Tag Archive: anti-circumvention

  1. EU companies damaged by anti-dumping legislation meet with Commission

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    On 15 March, more than 40 participants, a mixture of company representatives and lawyers, signed up for the meeting with the EU Commission on the damaging effects on EU companies of anti-dumping (ADD) and anti-subsidy (ASD) measures against e-bikes from China. The meeting had been requested by LEVA-EU. In an exchange with three different Commission departments of DG Trade and DG Taxud, a long list of questions was presented. LEVA-EU Manager, Annick Roetynck, opened the meeting with a presentation of the different ADD and ASD issues that are damaging many EU companies.

    LEVA-EU Manager, Annick Roetynck, opened with the ascertainment that ADD and ASD on e-bikes from China, in combination with related legislation has become an inextricable tangle. EU companies are no longer able to understand the legislation and apply it correctly. As a result, many companies come under attack with their very existence put at risk. Some companies have already gone bankrupt, some are on the brink of bankruptcy. Annick Roetynck concluded that the inextricable tangle causes legal uncertainty that poses very serious risks and threats to the whole EU e-bike industry. As a result, she requested the Commission for clarification of the legislation, for potential measures to provide legal certainty and for potential measures to improve legislation.

    All Chinese components

    One of the first issues on the table was the applicability of Article 13 of the Basic Regulation in court-cases involving national customs services. This Article stipulates among other things that if the Chinese parts in an EU assembly represent 60% or more of the total value of the components or if in the assembly less than 25% value is added, the assembly may be considered to be circumventing.

    In several EU countries, national customs services have embarked on litigations partly based on this very article. In the past 5 years, LEVA-EU has always cautioned its members to comply with the 60/40 – 25% rule for fear of circumvention accusations and extension of the duties to essential e-bike components. It was therefore surprising, to say the least, to find the EBMA openly reassuring its members about the fact that the EU Commission itself had confirmed that the 60/40 rule or 25 % added value did not apply to e-bikes.

    In the meeting, the Commission repeatedly emphasized that customs services have no legal right to invoke Article 13, for which the competence lies solely with the Commission. The Commission representatives also assured that they were prepared to raise the matter with national customs authorities, provided that companies and/or their lawyers addressed the Commission directly. With that, the Commission guaranteed absolute confidentiality.

    One of the company managers in the meeting, who is subjected to a criminal court-case partly based on Article 13, reacted particularly emotionally when discussing this issue. He explained to the Commission, how all his life, he had done nothing but working hard for a third generation EU family business. His perception was that Europe was destroying not only his company but also him personally. He faces a fine of 60 million euro and 5 years in prison, a downright inhumane threat.

    General Rule of Interpretation 2(a)

    Unfortunately, the Commission’s assurances on Article 13, did not solve the problem since a representative of DG Taxud further complicated the issue by introducing the problem of the General Rule of Interpretation (GRI) 2(a), set out in Annex II to Council Regulation 2658/87. This Rule stipulates that the imports of parts may be considered as the import of a complete e-bike, which may prompt customs to categorize the parts under the HS-code for e-bikes instead of the codes for components. That categorization in turn, comes with ADD and ASD, if the components originate from China.

    The Commission seemed genuinely surprised to find a lawyer confirming to the EBMA President in 2021 that: “the EU customs nomenclature does not define the parts needed in order to have the “essential character” of a complete electrical bicycle and there has not been any authoritative ruling by the European Courts on the question of the minimum parts needed together to consider that they have the essential character of an electrical bicycle.”

    The Commission was however unable to provide further clarification on how to practically deal with GRI 2(a). The Commission representative stated: “The import of e-bike parts could be characterized as imports of complete e-bikes for customs’ clarification purposes in principle if they are imported in one or more containers presented to customs’ clearance on the same day. Nevertheless, it cannot be excluded that parts imported on different dates are considered complete e-bikes, if it is obvious from objective characteristics that they are related.” In other words, while one department of the Commission confirmed that assembling electric bicycles from 100% Chinese parts was legal for the moment, another department could not give a conclusive answer to the question of how these could be legally imported.

