwdriver’ operations set up for the purpose of avoiding trade defence measures could be the object of anti-circumvention actions. Rather, most of the recent discussions have focused not on whether such behaviour constituted circumvention, but instead on certain thresholds concerning the value of the imported parts from a country subject to trade defence measures or the value added that must be reached for anti-circumvention measures to be imposed.

Yet, over the last two years the EU has turned the anti-circumvention instrument into a tool to target legitimate internationalization of production activities by emerging market corporations, particularly Chinese firms. In a series of investigations, the European Commission has been stretching the scope of the anti-circumvention instrument to target increasingly complex downstream manufacturing processes using Chinese inputs when the downstream products exported from China are covered by trade defence measures. This departs from the past practice of targeting solely ‘screwdriver’ operations.

This shift took offFootnote 112 with two investigations against aluminium foil and aluminium foil in rolls against a Thai subsidiary of a Chinese company in 2021. This company's stated aim was to access new markets and diversify its raw material supply sources and production locations, thus clearly fitting in a model of market and efficiency-seeking internationalization. While the company had planned to produce aluminium foil from start to finish at its Thai plant in the long run, it still imported aluminium stocks which it turned into aluminium foil through processes of rolling, slitting and annealing. Such processes, although less costly and complex than the production of aluminium stocks, required significant amounts of technical machineries, and the final product could obviously not be returned to the form of aluminium stocks. Regardless of this, the EU considered that these processes constituted assembly or completion operations so that anti-circumvention measures could be imposed. It then extended the anti-dumping duties imposed on imports of aluminium foil and aluminium foil in rolls from China to imports of the same products from Thailand.Footnote 113

The EU soon followed suit with no less than four investigations against two Chinese-owned companies producing glass-fibre fabrics in Morocco and Türkiye. Glass-fibre fabrics are products used in many goods related to the green energy transitions, such as windmill blades or light vehicle bodies. They are produced by weaving and stitching together different types of glass-fibre roving as well as other types of fabric materials using specific machineries. Once turned into glass-fibre fabrics, it is impossible to recover the original roving and fabrics.

In the investigations against Morocco, the EU found that a Chinese producer of both glass-fibre roving and fabrics subject to anti-dumping and countervailing duties on its exports from China had set up a subsidiary in Morocco. While the subsidiary was set up shortly after the initiation of the anti-dumping and countervailing investigations on imports of glass-fibre fabrics from China, the group had already started planning the internationalization of production and the process of setting up a subsidiary abroad long before the investigations. The subsidiary imported roving from China which it then processed into fabrics before exporting part of its production to the EU. The subsidiary argued that its goal was not primarily the avoidance of the trade defence duties imposed on imports from China but rather to take advantage of the lower customs tariffs under the EU–Morocco Association Agreement,Footnote 114 to supply better the growing EU demand for its products and manufacturers of windmill blades established in Morocco. Its internationalization process thus was aimed at both market and efficiency. Regardless of this, the EU considered that turning roving into fabrics was equivalent to ‘completion’ of ‘parts’, thereby justifying the application of anti-circumvention measures against imports of glass-fibre fabrics from Morocco. Consequently, the EU extended both the anti-dumping and countervailing duties imposed on imports of fabrics from China to imports of fabrics from Morocco.Footnote 115

In the investigations against Türkiye, the EU found that a different Chinese producer of both glass-fibre roving and fabrics, with a subsidiary in Egypt, subject to anti-dumping and countervailing duties on its exports from China and Egypt, had incorporated a subsidiary in Türkiye. This subsidiary was set up about a year before the initiation of the anti-dumping and countervailing investigations. As in the case of Morocco, the subsidiary imported roving from its related companies, this time from both China and Egypt. The subsidiary argued that its production operation in Türkiye was established to meet significant demand in that market: a clear case of market-seeking internationalization. Indeed, before this Chinese subsidiary, several non-Chinese producers of glass-fibre fabrics had already set up production operations in Türkiye to supply that market and take advantage of the customs union between the EU and Türkiye. In rebutting the company's argument that its activities did not constitute assembly or completion of parts, the EU clarified that the anti-circumvention instrument aims ‘to cover not only operations that consist of assembling parts of a composite article, but may also involve further processing, i.e., finishing of a product’. It thus concluded that processing roving into fabrics constituted assembly and completion operations of parts and extended both the anti-dumping and countervailing duties imposed on imports of fabrics from China and Egypt to imports of fabrics from Türkiye.Footnote 116

More recently, in an investigation against imports from Malaysia, which was initially aimed at transhipment operations, the EU extended the duties imposed on pipe fittings from China to imports from Malaysia. The EU found that two Chinese-owned companies based in Malaysia imported steel pipes and plates from China (but not necessarily from their mother companies) which were cut into pieces and then further processed into fittings through various processes such as forming, heat treatment, coating, etc. These companies were set up, respectively, one and three years after the imposition of the anti-dumping measures allegedly to serve the Malaysian and South-East Asian markets.Footnote 117

In its latest attempts to stretch the scope of the anti-circumvention instrument, the European Commission targeted hot rolled stainless steel sheets and coils produced in Türkiye by a fully Turkish-owned stainless-steel producer. A producer based in China used to source the nickel ore necessary to produce stainless steel from Indonesia. However, in an effort to encourage domestic processing of its nickel ore supplies, Indonesia adopted a series of measures to prevent the exportation of nickel ore.Footnote 118 This led this Chinese producer to set up a fully vertically integrated plant in Indonesia, which was soon hit with anti-dumping duties by the EU.Footnote 119 A Turkish company had, in the meantime, started importing slabs from Indonesia in order to turn them into sheets and coils under a tolling agreement with an Italian downstream user which had been signed much before the initiation of the anti-dumping investigation against imports from Indonesia. The slabs were run through a hot strip mill where they were heated to more than 1,000 degrees and descaled before running through a series of roughing stands to make them thinner and longer. Once cooled, the steel was rolled into coils. Yet, regardless of this complex process, the lack of relationship between the Turkish and Indonesian producers and the fact that the tolling agreement was signed prior to the investigation, the EU opined that this constitutes assembly or completion of parts, justifying the extension of the anti-dumping duties on imports of stainless steel from Indonesia to imports from Türkiye.Footnote 120

B. Circumventing the Rules of the Anti-Dumping and SCM Agreements?

The EU's application of the anti-circumvention instrument in the cases discussed above has clearly stretched the scope of the instrument from ‘screwdriver’ operations to any sort of downstream processing, including legitimate market- and efficiency-seeking internationalization of production operations which typically involve significant amount of investment.Footnote 121 This expansive use of anti-circumvention is likely to continue given the EU's commitment to ‘address any circumvention activities’ so as to ‘preserve the effectiveness’ of trade defence measures and to tackle the challenges associated with China's BRI.Footnote 122 The reason why the EU has increasingly resorted to the anti-circumvention instrument is largely because this instrument is substantially easier to apply and can result in higher duties than anti-dumping and countervailing measures.

Unlike anti-dumping or anti-subsidy investigations, an anti-circumvention investigation does not require the European Commission to assess dumping and subsidy margins, whether the Union industry is injured, whether this injury is caused by the targeted imports, or whether the use of the anti-circumvention instrument would be in the Union's interest.Footnote 123 While the criteria of the Basic Anti-Dumping Regulation could be seen as limiting the use of the anti-circumvention instrument to illegitimate cases of internationalization of production operation, the European Commission applies them loosely. This is so because, as discussed further below in Section V, the lack of international oversight over the implementation and interpretation of these criteria gives the European Commission a wide margin of discretion in utilizing the anti-circumvention instrument. As a result, it regularly makes numerous adjustments to the actual values reported by companies in order to ensure that the value thresholds are met; considers that any change in trade patterns meet the criterion; and concludes that, as soon as the imposition of the initial trade defence duties is one of the reasons for a company to start or increase production abroad, there is insufficient economic justification.Footnote 124 Furthermore, the thresholds concerning the value of the parts and value added in the third country, which must be met for the application of the anti-circumvention instrument to assembly operations in third countries, do not mean much in today's economy. Indeed, most operations taking place in the context of global value chains do not result in more than 25 per cent added value, thus rendering this condition meaningless in most circumstances.Footnote 125

In terms of procedure, the anti-circumvention instrument provides for a much faster way to protect EU industry. This is because anti-circumvention investigations are conducted over a nine-month period and imports will be registered automatically from the start of the investigation so that any anti-circumvention measure can be applied retroactively as of that date, thereby providing immediate relief to domestic producers. Investigations can be initiated based on a request by any interested party, without demonstrating that any representativity threshold is met, or unilaterally by the European Commission.Footnote 126 Furthermore, the domestic industry does not have to respond to questionnaires to investigate its situation, since no injury must be demonstrated.

