General

Since 2017, the European Union has always taken strict measures against foreign subsidies that distort competition. The establishment of this legal framework has had a profound impact on the business activities of enterprises receiving non EU government subsidies and the M&A transactions targeting EU enterprises.

At the recent event on the influence of EU market distorting regulations on responding to trade remedy cases, the senior partner of Jintiancheng (Beijing) Law Firm introduced to Dong that EU Regulation 2017/2321 had officially come into force on December 20, 2017. This bill introduced the concept and standard of "seriously distorted market", and identified many pillar industries in China as "distorted market". Since the implementation of the Act, it has affected China's response to trade remedy cases. Formally, the new EU antidumping substitution price method eliminates the previous distinction between WTO market economy and non market economy members, and is applicable to WTO members with "important distortions" in the market, that is, the principle of "country neutrality". In essence, the new EU method is mainly aimed at China's import investigation, and has issued the "China Market Distortion Report" as the basis for the application of the new law.

At the beginning of July this year, negotiators from the European Parliament and EU countries agreed to take stricter measures against foreign subsidies that distort competition. The European Commission will have a wider right to review enterprises that participate in EU government procurement bidding but may accept subsidies to distort competition. If a third country enterprise that intends to acquire an EU enterprise is suspected of receiving state subsidies, the EU Antimonopoly Office has the right to veto the merger, and such enterprises should also be excluded from EU government procurement. In addition, the enterprise shall fulfill the reporting obligation, which is applicable to government procurement bidding projects where the turnover of the party involved in the merger and acquisition in the EU exceeds 500 million euros and receives subsidies, or the contract amount exceeds 250 million euros. If it fails to fulfill its obligations, the European Commission may impose a fine of up to 10% of the turnover on the enterprise.

The new law has brought considerable influence to international trade enterprises with different responding status. Xiang Dong, taking the anti-dumping investigation as an example, said that under the new method, the workload of mandatory respondent enterprises to fill in questionnaires increased, the cost of responding to lawsuits increased, and the difficulty of responding to lawsuits increased. For international trade enterprises that voluntarily respond to lawsuits and apply for separate tax rates, even if the enterprises voluntarily respond to lawsuits and submit complete answers, the European Commission is very likely not to accept the answers of enterprises. It has little impact on enterprises that voluntarily respond to the lawsuit and only submit sample questionnaires. However, if the enterprise does not respond to the lawsuit, it will be directly subject to the punitive tax rate.

How long the tax will be levied after the ruling is also a concern of international trade enterprises. Xiang Dong said that the EU will decide whether to continue the anti-dumping duty for five years after sunset review after the five-year period of anti-dumping duty on products is about to expire. The ruling standard is whether the revocation of anti-dumping duties will lead to the continuation or recurrence of dumping and injury. The investigation period is usually 12 months, and the investigation period can be extended to 15 months at most if the circumstances are particularly complex.

Pu Lingchen, the partner in charge of Zhuowei International Trade and Compliance Department, said that Chinese enterprises should first be forward-looking in compliance and pay attention to the changing rules of the European Union; Secondly, adjust the business model and understand that the competitive advantage is not in products and markets, but in rules; Thirdly, we should systematically study the rules and track the changes of trade policies, so as to know both ourselves and the other; Finally, we should integrate trade in goods, trade in services, finance and investment, expand our perspective to the global market, and fully grasp the future trend of WTO and the changes in the structure of international trade and economic cooperation.