More and more products are subject to anti-dumping duties, which are intended to protect European producers from unfair competition from outside. These duties can be an incentive to adjust the supply chain in order to circumvent the higher costs. Under certain circumstances, this leads to illegitimate circumvention, against which the European Commission (‘Commission’) can take action by extending anti-dumping duties to other countries or companies.
In practice, it is not always clear when there is illegitimate circumvention or a legitimate adjustment of business strategy. In this blog, we will discuss what the concept of circumvention entails, how the Commission deals with cases of possible circumvention, what European companies can do if they suspect circumvention, and how companies can legitimately adjust their supply chain to adjust to anti-dumping duties.
What is circumvention?
Circumvention is defined as a change in the pattern of trade resulting from a practice for which there is insufficient due cause or economic justification other than to avoid the anti-dumping duty. The concept of circumvention is defined in Regulation (EU) 2016/1036 on protection against dumped imports from countries not members of the European Union and consists of the following cumulative criteria:
- There is a change in the pattern of trade between third countries and the Union or between individual companies in a country subject to measures;
- This change in the pattern of trade must result from a practice, process or action for which there is insufficient due cause or economic justification other than the imposition of the duty;
- There is injury or undermining of the remedial effects of the duty attributable to changes in the prices and/or quantities of the product concerned; and
- There is dumping in relation to the normal value previously established for the product concerned during the original anti-dumping investigation.
In practice, a change in the pattern of trade is often determined based on a simultaneous (a) (significant) decrease in exports from the country to which the duties apply and (b) (significant) increase in exports of the same product from a third country. Broadly speaking, there are four types of circumvention: (i) slight modifications to the product; (ii) transhipment; (iii) sales through an unrelated third party; and (iv) assembly in another location. These types are briefly described and explained below:
Slight modifications to the product
Firstly, exporters may make minor modifications to a product in order to have it classified under different customs codes to which no duties apply. If the essential characteristics of the product are affected, it is in fact a different product and therefore not circumvention.
Transhipment
Exporters may also choose to export their products to the EU via third countries. In the third country, these products are relabelled or undergo minimal processing so that they are formally imported as new products from that third country. The aim is to conceal the actual origin of the product. This is also known as “transhipment”.
Sales via unaffiliated third parties
There are also situations in which exporters choose to (re)organise their sales channels so that products are no longer exported via their own organisation, but via producers/traders to whom lower or no individual duties apply (see also this blog). This allows the evading exporter to ensure that they owe lower or no duties.
Assembly
Producers may choose to export individual components of the product in question to the EU or another country, where they are then assembled into the end product to which the anti-dumping duties apply. In principle, anti-dumping duties do not apply to individual components or semi-finished products. Assembly is considered circumvention when the following cumulative criteria are met:
- The assembly operations commenced or significantly increased since or shortly before the initiation of the anti-dumping investigation and the product components concerned originate in the country to which the measures apply; and
- The remedial effect of the duty must be undermined, and it must be proven that dumping is taking place in relation to the normal value previously established for the products concerned during the original anti-dumping investigation; and
- The components of the product account for 60% or more of the total value of the assembled product. There is no circumvention if the value added to the imported parts during the assembly or completion operations (i.e. in the EU) exceeds 25% of the manufacturing costs.
Investigation by the Commission
In circumvention investigations, the Commission assesses whether there is due cause or economic justification for the change in the pattern of trade. In this context, the Commission examines whether there is any quantifiable benefit to importers – other than avoiding the payment of the anti-dumping duty – which could economically justify the change in the pattern of trade.
An anti-circumvention investigation may be initiated on the Commission's own initiative or following a request, for example from the Union industry. The Commission conducts the investigation and may be assisted by national customs authorities. An anti-circumvention investigation is initiated by the publication of a regulation. This regulation specifies the product under investigation, the alleged circumvention practice and the period under investigation.
The Commission has broad powers during this investigation. For example, it can request information and take temporary measures. The investigation must be completed within nine months. During the investigation, interested parties, including the exporters concerned, may submit their views (in writing) on the alleged circumvention. In certain cases, they may also request a hearing with the Commission.
If the Commission concludes that circumvention is taking place, it may, at the end of the investigation, extend the existing duties to the countries and exporters under investigation. In addition, the duties may be imposed retroactively from the date of the initiation of the investigation. The Commission cannot impose fines.
Practical examples of circumvention
Circumvention has become an increasingly important issue in the field of trade defence. Since 2021, the Commission has launched 11 investigations. The Commission's most recent annual report also devotes considerable attention to the issue of circumvention. In 2024, two investigations into circumvention were launched and three investigations were concluded with the extension of duties to third countries.
The Commission recently launched another investigation into possible circumvention of anti-dumping measures on cast fittings for pipe systems made of malleable cast iron from China and Thailand. These duties would be undermined by the assembly of various parts of this product in the EU. Below are two examples of recently imposed duties as a result of an anti-circumvention investigation.
(i) Cold-rolled flat products of stainless steel
On 6 May 2024, the anti-dumping duties (20.5%) in force on cold-rolled flat products of stainless steel from Indonesia were extended to Turkey, Taiwan and Vietnam. The investigation period for the analysis of trade patterns ran from 1 January 2020 to 30 June 2023. During this period, there was a significant increase in imports of these products from Taiwan (by 49%), Turkey (by 42%) and Vietnam (by 174%) into the EU. At the same time, these countries saw a significant increase in imports of raw materials needed for the production of cold-rolled flat stainless steel products. This was in contrast to the fact that the total volume of imports from Indonesia to the EU actually fell by almost 93%.
The practice investigated consisted of importing semi-finished products (such as hot-rolled stainless steel coils and sheets) from Indonesia and further processing them into finished products in Turkey, Taiwan and Vietnam. This was considered by the Commission to be an assembly or finishing operation. The Commission's investigation showed that these activities were mainly carried out to circumvent the duties imposed, as there was insufficient economic justification for such a change in the relevant trade patterns.
(ii) Birch plywood
In another case, on 14 May 2024, the Commission imposed additional anti-dumping duties on imports of birch plywood from Kazakhstan and Turkey. After the Commission imposed an anti-dumping duty on imports of birch plywood from Russia in November 2021, an investigation into possible circumvention was launched in August 2023. During the investigation period from 1 January 2019 to 30 June 2023, imports of birch plywood from Kazakhstan to the EU increased significantly. During this period, imports of raw materials for birch plywood from Russia to Kazakhstan and Turkey also increased significantly, while direct imports from Russia to the EU decreased significantly.
The Commission found that producers in Kazakhstan and Turkey were engaged, among other things, in the mere transhipment of Russian birch plywood, with the EU as the final destination. In addition, some producers were involved in assembly operations using Russian materials that accounted for more than 60% of the total value and added no more than 25% to the manufacturing cost. The Commission concluded that the main economic reason for these activities was not to add real value or increase production capacity, but to circumvent anti-dumping duties on imports from Russia. The Commission imposed a duty of 15.8% on imports of these products from Kazakhstan and Turkey.
Conclusion
Companies can adapt their supply chain to anti-dumping duties in various ways. However, not all adjustments are permitted. Some of these forms are solely intended to circumvent the anti-dumping duties imposed. In the event of circumvention, the Commission may initiate an investigation and also impose anti-dumping duties on other exporters or exporters in third countries.
Maverick Advocaten has extensive experience with anti-dumping investigations and advises European producers, importers and foreign producers on the correct interpretation of anti-dumping measures and (the prevention of) circumvention.
For all information about anti-dumping investigations, see the information portal antidumping.eu.
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