Finally, the EU uses the anti-circumvention instrument to extend the treatment of the parent company to its foreign subsidiaries. Indeed, the anti-circumvention instrument enables the EU to extend the ‘all other companies’ duties imposed on imports from China to imports from the country of downstream production without assessing the individual conditions of that particular downstream plant. As discussed in Section III.A, WTO Members, including the EU, rely on specific non-market economy methodologies to calculate dumping and subsidy margins of Chinese producers. Such methodologies often inflate anti-dumping and countervailing duties to a significant degree. For example, on imports of glass-fibre fabrics, the European Commission's use of non-market economy methodologies against China led to a finding of a 99.7 per cent dumping margin and a 30.7 per cent subsidy margin for imports from China which were much higher than the dumping (20 per cent) and subsidy (10.9 per cent) margins calculated for imports from Egypt.Footnote 127 Thus, the anti-circumvention instrument allows the EU to extend duties resulting from the application of non-market economy methodologies to market economy countries, thereby leading to significantly higher duties than would have been found through an anti-dumping or anti-subsidy investigation.

This is not to say that the EU should not take actions against third countries’ corporations’ subsidiaries abroad if their imports injure its domestic industry. Rather, the EU should follow the rules in place and target these subsidiaries through anti-dumping and countervailing measures following regular investigations. Indeed, it seems that, through the anti-circumvention instrument, the EU itself circumvents the substantive and procedural rules incorporated in the Anti-Dumping and SCM Agreements.

C. Impact on Legitimate Commercial Activities and the International Development Path

The new trend of extending the scope of the anti-circumvention instrument to target downstream processing plants using inputs made in China is quickly escalating out of proportion. Between December 2020Footnote 128 and November 2022, the EU initiated eight anti-circumvention investigations to target downstream production operations abroad.Footnote 129 As such, the anti-circumvention instrument has become the main instrument to target imports from countries other than China as more anti-circumvention investigations were initiated than anti-dumping and anti-subsidy investigations during that time. At the same time, the US seems to be walking in the footsteps of the EU by also using its own anti-circumvention instrument to target increasingly complex downstream operations abroadFootnote 130 and the United Kingdom (UK) is considering following suit.Footnote 131

While one of the aims of the companies targeted might have been to avoid the duties on imports from China, it is neither the sole purpose nor the decisive one in most cases. Indeed, these companies did not set up mere ‘screwdriver’ plants but invested significant amounts in new downstream factories in search of markets and/or efficiency.

Such an expansive use of anti-circumvention measures thus gives rise to the exact concerns raised by governments that have opposed uniform anti-circumvention rules since the Uruguay Round negotiations, ie the misuse of anti-circumvention to target legitimate commercial activities. In today's world, countries, regardless of size and level of development, have increasingly engaged in global value chains including through foreign direct investment, and such engagement or investment has been driven primarily by economic development goals and commercial considerations.Footnote 132 The abuse of the anti-circumvention instrument raises not only barriers and costs to trade but also policy uncertainties for investment decisions, which in turn would have profound impacts on supply chain resilience and economic growth for all countries involved.Footnote 133

China is not an exception in the trend of globalization of supply chains but has actively participated in it to become a critical player. The rapid growth of Chinese investments worldwide has largely been motivated by supportive government policiesFootnote 134 and commercial needs.Footnote 135 Notably, when it comes to the Asia-Pacific region, the fact that many countries in the region are ‘BRI-participating economies’ suggests that Chinese investment in these economies has a strong bearing on the strategic and commercial goals embedded in the BRI.Footnote 136 The steel industry, which has been a leading target of trade defence measures, offers a good example. In this industry, all major steelmakers including Chinese ones ‘have been investing in downstream steel facilities and steelmaking capacity in foreign locations’ for reasons unrelated to circumvention of trade defence measures.Footnote 137

In this regard, the companies subject to the EU anti-circumvention investigations discussed above followed a pattern of internationalization similar to that taken before them by Western and East Asian companies. They set up subsidiaries abroad to conduct downstream processing operations of inputs produced by their mother companies for legitimate commercial reasons, particularly to take advantage of lower labour and transportation costs and more advantageous trading conditions and to supply markets that they previously exported to from China better. These are the same reasons behind the internationalization of production operations by other foreign multinationals over the past decades.

This extension of the scope of the anti-circumvention instrument to target legitimate internationalization of production activities may thus have a chilling effect on Chinese outward foreign investment. The EU's practice suggests that unless Chinese companies invest in a fully vertically integrated plant that does not rely on inputs originating from China, they may now be at risk of getting caught by the anti-circumvention instrument. Besides affecting Chinese companies, it is mainly host countries that will pay the price as they will not get the economic benefits of Chinese investment. Indeed, the participation of many economies in the BRI is strong evidence of the benefits that Chinese investments can bring for their development and industrialization.Footnote 138 These benefits were also repeatedly highlighted by governments of host countries during the investigations discussed above. The extension of the scope of the anti-circumvention instrument could thus result in the loss of employment, tax and industrialization opportunities for countries lower in the international division of labour that count on Chinese investment to set them on a path to development.

In addition, the risk for third countries is further exacerbated by the fact that this new use of the anti-circumvention instrument can be applied even in situations where the downstream producer is not related to a Chinese company subject to trade defence measures as in the case of the Turkish stainless-steel producer mentioned above. This may result in companies in third countries shifting purchases of inputs from China to less efficient producers and more expansive inputs from third countries for fear of getting caught in the net of the anti-circumvention instrument.

While the EU's anti-circumvention actions have so far focused on the internationalization of production operations by Chinese companies, they may be increasingly applied to companies from other third countries which are now starting their internationalization process. As a result, developing countries should be wary of this new practice, not only because it creates an obstacle to their industrialization which relies on Chinese investment and inputs, but also because their own companies may soon become the target. If this trend continues, it may prevent the legitimate internationalization of production activities by non-Western companies, while global activities by Western multinationals are not similarly impacted. As a result, the EU's expansive use of anti-circumvention measures can be a catalyst for trade tensions and retaliatory actions. Amid the rise of unilateralism and economic nationalism worldwide, the EU's extension of the scope of the anti-circumvention instrument may thus simply add fuel to the current crisis in international cooperation on trade regulation.

V. PUTTING THE LID ON THE ANTI-CIRCUMVENTION INSTRUMENT

There is a pressing need to constrain the recent expansion of the scope of the anti-circumvention instrument. In this section, several approaches to achieve this and the challenges they may face are considered.

One option is for affected exporting producers to bring actions for annulment against the anti-circumvention measures concerned before the EU Courts. It can be argued that Article 13(2) of the Basic Anti-Dumping RegulationFootnote 139 cannot be applied to situations where the inputs used in the finished product cannot be disassembled without being damaged. Indeed, such inputs would not constitute ‘parts’ under EU lawFootnote 140 as they would require further working operations to be turned into the final product.Footnote 141 The problem with this approach is that it is unlikely to be fruitful. Under EU law, the European Commission has a ‘broad margin of discretion’ in applying the Basic Regulations, and the anti-circumvention instrument in particular, so that the EU Courts’ review is rather limited in this regard.Footnote 142 As such, although in the present authors’ opinion the terms of the Basic Regulations have been stretched beyond what is permissible, it is possible that the EU Courts would side with the European Commission.Footnote 143

Moreover, even if a claim were successful, the European Commission could invoke Article 13(1) of the Basic Anti-Dumping RegulationFootnote 144 instead. This provision indicates that the European Commission can use the anti-circumvention instrument as long as a practice, process or work, for which there is insufficient due cause or economic justification other than the imposition of the duty, leads to a change in the pattern of trade. The illustrative list of such a practice, process or work, which includes assembly of parts in the Basic Anti-Dumping Regulation, is left open. This provides room for the European Commission to find that downstream production operations constitute a practice, process or work (even if not assembly or completion of parts) so that anti-circumvention can be used without having recourse to Article 13(2) of the Basic Anti-Dumping Regulation. Thus, litigation before the EU Courts provides little hope for curtailing the abuse of the anti-circumvention instrument. Furthermore, it would not solve the recent expanded use of this instrument in other countries such as the US.

Another option is to bring this issue before an international dispute settlement forum which could be either the WTO or an FTA. The legality of the anti-circumvention instrument is highly questionable under international trade rules. This is so because its use results in the application of anti-dumping or countervailing measures to products originating from countries that are not involved in the original anti-dumping or countervailing investigation.Footnote 145 Since an anti-circumvention investigation is focussed on the existence of circumventing activities, the imposition of the existing anti-dumping or countervailing measures arguably does not comply with the substantive and procedural requirements set forth in the Anti-Dumping Agreement or the SCM Agreement.Footnote 146 Taking assembly operations as an example, Article 13 of the Basic Anti-Dumping Regulation requires the European Commission to investigate a range of factors which may show that assembly operations have resulted in circumvention of existing anti-dumping/countervailing duties, rather than whether there is dumping/subsidy causing injury to EU domestic industries. This means that an affirmative anti-circumvention determination which leads to the extension of the duties is not based on findings of dumping/subsidization, injury and causation, thereby failing to satisfy the pre-conditions for the imposition of such duties under the Anti-Dumping Agreement and/or SCM Agreement. Given the fact that most FTAs reproduce or incorporate WTO rules on anti-dumping and countervailing measures or forbid certain types of trade defence measures altogether,Footnote 147 similar arguments could also be advanced to challenge the use of the anti-circumvention instrument thereunder.Footnote 148

China, or an aggrieved country having attracted Chinese investment, could thus consider bringing a challenge before the WTO or under an FTA. This could be done in two ways, leading to different results. One way is to challenge specific anti-circumvention measures (known as an ‘as applied’ challenge in WTO parlance). Where an anti-circumvention measure is found to be in breach of WTO or FTA rules, it must be brought in compliance with the findings. Under EU law, the European Commission is mandated to implement an adverse WTO ruling against its trade defence measures by bringing such measures in line with WTO rules.Footnote 149 In practice, this may well mean that the Commission would have to terminate the measures and then initiate anti-dumping or countervailing investigations instead. This approach would, however, not preclude authorities from repeating the same or similar violations in future cases.Footnote 150

The other way is to challenge the legislation encapsulating the anti-circumvention instrument itself or the repeated practiceFootnote 151 of using such instrument (known as an ‘as such’ challenge). If it is established that this legislation itself, or its repeated use, violates international trade rules, such legislation or practice would need to be brought in line with the rules. In other words, this would mean repealing, or not using again, the anti-circumvention instrument. Nevertheless, under EU law, the EU is under no obligation to amend the Basic Regulations themselves following an adverse WTO ruling. For example, the EU did not amend the Basic Anti-Dumping Regulation after losing the EEC—Parts and Components dispute, whereas it did so following the more recent WTO rulings in EC—Fasteners (China), which found that a provision of the Basic Anti-Dumping Regulation was ‘as such’ inconsistent with the Anti-Dumping Agreement.Footnote 152 It is thus uncertain whether the EU, or another country whose anti-circumvention instrument would be found to violate the rules ‘as such’, would withdraw its anti-circumvention instrument altogether. Indeed, the anti-circumvention instrument is a sensitive topic and, with the current shakiness of the WTO dispute settlement mechanism due to a current lack of standing Appellate Body (the appeal court of the WTO),Footnote 153 it is possible for a defeated WTO Member to block the dispute settlement process by appealing the panel report ‘into the void’, thereby preventing its formal adoption by the WTO.Footnote 154 As a result, the country found to be running afoul of the rules may well prefer to face potential economic retaliationFootnote 155 rather than comply with a ruling. However, even in this situation, the successful litigant could use the dispute as a stepping stone to build political momentum for negotiations.

The third option is for governments to reach an agreement on the anti-circumvention instrument via negotiations at the WTO. This is desirable as it would provide the most systemic response to the recent expansion of the scope of the instrument. It is urgently needed given the proliferation and growing abuse of the instrument by WTO Members and the resulting potential escalation of trade tensions as flagged above. The key challenge is how to resolve the opposing views of the two camps of WTO Members to reach a compromise. Such a compromise will need to be based on the creation of uniform rules on anti-circumvention which explicitly authorize the use of the anti-circumvention instrument, thereby reflecting the position of the pro-anti-circumvention camp. This would contravene the views of the opposing side which would not agree to legalizing an instrument aimed at targeting circumvention altogether.Footnote 156 Yet, faced with the recent expansion of the scope of the anti-circumvention instrument orchestrated by the EU, these countries may wish to reconsider their position. Indeed, at this point, the use of the anti-circumvention instrument to target illegitimate business practices aimed at avoiding trade defence duties has become so widespread that there is not much point in attempting to block its legitimization under international trade rules.Footnote 157

While the anti-circumvention instrument should be explicitly allowed, strict conditions must be imposed on its use. As discussed above, the conditions that are currently applied by EU and US authorities, focusing on the value added during the processes undertaken abroad, changes in the pattern of trade and economic justification, are not sufficient to prevent the anti-circumvention instrument being applied to legitimate internationalization of production operations. To put the lid on the expansion of the scope of the instrument, interested countries could thus accept most of the elements of the latest proposals put forth by the US and the EU,Footnote 158 but should attempt to introduce two additional conditions.

The first condition could be that, when it comes to production operations in third countries, only assembly and completion operations of parts should be covered, not other types of downstream processing operations that require substantial investment. ‘Parts’ are defined under international customs rules as inputs which do not need ‘any further working operation for completion into the finished state’.Footnote 159 Thus, only processes through which the inputs maintain their physical and technical characteristics should be targeted under the anti-circumvention instrument. Other inputs indeed do not constitute parts.Footnote 160 In this respect, a useful test is to assess whether an input can be disassembled without being damaged so as to determine whether it constitutes parts.Footnote 161 If this is not the case, then the input should not be treated as parts so that the process concerned does not constitute assembly or completion operation of parts.Footnote 162 This condition would help confine the scope of the anti-circumvention instrument to ‘screwdriver’ assembly operations which have little positive spill-over effects on the host country as they do not result in significant investment.

The second condition on which the negotiations should focus is to ensure that the anti-circumvention instrument can only be used to target foreign expansion of production operations which are motivated solely or primarily by circumventing trade defence measures so as to avoid the instrument being applied to legitimate business activities.Footnote 163 To do so, a ‘but for’ testFootnote 164 could be introduced whereby authorities are required to establish that the internationalization of production operations would not have taken place in the absence of the imposition of anti-dumping or countervailing measures.Footnote 165 This test does not require circumvention to be the sole purpose,Footnote 166 but it needs to be a decisive factor that led to the internationalization of the production operations. Where the establishment of production facilities overseas is primarily driven by factors other than circumvention, it should not be targeted by the anti-circumvention instrument regardless of whether circumvention is also one of the underlying objectives or of the impact of the production operations in the third country on the effectiveness of trade defence measures. Such impact can, and should, be addressed instead through anti-dumping or anti-subsidy investigations.

Accepting the proposals set forth by the EU and the US with these additional conditions could achieve a reasonable balance between the demand for legitimizing the anti-circumvention instrument in international trade rules and the need to restrain its abuse. Yet, it might be difficult to reach an agreement on this issue at the WTO as this would require consensus by all WTO Members. Countries attempting to attract non-Western foreign direct investment and wishing to protect themselves from this expanded use of the anti-circumvention instrument could, in the meantime, consider inserting relevant provisions, based on the proposals above, in their future FTAs with developed countries. Such provisions should be carefully drafted so as to ensure that the application of the anti-circumvention instrument to exports from one of the FTA parties is clearly prohibited.Footnote 167 This would be a useful start to put the lid on the expansion of the scope of the anti-circumvention instrument and to pave the way for negotiations at the multilateral level.

VI. CONCLUSION

Companies from rapidly emerging markets have been set on a path to become business hegemons, on equal footing with their Western and East Asian counterparts. To serve their markets better and improve efficiency, they have started internationalizing their production operations by setting up affiliated factories in third countries closer to their export markets or where such operations can be more efficiently conducted. The process they are following is nothing new as it has been threaded by developed countries’ multinationals long before them. Indeed, these corporations first internationalized in the first half of the twentieth century when they started facing increasing domestic competition in their export markets and rising trade barriers. In the second half of the twentieth century, this process continued and accelerated as multinational corporations created global value chains to increase efficiency and reduce costs.

The internationalization of Western and East Asian corporations has benefited host countries enormously in many ways, setting several of them on their own path to industrialization and development. The internationalization of Chinese companies, and companies from other rapidly emerging markets, is likely to have similar effects on countries lower in the international division of labour. This is why these countries have been seeking inward foreign direct investment, for example, by taking part in the BRI and other international initiatives led by advanced developing countries. Yet, countries wishing to attract non-Western and East Asian investment are getting in the crosshair of developed countries which have been setting up a framework of unilateral economic measures to slow the growth of Chinese and other emerging countries’ companies as well as their internationalization.

Indeed, through several initiatives, these countries are attempting to prevent foreign companies from becoming multinationals which could potentially dethrone their own at the top of the business ladder. The expansion of the scope of the anti-circumvention instrument to target legitimate downstream production abroad discussed in this article is one such initiative. However, it should not be seen in isolation. It is complemented by many others which have a similar economic aim. In the field of trade defence, the EU's recent practice of countervailing cross-border subsidies given by the Government of China to Chinese subsidiaries abroad is notable.Footnote 168 It is complemented by the EU's recent Foreign Subsidy Regulation which is aimed at targeting foreign corporations internationalizing their operation within the EU market.Footnote 169 The resurgence of investment screening on national security grounds in the US and EU Member States has similarly been used to protect economic interests and to slow the internationalization of foreign corporations by preventing them from investing in these countries.Footnote 170 This has also been mirrored in the post-investment phase as Western countries have forced many foreign corporations to divest from parts of their businesses operating in their territories.Footnote 171 As the grip of unilateral external economic lawFootnote 172 is tightening around emerging global corporations from rapidly developing countries, their home governments should be wary of these developments. Countries wishing to attract investment from these corporations and to integrate themselves into global value chains to accelerate their development should be wary too.

While the expansion of the scope of the anti-circumvention instrument is a fairly recent phenomenon, it has accelerated rapidly to become the EU's preferred way to target imports from countries other than China. To constrain this practice, targeted countries may challenge it before an international forum while at the same time seeking to revive international discussions on this issue. This may mean reneging on their previous stance of rejecting the legitimization of an anti-circumvention instrument altogether to accept that this instrument can be used in limited situations to target illegitimate internationalization of production operations which bring little economic benefits for the host country and with the sole purpose of avoiding trade defence duties. This approach, however, may help them get out of the legal limbo resulting from the lack of international rules, which effectively leaves abuses of the anti-circumvention instrument unrestricted by international oversight.

Footnotes

The authors would like to thank Elyse Kneller, Lorand Bartels, Benoît Servais, Marcus Gustafsson, Vineet Hegde and an anonymous reviewer for comments on an earlier draft.

References

1 De Baere, P, du Parc, C and Van Damme, I, The WTO Anti-Dumping Agreement: A Detailed Commentary (CUP 2021)CrossRefGoogle Scholar.

2 See General Agreement on Tariffs and Trade (adopted 30 October 1947, entered into force 1 January 1948) 55 UNTS 194 (GATT) art II.1(a).

3 For a recent discussion of the treatment of China as a non-market economy in anti-dumping actions and China's response, see generally Zhou, W and Qu, X, ‘Confronting the “Non-Market Economy” Treatment: The Evolving World Trade Organization Jurisprudence on Anti-Dumping and China's Recent Practices’ (2022) 13 JIDS 510Google Scholar.

4 Wang, HY and Miao, L, ‘China's Outward Investment: Trends and Challenges in the Globalization of Chinese Enterprises’ in Chaisse, J (ed), China's International Investment Strategy: Bilateral, Regional, and Global Law and Policy (OUP 2019)Google Scholar; Huang, Y, Sheng, L and Wang, G, ‘How Did Rising Labor Costs Erode China's Global Advantage?’ (2021) 183 J Econ Behav Organ 632CrossRefGoogle Scholar.

5 Clarke, P, Spicer, M and Horlick, G, ‘Anti-Circumvention of Anti-Dumping Measures: Law and Practice of the United States’ (2016) 11(11/12) Glob Trade Cust J 536Google Scholar; Vermulst, E, ‘Circumvention of Anti-Dumping Measures: Law and Practice of the European Union’ (2016) 11(11/12) Glob Trade Cust J 499Google Scholar.

6 Hennart, J-F, ‘Emerging Market Multinationals and the Theory of the Multinational Enterprise’ (2012) 2(3) Glob Strategy J 168Google Scholar.

7 C Liou, The Politics of China's “Going Out” Strategy: Overseas Expansion of Central State-Owned Enterprises (2010) <https://repositories.lib.utexas.edu/bitstream/handle/2152/ETD-UT-2010-05-826/LIOU-DISSERTATION.pdf?sequence=1&isAllowed=y>.

8 Stone, RW, Wang, Y and Yu, S, ‘Chinese Power and the State-Owned Enterprise’ (2021) 76(1) Int Organ 229Google Scholar.

9 Wang and Miao (n 4).

10 Huang et al (n 4).

11 D van der Kley, ‘China Shifts Polluting Cement to Tajikistan’ (China Dialogue, 8 August 2016) <www.chinadialogue.net/article/show/single/en/9174-China-shifts-polluting-cement-to-Tajikistan>.

12 See discussions on this in Section IV.A.

13 X Tang, ‘Chinese Investment in Ghana's Manufacturing Sector’ (2016) China–Africa Research Initiative Working Paper No 2016/8 <https://pedl.cepr.org/sites/default/files/Xiaoyang_Chinese%20Investment%20in%20Ghana%27s%20Manufacturing%20Sector_1.pdf>.

14 V Crochet and V Hegde, ‘China's “Going Global” Policy: Transnational Production Subsidies Under the WTO SCM Agreement’ (2020) 23(4) JIEL 841; M Du, ‘When China's National Champions Go Global: Nothing to Fear but Fear Itself?’ (2014) 48 JWT 1127; K Sauvant and V Chen, ‘China's Regulatory Framework for Outward Foreign Direct Investment’ (2014) 7 China Econ J 141.

15 P Gammeltoft and A Cuervo-Cazurra, ‘Enriching Internationalization Process Theory: Insights from the Study of Emerging Market Multinationals’ (2021) 27(3) J Int Manag 100884.

16 X Deng, ‘Patterns of Internationalization of Chinese Firms—Empirical Study Based on Strategic Approach’ (2009) 9(4) J Public Aff 301.

17 M Wilkins, The Emergence of Multinational Enterprise: American Business Abroad from the Colonial Era to 1914 (Harvard University Press 1970) Chs 4, 5, 7.

18 M Wilkins, The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970 (Harvard University Press 1974) Ch 4; JH Dunning and SM Lundan, Multinational Enterprises and the Global Economy (2nd edn, Edward Elgar 2008) Ch 6.

19 Wilkins (n 17) Ch 5; H-J Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective (Anthem Press 2003) 16–17; Dunning and Lundan ibid 159.

20 Wilkins (n 18) Ch 17; Dunning and Lundan (n 18) Ch 6.

21 Wilkins (n 18) Ch 19; Dunning and Lundan (n 18) Ch 6.

22 Wilkins (n 18) Ch 19.

23 F Fröbel, J Heinrichs and O Kreye, ‘The New International Division of Labour’ (1978) 17(1) Soc Sci Inf 123.

24 ibid; G Starosta, ‘Revisiting the New International Division of Labour Thesis’ in G Charnock and G Starosta (eds), The New International Division of Labour, Global Transformation and Uneven Development (Palgrave Macmillan 2016).

25 Wilkins (n 18) Ch 19.

26 Dunning and Lundan (n 18) Ch 6.

27 Wilkins (n 18) Ch 20; Dunning and Lundan (n 18) Ch 6.

28 J Morris, ‘Globalization and Global Localization, Explaining Trends in Japanese Foreign Manufacturing Investment’ in J Morris (ed), Japan and the Global Economy, Issues and Trends in the 1990s (Routledge 1991) 2.

29 ibid.

30 Dunning and Lundan (n 18) 692; LG Franko, The Threat of Japanese Multinationals: How the West Can Respond (John Wiley & Sons 1983) 65–6.

31 Dunning and Lundan (n 18) 692; Morris (n 28) 3, 10; T Ozawa, ‘Japan: The Macro-IDP, Meso-IDPs and the Technology Development Path (TDP)’ in JH Dunning and R Narula (eds), Foreign Direct Investment and Governments: Catalysts for Economic Restructuring (Routledge 1996); P Dicken, ‘The Changing Geography of Japanese Foreign Direct Investment in Manufacturing Industry, A Global Perspective’ in Morris (ed) (n 28) 34.

32 F Sachwald, ‘Globalization and Korea's Development Trajectory: The Roles of Domestic and Foreign Multinationals’ in F Sachwald (ed), Going Multinational: The Korean Experience of Direct Investments (Routledge 2001) 361; K Kumar and KY Kim, ‘The Korean Manufacturing Multinationals’ (1984) 15(1) J Int Bus Stud 45.

33 Sachwald ibid; Kumar and Kim ibid.

34 Dunning and Lundan (n 18) Ch 3.

35 ibid 70.

36 ibid, Ch 6.

37 M Sornarajah, International Law on Foreign Investment (5th edn, CUP 2021) 73–9.

38 International Labour Organization, Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (MNE Declaration) (1977, subsequently amended in 2000, 2006, 2017 and 2022).

39 JH Dunning and R Narula, ‘The Investment Development Path Revisited: Some Emerging Issues’ in Dunning and Narula (eds) (n 31).

40 ibid.

41 ibid.

42 Dunning and Lundan (n 18) Ch 10.

43 ibid, Chs 10, 16.

44 J Hardy, ‘China's Place in the Global Divisions of Labour: An Uneven and Combined Development Perspective’ (2017) 14(2) Globalizations 189.

45 F Lemoine and D Ünal-Kesenci, ‘Assembly Trade and Technology Transfer: The Case of China’ (2004) 32(5) World Dev 829.

46 Hardy (n 44).

47 Tang (n 13); A Dreher et al, Banking on Beijing, The Aims and Impacts of China's Overseas Development Program (CUP 2022) Ch 7; L Hanauer and LJ Morris, Chinese Engagement in Africa: Drivers, Reactions, and Implications for U.S. Policy (RAND Corporation 2014) Ch 4; S Chen et al, ‘Does China's Direct Investment in ASEAN Have Institutional Preference from the Perspective of Investment Motivation Heterogeneity?’ (2022) J Asia Pac Econ <https://doi.org/10.1080/13547860.2022.2097372>.

48 Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade (adopted 15 April 1994, entered into force 1 January 1995) 1868 UNTS 201 (Anti-Dumping Agreement).

49 Agreement on Subsidies and Countervailing Measures (adopted 15 April 1994, entered into force 1 January 1995) 1867 UNTS 14 (SCM Agreement).

50 See Section V.

51 GATT (n 2) art VI; Anti-Dumping Agreement (n 48); SCM Agreement (n 49).

52 I Van Bael, ‘EEC Anti-Dumping Enforcement: An Overview of Current Problems’ (1990) 1(1) EJIL 118.

53 European Parliament, EU–China Trade and Investment Relations in Challenging Times (May 2020) <www.europarl.europa.eu/RegData/etudes/STUD/2020/603492/EXPO_STU(2020)603492_EN.pdf>.

54 For example, in the EU, more than two-thirds of trade defence measures target China. See European Commission, Directorate-General for Trade, ‘Commission Staff Working Document Accompanying the Document Report from the Commission to the European Parliament and the Council 40th Annual Report from the Commission to the Council and the European Parliament on the EU's Anti-Dumping, Anti-Subsidy and Safeguard Activities and the Use of Trade Defence Instruments by Third Countries Targeting the EU in 2021’ (19 September 2022) SWD(2022) 294 final.

55 CP Bown and JA Hillman, ‘WTO'ing a Resolution to the China Subsidy Problem’ (2019) 22(4) JIEL 557.

56 Anti-Dumping Agreement (n 48) art 2.

57 ibid, art 2.7; WTO, Accession of the People's Republic of China (23 November 2001) WT/L/432, art 15.

58 Regulation (EU) 2016/1036 of the European Parliament and of the Council of 8 June 2016 on protection against dumped imports from countries not members of the European Union (codification) [2016] OJ L176/21 (Basic Anti-Dumping Regulation) art 2(6a); P Reinhold and P Van Vaerenbergh, ‘Significant Distortions Under Article 2(6a) BADR: Three Years of Commission Practice’ (2021) 16(5) GT&CJ 193; D Ikenson, Tariffs by Fiat: The Widening Chasm between U.S. Antidumping Policy and the Rule of Law (Cato Institute Policy Analysis, 16 July 2020) <www.cato.org/sites/cato.org/files/2020-07/pa-896-updated.pdf>.

59 SCM Agreement (n 49) arts 1, 2.

60 D Ahn and J Lee, ‘Countervailing Duty Against China: Opening a Pandora's Box in the WTO System?’ (2011) 14(2) JIEL 329; Van Bael & Bellis, EU Anti-Dumping and Other Trade Defence Instruments (6th edn, Kluwer Law International 2019) Ch 11.

61 Anti-Dumping Agreement (n 48) art 3; SCM Agreement (n 49) art 15.

62 For example, in the EU, see Basic Anti-Dumping Regulation (n 58) art 21; 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) [2016] OJ L176/55 (Basic Anti-Subsidy Regulation) art 31.

63 However, it can be lower if a lower duty is sufficient to remove the injury, see Anti-Dumping Agreement (n 48) art 9.1; SCM Agreement (n 49) art 19.2.

64 Van Bael & Bellis (n 60) Ch 7.

65 While it is technically possible for investigating authorities to initiate trade defence investigations on their own motion, this rarely happens in practice due to the high evidentiary standard set forth by the Anti-Dumping Agreement and SCM Agreement. See Anti-Dumping Agreement (n 48) art 5.6; SCM Agreement (n 49) art 11.6. See also Van Bael & Bellis (n 60) 355.

66 Anti-Dumping Agreement (n 48) art 5; SCM Agreement (n 49) art 11.

67 Anti-Dumping Agreement (n 48) art 5.11; SCM Agreement (n 49) art 11.11. Note that slightly shorter timelines apply in the EU. See Basic Anti-Dumping Regulation (n 58) art 6; Basic Anti-Subsidy Regulation (n 62) art 11.

68 Anti-Dumping Agreement (n 48) art 10.6; SCM Agreement (n 49) art 20.6.

69 Under WTO rules, provisional measures can be imposed after two months from initiation, but since their duration is limited to nine months for anti-dumping measures (four months for countervailing measures), they tend to be imposed within nine months (four months for countervailing measures) from the deadline to conclude the investigation.

70 I Van Bael and J Bellis, Anti-Dumping and Other Trade Protection Laws of the EC (Sweet & Maxwell 1996) Ch 8.

71 W Clinton and D Porter, ‘The United States’ New Anti-Circumvention Provision and its Application by the Commerce Department’ (1990) 24 J World Trade 101, 102, 106.

72 Council Regulation (EEC) No 2423/88 of 11 July 1988 on protection against dumped or subsidized imports from countries not members of the European Economic Community [1988] OJ L209/1.

73 Omnibus Foreign Trade and Competitiveness Act of 1988 (US) section 1321; Clinton and Porter (n 71) 104–8. It is worth noting that the US law also covered two other types of circumventing activities including minor alterations and later-developed products and that before the law came into effect US authorities already started using existing trade defence measures to address circumvention. Most of the earlier cases in the US involved assembly operations.

74 S Holmes, ‘Anti-Circumvention under the European Union's Anti-Dumping Rules’ (1995) 29(3) JWT 161, 163–4.

75 ibid.

76 Van Bael and Bellis (n 70) Ch 8.

77 GATT Panel Report, EEC—Regulation on Imports of Parts and Components, L/6657 - 37S/132, adopted 16 May 1990.

78 I Van Bael and J Bellis, EU Anti-Dumping and Other Trade Defence Instruments (5th edn, Kluwer Law International 2011) Ch 8.

79 Communication from the European Communities (21 March 1988) GATT Doc No MTN.GNG/NG8/W/28, 5; Communication from the United States: Proposal for Improvements to the Anti-Dumping Code (20 December 1989) GATT Doc No MTN.GNG/NG8/W/59, 4–14.

80 TP Stewart (ed), The GATT Uruguay Round: A Negotiating History (1986–1992), 2 vols (Kluwer Law International 1993) 1620–5.

81 Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade, at F.1–F.31, 21, within Draft Final Act Embodying the Results of the Uruguay Round of Multilateral Negotiations (20 December 1991) GATT Doc No MTN.GNG/NG8/W/FA.

82 ibid.

83 M Matsushita, ‘Some International and Domestic Antidumping Issues’ (2010) 5(2) Asian J WTO Int Health Law Policy 249, 253–4; US Antidumping Proposals (26 November 1993), reprinted in Inside U.S. Trade (3 December 1993) 3.

84 Stewart (n 80) 1639–40.

85 WTO, ‘Decision on Anti-Circumvention: The Results of the Uruguay Round of Multilateral Trade Negotiations’ <www.wto.org/english/docs_e/legal_e/39-dadp1_e.htm>.

86 Instead of the finished assembled products as this had been considered illegal by the GATT Panel.

87 Council Regulation (EC) No 384/96 of 22 December 1995 on protection against dumped imports from countries not members of the European Community [1995] OJ L56/1. ‘Circumvention’ was defined as a change in the pattern of trade between third countries and the Community, resulting from a practice, process or work for which there is insufficient due cause or justification other than the imposition of the duty.

88 The criterion that the assembler had to be related to a producer subject to trade defence measures was not included in the new version of the anti-circumvention instrument.

89 There is no similar provision in the Basic Anti-Subsidy Regulation so that this provision is applied by analogy by the European Commission in the case of anti-circumvention of countervailing measures. See for example, Commission Implementing Regulation (EU) 2022/301 of 24 February 2022 extending the definitive countervailing duty imposed by Implementing Regulation (EU) 2020/776 on imports of certain woven and/or stitched glass fibre fabrics (‘GFF’) originating in the People's Republic of China (‘the PRC’) to imports of GFF consigned from Morocco, whether declared as originating in Morocco or not, and terminating the investigation concerning possible circumvention of the countervailing measures imposed by Implementing Regulation (EU) 2020/776 on imports of GFF originating in Egypt by imports of GFF consigned from Morocco, whether declared as originating in Morocco or not [2022] OJ L46/31.

90 Basic Anti-Dumping Regulation (n 58) art 13(2).

91 ibid, art 13(1); Basic Anti-Subsidy Regulation (n 62) art 23(3).

92 Commission Regulation (EC) No 984/97 of 30 May 1997 terminating the investigation concerning the circumvention of anti-dumping measures imposed by Council Regulations (EEC) No 993/93 and (EEC) No 2887/93 on imports of certain electronic weighing scales originating in Japan and Singapore, by imports of parts thereof assembled in the European Community and ceasing registration of these parts [1997] OJ L141/57; Commission Regulation (EC) No 985/97 of 30 May 1997 terminating the investigation concerning the circumvention of definitive anti-dumping measures imposed by Council Regulation (EC) No 993/93 on imports of certain retail electronic weighing scales originating in Japan by imports of the same product assembled in and/or transhipped through Indonesia, and ceasing registration of this product [1997] OJ L141/61; Commission Regulation (EC) No 799/2000 of 17 April 2000 terminating the investigation concerning the alleged circumvention of anti-dumping measures imposed by Council Regulation (EEC) No 2861/93 on imports of certain magnetic disks (3,5" microdisks) originating in Taiwan and the People's Republic of China by assembly operations in the Community, and discontinuing the registration of imports of microdisk parts introduced by Regulation (EC) No 1646/1999 [2000] OJ L96/30; Council Regulation (EC) No 71/97 of 10 January 1997 extending the definitive anti-dumping duty imposed by Regulation (EEC) No 2474/93 on bicycles originating in the People's Republic of China to imports of certain bicycle parts from the People's Republic of China, and levying the extended duty on such imports registered under Regulation (EC) No 703/96 [1997] OJ L16/55.

93 Commission Regulation (EC) No 985/97 ibid, recital 13.

94 After the Uruguay Round negotiations, the US also made changes to the conditions for the application of anti-circumvention measures, particularly those relating to assembly operations in the US or a third country. To strengthen the anti-circumvention instrument, for example, the US law shifted its focus on the extent to which the value of the assembled goods exceeds that of the parts/components to the process of assembly or production operation and whether the parts originating from the country subject to trade defence measures constitute a significant portion of the total value of the finished goods. See Y Yu, Circumvention and Anti-Circumvention Measures: The Impact on Anti-Dumping Practice in International Trade (Kluwer Law International 2008) 82–3; D Palmeter, ‘United States Implementation of the Uruguay Round Antidumping Code’ (1995) 29(3) JWT 39, 79.

95 WTO, Committee on Anti-Dumping Practices, Minutes of the Meeting Held on 30 October 1995 (21 February 1996) G/ADP/M/4, 7–10; WTO, Committee on Anti-Dumping Practices, Communication from the Chairman (20 March 1997) G/ADP/W/404.

96 See eg WTO, Committee on Anti-Dumping Practices, Informal Group on Anti-Circumvention, Topic 1—What Constitutes Circumvention?, Paper by Türkiye (3 April 1998) G/ADP/IG/W/5; WTO, Committee on Anti-Dumping Practices, Informal Group on Anti-Circumvention, Topic 1—An Approach to the Definition of Circumvention, Paper by Canada (23 October 1997) G/ADP/IG/W/3; WTO, Committee on Anti-Dumping Practices, Informal Group on Anti-Circumvention, Topic 3—To What Extent Can Circumvention be Dealt with under the Relevant WTO Rules? To What Extent Can It Not? What Other Options May Be Deemed Necessary?, Paper by Australia (16 April 2003) G/ADP/IG/W/48.

97 WTO, Committee on Anti-Dumping Practices, Informal Group on Anti-Circumvention, Topic 1—What Constitutes Circumvention?, Paper by the United States (8 October 1997) G/ADP/IG/W/2; Paper by the United States (22 April 1998) G/ADP/IG/W/7, 1; Paper by the European Community (22 April 1998) G/ADP/IG/W/6; Paper by the European Community (3 October 1997) G/ADP/IG/W/1.

98 WTO, Committee on Anti-Dumping Practices, Informal Group on Anti-Circumvention, Topic 1—What Constitutes Circumvention?, Paper by Japan (30 April 1998) G/ADP/IG/W/9; Paper by Japan (30 October 1998) G/ADP/IG/W/15; Paper by Hong Kong, China (28 April 1998) G/ADP/IG/W/8; Paper by New Zealand (20 October 1998) G/ADP/IG/W/11; Paper by Korea (28 May 1999) G/ADP/IG/W/17.

99 See eg Paper by Hong Kong, China ibid 2; Paper by Japan ibid 3.

100 ibid.

101 See Paper by Korea (n 98).

102 See eg WTO, Committee on Anti-Dumping Practices, Informal Group on Anti-Circumvention, Topic 2—What is Being Done by Members Confronted by What They Consider to be Circumvention?, Paper by Japan (9 May 2000) G/ADP/IG/W/23; WTO, Committee on Anti-Dumping Practices, Informal Group on Anti-Circumvention, Topic 2—What is Being Done by Members Confronted by What They Consider to be Circumvention?, Paper by Egypt (22 September 2000) G/ADP/IG/W/26; WTO, Committee on Anti-Dumping Practices, Informal Group on Anti-Circumvention, Questions Posed by Hong Kong, China regarding the Paper by the European Communities, Paper by Hong Kong, China (13 June 2001) G/ADP/IG/W/38; WTO, Committee on Anti-Dumping Practices, Informal Group on Anti-Circumvention, Topic 2—What is Being Done by Members Confronted by What They Consider to be Circumvention?, Paper by New Zealand (22 September 2000) G/ADP/IG/W/25; Paper by New Zealand (17 April 2001) G/ADP/IG/W/35; Paper by New Zealand (19 September 2002) G/ADP/IG/W/47.

103 For a detailed review of the negotiations up to 2010, see generally J Kazeki, ‘Anti-Dumping Negotiations under the WTO and FANs’ (2010) 44(5) JWT 931.

104 WTO, Negotiating Group on Rules, Working Document from the Chairman (28 May 2008) TN/RL/W/232, Annex A.

105 WTO, Negotiating Group on Rules, Communications from the United States (8 February 2005) TN/RL/GEN/29; (14 October 2005) TN/RL/GEN/71; (6 March 2006) TN/RL/GEN/106; WTO, Committee on Anti-Dumping Practices, Informal Group on Anti-Circumvention, Antidumping Duty “Evasion Services”, Paper from the United States (17 March 2015) G/ADP/IG/W/54; WTO, Committee on Anti-Dumping Practices, Informal Group on Anti-Circumvention, Procedure for Investigating Allegations of Evasion, Paper from the United States (16 March 2016) G/ADP/IG/W/55.

106 WTO, Negotiating Group on Rules, Proposed Provision on Anti-Circumvention, Statement of China; Hong Kong, China; Pakistan (12 February 2008) TN/RL/W/216.

107 A Caetano, ‘Circumvention of Anti-Dumping Measures: Law and Practice of Brazil’(2016) 11(11/12) GT&CJ 487; J Dion Sud, ‘Circumvention of Anti-Dumping Measures: Law and Practice of India’ (2016) 11(11/12) GT&CJ 508; D Moulis, ‘Anti-Circumvention of Anti-Dumping Measures: Law and Practice of Ten World Trade Organization MembersAustralia’ (2016) 11 GT&CJ 479; Canada Border Services Agency, ‘Anti-Circumvention Investigations Conducted Pursuant to the Special Import Measures Act (SIMA)’ (26 April 2018) <www.cbsa-asfc.gc.ca/sima-lmsi/ac-eng.html>.

108 Council Regulation (EC) No 461/2004 of 8 March 2004 amending Regulation (EC) No 384/96 on protection against dumped imports from countries not members of the European Community and Regulation (EC) No 2026/97 on protection against subsidised imports from countries not members of the European Community [2004] OJ L77/12.

109 Van Bael & Bellis (n 60) Ch 9.

110 Council Regulation (EC) No 1208/2004 of 28 June 2004 extending the definitive anti-dumping measures imposed by Regulation (EC) No 119/97 on imports of certain ring-binder mechanisms originating in the People's Republic of China to imports of the same product consigned from the Socialist Republic of Vietnam [2004] OJ L232/1; Council Regulation (EC) No 866/2005 of 6 June 2005 extending the definitive anti-dumping measures imposed by Regulation (EC) No 1470/2001 on imports of integrated electronic compact fluorescent lamps (CFL-i) originating in the People's Republic of China to imports of the same product consigned from the Socialist Republic of Vietnam, the Islamic Republic of Pakistan and the Republic of the Philippines [2005] OJ L145/1; Council Regulation (EC) No 388/2008 of 29 April 2008 extending the definitive anti-dumping measures imposed by Regulation (EC) No 1472/2006 on imports of certain footwear with uppers of leather originating in the People's Republic of China to imports of the same product consigned from the Macao SAR, whether declared as originating in the Macao SAR or not [2008] OJ L117/1; Council Regulation (EC) No 499/2009 of 11 June 2009 extending the definitive anti-dumping duty imposed by Regulation (EC) No 1174/2005 on imports of hand pallet trucks and their essential parts originating in the People's Republic of China to imports of the same product consigned from Thailand, whether declared as originating in Thailand or not [2009] OJ L151/1; Council Implementing Regulation (EU) No 260/2013 of 18 March 2013 extending the definitive anti-dumping duty imposed by Regulation (EC) No 1458/2007 on imports of gas-fuelled, non-refillable pocket flint lighters originating in the People's Republic of China to imports of gas-fuelled, non-refillable pocket flint lighters consigned from the Socialist Republic of Vietnam, whether declared as originating in the Socialist Republic of Vietnam or not [2013] OJ L82/10; Council Implementing Regulation (EU) No 501/2013 of 29 May 2013 extending the definitive anti-dumping duty imposed by Implementing Regulation (EU) No 990/2011 on imports of bicycles originating in the People's Republic of China to imports of bicycles consigned from Indonesia, Malaysia, Sri Lanka and Tunisia, whether declared as originating in Indonesia, Malaysia, Sri Lanka and Tunisia or not [2013] OJ L153/1; Commission Implementing Regulation (EU) 2015/776 of 18 May 2015 extending the definitive anti-dumping duty imposed by Council Regulation (EU) No 502/2013 on imports of bicycles originating in the People's Republic of China to imports of bicycles consigned from Cambodia, Pakistan and the Philippines, whether declared as originating in Cambodia, Pakistan and the Philippines or not [2005] OJ L122/4.

111 Council Regulation (EC) No 866/2005 ibid, recital 5; Council Regulation (EC) No 1208/2004 ibid, recital 28.

112 The first investigation targeting complex downstream production was against steel ropes and cables. However, the raw materials originating from China did not constitute 60 per cent of the value of the raw materials needed to make the final product. Implementing Regulation of the Council (EU) No 400/2010 of 26 April 2010 extending the definitive anti-dumping duty imposed by Regulation (EC) No 1858/2005 on imports of steel ropes and cables originating, inter alia, in the People's Republic of China to imports of steel ropes and cables consigned from the Republic of Korea, whether declared as originating in the Republic of Korea or not, and terminating the investigation in respect of imports consigned from Malaysia [2010] OJ L117/1.

113 Commission Implementing Regulation (EU) 2021/1475 of 14 September 2021 extending the definitive anti-dumping duty imposed by Implementing Regulation (EU) 2019/915 on imports of certain aluminium foil in rolls originating in the People's Republic of China to imports of certain aluminium foil in rolls consigned from Thailand, whether declared as originating in Thailand or not [2021] OJ L325/24; Commission Implementing Regulation (EU) 2021/1474 of 14 September 2021 extending the definitive anti-dumping duty imposed by Implementing Regulation (EU) 2015/2384 and Implementing Regulation (EU) 2017/271 on imports of certain aluminium foil originating in the People's Republic of China to imports of certain aluminium foil consigned from Thailand, whether declared as originating in Thailand or not [2021] OJ L325/6.

114 2000/204/EC, ECSC: Council and Commission Decision of 24 January 2000 on the conclusion of the Euro-Mediterranean Agreement establishing an association between the European Communities and their Member States, of the one part, and the Kingdom of Morocco, of the other part [2000] OJ L70/1.

115 Commission Implementing Regulation (EU) 2022/302 of 24 February 2022 extending the definitive anti-dumping duty imposed by Implementing Regulation (EU) 2020/492, as amended by Implementing Regulation (EU) 2020/776, on imports of certain woven and/or stitched glass fibre fabrics (‘GFF’) originating in the People's Republic of China (‘the PRC’) to imports of GFF consigned from Morocco, whether declared as originating in Morocco or not, and terminating the investigation concerning possible circumvention of the anti-dumping measures imposed by Implementing Regulation (EU) 2020/492 on imports of GFF originating in Egypt by imports of GFF consigned from Morocco, whether declared as originating in Morocco or not [2022] OJ L46/49; Commission Implementing Regulation (EU) 2022/301 (n 89).

116 Commission Implementing Regulation (EU) 2022/1477 of 6 September 2022 extending the definitive anti-dumping duty imposed by Implementing Regulation (EU) 2020/492, as amended by Implementing Regulation (EU) 2020/776, on imports of certain woven and/or stitched glass fibre fabrics originating in the People's Republic of China and Egypt to imports of certain woven and/or stitched glass fibre fabrics consigned from Turkey, whether declared as originating in Turkey or not [2022] OJ L233/1; Commission Implementing Regulation (EU) 2022/1478 of 6 September 2022 extending the definitive countervailing duty imposed by Implementing Regulation (EU) 2020/776, on imports of certain woven and/or stitched glass fibre fabrics originating in the People's Republic of China and Egypt to imports of certain woven and/or stitched glass fibre fabrics consigned from Turkey, whether declared as originating in Turkey or not [2022] OJ L233/18.

117 Commission Implementing Regulation (EU) 2023/453 of 2 March 2023 extending the definitive anti-dumping duty imposed by Implementing Regulation (EU) 2017/141 on imports of certain stainless steel tube and pipe buttwelding fittings, whether or not finished, originating in the People's Republic of China to imports of certain stainless steel tube and pipe butt-welding fittings, whether or not finished, consigned from Malaysia, whether declared as originating in Malaysia or not [2023] OJ L67/19.

118 V Crochet, ‘Trade Defence Instruments: A New Tool for the European Union's Extractivism’ (2022) 33(2) EJIL 381.

119 Commission Implementing Regulation (EU) 2020/1713 of 16 November 2020 amending Implementing Regulation (EU) 2019/1382 amending certain Regulations imposing anti-dumping or anti-subsidy measures on certain steel products subject to safeguard measures [2020] OJ L384/6.

120 Commission Implementing Regulation (EU) 2023/825 of 17 April 2023 extending the anti-dumping duty imposed by Implementing Regulation (EU) 2020/1408 on imports of certain hot rolled stainless steel sheets and coils originating in Indonesia to imports of certain hot rolled stainless steel sheets and coils consigned from Türkiye, whether declared as originating in Türkiye or not [2023] OJ L103/12.

121 The traditional understanding of what assembly of parts means was latest confirmed in 2017 in Commission Implementing Regulation (EU) 2017/2093 of 15 November 2017 terminating the investigation concerning possible circumvention of the anti-dumping measures imposed by Council Implementing Regulation (EU) No 1331/2011 on imports of certain seamless pipes and tubes of stainless steel originating in the People's Republic of China by imports consigned from India, whether declared as originating in India or not, and terminating the registration of such imports imposed by Commission Implementing Regulation (EU) 2017/272 [2017] OJ L299/1, recitals 33, 71–2, where the Commission stated that the cold forming process to produce seamless pipes and tubes of stainless steel ‘substantially transforms the product and irreversibly alters its essential characteristics. During the process the product changes its dimensions and its physical, mechanical and metallurgical properties.’ It added that ‘the cold forming causes irreversible alterations of the product's essential characteristics’.

122 European Commission, ‘40th Annual Report from the Commission to the European Parliament and the Council on the EU's Anti-Dumping, Anti-Subsidy and Safeguard activities and the Use of Trade Defence Instruments by Third Countries targeting the EU in 2021’ (19 September 2022) COM(2022) 470 final, 4–6.

123 A Willems and B Natens, ‘What's Wrong with EU Anti-Circumvention Rules and How to Fix it’ (2016) 19 JIEL 497.

124 See eg Commission Implementing Regulation (EU) 2021/1475 (n 113); Commission Implementing Regulation (EU) 2022/302 (n 115); Commission Implementing Regulation (EU) 2022/1477 (n 116). See further Willems and Natens ibid.

125 United Nations Conference on Trade and Development (UNCTAD), Tracing the Value Added in Global Value Chains: Product-Level Case Studies in China, UNCTAD/DITC/TNCD/2015/1 (United Nations 2015) <https://unctad.org/system/files/official-document/ditctncd2015d1_en.pdf>.

126 See eg Council Regulation (EC) No 338/2008 (n 110) where the Commission opened an anti-circumvention ex officio.

127 Commission Implementing Regulation (EU) 2020/492 of 1 April 2020 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 [2020] OJ L108/1; 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 [2020] OJ L189/1. See also Crochet and Hegde (n 14).

128 The date of initiation of the first anti-circumvention investigations targeting legitimate internationalization of production activities by Chinese companies in Thailand discussed above.

129 European Commission, ‘Trade Defence Investigations (Ongoing Investigations)’ (2022) <https://tron.trade.ec.europa.eu/investigations/ongoing>.

130 The US's recent practices have been heading in the same direction by using the anti-circumvention instrument to target complex downstream manufacturing processes by Chinese companies which expanded production operations overseas. Based on a search under US Federal Register via www.govinfo.gov, around 43 anti-circumvention measures imposed by the US government between 2012 and 2021 were identified. Among these measures, 31 involved China including 19 cases concerning assembly operations in a third country, five concerning assembly operations in the US, and seven on other types of circumventing activities. A recent example concerned imports of welded oil country tubular goods (OCTG) completed in Brunei and the Philippines using inputs manufactured in China. In 2010, the US Department of Commerce (USDOC) imposed anti-dumping and countervailing duties on certain OCTG goods exported from China. In November 2020, the USDOC self-initiated an anti-circumvention investigation based on information suggesting that Chinese companies had established production facilities in Brunei and the Philippines to manufacture OCTG goods using hot-rolled steel sheet and strip from China and then exported the OCTG goods to the US, thereby circumventing the existing anti-dumping and countervailing duties. Despite the complex production process of OCTG, the USDOC found that the Chinese companies’ investment in Brunei and the Philippines was merely assembly operations used to circumvent the US duties. See USDOC, Oil Country Tubular Goods from the People's Republic of China: Decision Memorandum for Preliminary Affirmative Determinations of Circumvention (4 August 2021); USDOC, Oil Country Tubular Goods from the People's Republic of China: Final Affirmative Determinations of Circumvention, Federal Register Notices 67443 (26 November 2021).

131 UK Trade Remedies Authority, Economic Research into the Circumvention of Trade Remedies (16 November 2022) <https://www.gov.uk/government/publications/economic-research-into-the-circumvention-of-trade-remedies>.

132 See eg World Bank, World Development Report 2020: Trading for Development in the Age of Global Value Chains (2020) 37 <www.worldbank.org/en/publication/wdr2020>; H Suzuki, ‘Building Resilient Global Supply Chains: The Geopolitics of the Indo-Pacific Region’ (Center for Strategic & International Studies (CSIS), 19 February 2021) <www.csis.org/analysis/building-resilient-global-supply-chains-geopolitics-indo-pacific-region>.

133 See generally S Miroudot and H Nordström, ‘Made in the World? Global Value Chains in the Midst of Rising Protectionism’ (2020) 57 Rev Ind Organ 195; C Constantinescu, A Mattoo and M Ruta, ‘Policy Uncertainty, Trade and Global Value Chains: Some Facts, Many Questions’ (2020) 57 Rev Ind Organ 285.

134 See Section II.

135 See eg CSIS, China Power Team, ‘Does China Dominate Global Investment?’ (2021) <https://chinapower.csis.org/china-foreign-direct-investment/>.

136 See eg Organisation for Economic Co-operation and Development (OECD), China's Belt and Road Initiative in the Global Trade, Investment and Finance Landscape (2018) 9, 24 <www.oecd.org/finance/Chinas-Belt-and-Road-Initiative-in-the-global-trade-investment-and-finance-landscape.pdf>.

137 See eg OECD, A First Look at the Steel Industry in the Context of Global Value Chains (23–24 March 2017) 4, 6, 13 <https://one.oecd.org/document/DSTI/SC(2017)4/en/pdf>; TS Yean and YW Jin, ‘Chinese Steel Investments in ASEAN’ (Perspective, 21 May 2020) 3–4 <www.iseas.edu.sg/wp-content/uploads/2020/03/ISEAS_Perspective_2020_50.pdf>.

138 See OECD (n 136).

139 With regard to the extension of the use of countervailing measures, it could be argued that Basic Anti-Subsidy Regulation (n 62) art 23 (that is the provision under EU law which encapsulates the anti-circumvention instrument with regard to anti-subsidy measures) does not include a provision similar to Basic Anti-Dumping Regulation (n 58) art 13(2), regarding assembly operations in third countries so that countervailing duties might not be extended in such cases.

140 Commission Delegated Regulation (EU) 2015/2446 of 28 July 2015 supplementing Regulation (EU) No 952/2013 of the European Parliament and of the Council as regards detailed rules concerning certain provisions of the Union Customs Code [2015] OJ L343/1, arts 35(3)(c), 47. See also Explanatory Note (VII) of the second part of General Rule 2(a) for the interpretation of the Harmonized System <https://www.wcoomd.org/-/media/wco/public/global/pdf/topics/nomenclature/instruments-and-tools/hs-interpretation-general-rules/0001_2012e_gir.pdf?la=en#:~:text=2.,the%20complete%20or%20finished%20article>.

141 Case C-2/13, Directeur général des douanes et droits indirects and Chef de l'agence de la direction nationale du renseignement et des enquêtes douanières v Humeau Beaupréau SAS, EU:C:2014:48, paras 38–51.

142 Case C-21/13, Simon, Evers & Co. GmbH v Hauptzollamt Hamburg-Hafen, ECLI:EU:C:2014:2154, para 48.

143 An action for annulment has been brought against the two anti-circumvention measures on imports from Morocco discussed above. See Cases T-245/22 and T-246/22, PGTEX Morocco v Commission.

144 As well as of Basic Anti-Subsidy Regulation (n 62) art 23(3).

145 Zhou, W, ‘Circumvention and Anti-Circumvention: Rising Protectionism in Australia’ (2016) 15(3) World Trade Rev 495, 511–15CrossRefGoogle Scholar; Willems and Natens (n 123) 505–10.

146 See Section III.A. Furthermore, Anti-Dumping Agreement (n 48) art 18.1 and SCM Agreement (n 49) art 32.1 prohibit actions to be taken against dumping and subsidization, respectively, except in the form of anti-dumping and countervailing measures.

147 T Prusa, ‘Anti-Dumping and Countervailing Duties’ in A Mattoo, N Rocha and M Ruta (eds), Handbook of Deep Trade Agreements (World Bank 2020).

148 This is also the case of agreements to which China is a party. See Regional Comprehensive Economic Partnership, Ch 7; China–Switzerland Free Trade Agreement, art 5.2.

149 Regulation (EU) 2015/476 of the European Parliament and of the Council of 11 March 2015 on the measures that the Union may take following a report adopted by the WTO Dispute Settlement Body concerning anti-dumping and anti-subsidy matters (codification) [2015] OJ L83/6.

150 For a detailed discussion of China's practice, see W Zhou, China's Implementation of the Rulings of the World Trade Organization (Hart Publishing 2019) 152–82.

151 On challenging repeated practice, see eg Panel Report, United States – Certain Methodologies and their Application to Anti-Dumping Proceedings Involving China, WT/DS471/R, adopted 22 May 2017, para 7.305.

152 Appellate Body Report, European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R, adopted 28 July 2011, para 385; Regulation (EU) No 765/2012 of the European Parliament and of the Council of 13 June 2012 amending Council Regulation (EC) No 1225/2009 on protection against dumped imports from countries not members of the European Community [2012] OJ L237/1.

153 See P Ungphakorn, ‘Technical Note: Appeals “Into the Void” in WTO Dispute Settlement’ (Trade β Blog, 13 February 2021) <https://tradebetablog.wordpress.com/technical-note-appeals-into-the-void-in-wto-dispute-settlement/#:~:text=After%20the%20Appellate%20Body%20stopped,adopted%20by%20the%20WTO's%20membership>.

154 That is the case except if the parties to the dispute have signed onto the Multi-Party Interim Appeal Arbitration Arrangement or an ad hoc appeal arbitration agreement for the dispute at hand. See WTO, Statement on a Mechanism for Developing, Documenting and Sharing Practices and Procedures in the Conduct of WTO Disputes (30 April 2020) JOB/DSB/1/Add.12.

155 The WTO and most FTAs allow the successful complaining State to impose retaliatory trade measures until compliance is achieved.

156 See Section III.B.

157 UK Trade Remedies Authority (n 131).

158 See Negotiating Group on Rules (n 104) Annex A; Negotiating Group on Rules (n 105) TN/RL/GEN/29; TN/RL/GEN/71; TN/RL/GEN/106; Committee on Anti-Dumping Practices (n 105) G/ADP/IG/W/54; G/ADP/IG/W/55.

159 Explanatory Note (VII) (n 140).

160 Components would thus constitute parts.

161 See, on this under EU customs law, Commission Delegated Regulation (EU) 2015/2446 (n 140) arts 35(3)(c), 47.

162 See, on the difference between assembly, production and processing under EU customs law, Commission Delegated Regulation (EU) 2015/2446 (n 140) art 37.

163 A rather similar test was put forth by the Court of Justice of the EU but is loosely applied by the European Commission in practice. See Joined Cases C-247/15 P, C-253/15 P and C-259/15 P, Maxcom Ltd v Chin Haur Indonesia, EU:C:2017:61, para 102.

164 This would involve examining the situation that would have existed but for the measure in question. See Panel Report, United States—Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/DS353/R, adopted 23 March 2012, as modified by Appellate Body Report, WT/DS353/AB/R, para 7.117.

165 In this regard, the test of insufficient economic justification other than the imposition of the trade defence measures used in EU law could be used together with an interpretative not clarifying that this test must be read as a ‘but for’ test.

166 As a result, this would be different from anti-circumvention in ‘origin investigations’ under Article 25 of the former EU Customs Code. See Vermulst (n 5) 499.

167 For example, the Euro-Mediterranean Agreement (n 114) prohibits the imposition of trade defence measures other than anti-dumping measures. However, this did not prevent the EU to argue, based on textual ambiguities, that the use of the anti-circumvention instrument against imports from Morocco was nevertheless allowed. See Commission Implementing Regulation (EU) 2022/302 (n 115); Commission Implementing Regulation (EU) 2022/301 (n 89).

168 In essence, this is the tool the EU uses when a Chinese subsidiary is set up abroad but does not use inputs of Chinese origin so that it cannot be targeted by the anti-circumvention instrument. See Crochet and Hegde (n 14).

169 Crochet, V and Gustafsson, M, ‘Lawful Remedy or Illegal Response? Resolving the Issue of Foreign Subsidization under WTO Law’ (2021) 20(3) World Trade Rev 343Google Scholar.

170 C Schmucker and S-A Mildner, ‘Investment Screening: Protectionism and Industrial Policy? Or Justified Policy Tool to Protect National Security?’ (Global Solutions, 18 October 2021) <https://www.t20italy.org/wp-content/uploads/2021/09/TF3_PB08_LM04.pdf>.

171 See eg S Lester, ‘FCC Revokes Telecom Services Authority for Two Chinese Companies’ (China Trade Monitor, 17 March 2022) <www.chinatrademonitor.com/fcc-revokes-telecom-services-authority-two-chinese-companies/>; S Lester, ‘Canada Excludes Huawei, ZTE from 5G Market (China Trade Monitor, 22 May 2022) <www.chinatrademonitor.com/canada-excludes-huawei-zte-from-5g/>; R Chesney, ‘TikTok, WeChat, and Biden's New Executive Order: What You Need to Know’ (Lawfare, 9 June 2021) <www.lawfareblog.com/tiktok-wechat-and-bidens-new-executive-order-what-you-need-know>.

172 Chaisse, J and Dimitropoulos, G, ‘Special Economic Zones in International Economic Law: Towards Unilateral Economic Law’ (2021) 24(2) JIEL 229CrossRefGoogle Scholar.