    Import e-bike components ǂ import bike components

    A few years ago, the Commission published an explanatory note for national customs services on the import of conventional bicycle parts, stating that an incomplete bicycle, whether or not assembled, is to be classified under heading 8712 for complete bicycles, if it consists of the frame, the fork and at least two of the essential bike components subject to ADD. It is not possible for the Commission to publish a similar explanatory note for e-bike components because custom services have not asked for this. In the meantime, some custom services in the EU apply the same explanatory note to e-bike components. In the meeting, the Commission confirmed that this is incorrect and declared themselves prepared to make a statement about this!

    The last issue that was discussed in this meeting was the legal validity of the non-binding list rule for imports of e-bikes from outside the EU, issued by the Commission at the explicit request of the EBMA, aimed at actually refuting the change of tariff heading (CTH) for e-bikes imported from outside the EU.

    In 2017, also at the request of EBMA, HS code 8711 was amended to “Motorcycles (including mopeds) and cycles fitted with an auxiliary motor, with or without side-cars; side-cars” with a view to creating a specific HS code for electric cycles. With that, electric bikes came under the same rules of origin as motorcycles, one of which was CTH. According to the Commission, EBMA subsequently requested for a change of that rule of origin, because the rule for motorcycles was allegedly not suitable for electric bikes.

    Since this change, if for instance a Taiwanese, Thai or Turkish assembler imports parts from China for the assembly of electric bicycles to be exported to the EU, that assembly does not qualify as “last substantial transformation” and must therefore be considered circumvention.

    Many outstanding questions

    So, EBMA requested the Commission in 2020 to close the so-called loophole by changing the rule of origin, upon which dozens of EU companies were attacked and literally and figuratively being presented with the bill. At the same time, EBMA reassured dozens of other EU companies that importing Chinese components for the assembly of e-bikes in the EU was not a legal issue.

    According to the Commission, there’s no going back on this change of the non-binding list rule, because it was approved by the member states. All this still doesn’t provide a conclusive answer to the question of the legal validity of this non-binding list rule.

    Furthermore, there are still many other outstanding questions about for instance OLAF’s working methods, the lack of insight into the investigations as well as the lack of redress for the European companies, that are subsequently charged by customs and dragged into legal cases that may last 5 to 10 years and cost the companies fortunes . Since at the end of this meeting, many questions remained unanswered, on behalf of the participants, LEVA-EU expressly requested a second meeting for further discussions. The classification of e-bike components and the discrimination of companies under end-use authorization as opposed to the exemption scheme are two more issues that still need to be discussed. Although some tentative steps towards improvement have been taken, this meeting has mainly shown that the legislation is an inextricable tangle that entrepreneurs simply cannot understand. A story to be continued.

    Photo by Rocío Perera on Unsplash

  2. The EU asssassination of e-bike businesses

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    The electric bicycle sector in Europe is currently suffering from a dire shortage of supply to meet demand. No one was prepared for COVID-19 and the market explosion that the virus caused. The worldwide stock of parts is exhausted and many electric bicycle dealers are only taking orders. But there is more to it. The scarcity is also a direct consequence of the trade policy that the EU has been pursuing since 1993 in the field of bicycles and electric bicycles. In doing so, the intention seems to be to eradicate part of the European e-bike sector. Be warned, it is a long and difficult story.

    Anti-dumping measures are temporary measures to solve a temporary problem. The exception to prove this rule is the anti-dumping measures on bicycles from China. They have been in place for 27 years. Despite the measures, there is no bicycle manufacturing left in the EU. For purely economic reasons, those who effectively produced bicycles, including the guiding forces behind the dumping complaint, have moved on to buying components, to a large extent in China, and assembling them into bicycles in the EU. In the meantime, assembly cost in the EU is in some instances lower than in China.

    Non-existent Union production

    Component production in the EU has also disappeared to the point where, in 2018, the EU decided to suspend regular import duties for a number of bicycle components. In Regulation 2018/2069 the Council states: “The Union production of 87 products (…) is inadequate or non-existent. It is therefore in the interest of the Union to suspend totally the autonomous CCT duties on those products.” These products included a number of bicycle components. The Regulation ensures the supply of these components from countries outside the EU, to a large extent from China.

    This Regulation was implemented even though in 1997 the EU extended the dumping measures for bicycles to some of the same bicycle components listed in the above Regulation. As a result of Regulation 88/97, if you wanted to import these components from China to assemble them into bicycles in the EU, you had to pay 48.5% so-called anti-circumvention duties. The Commission had found that the anti-dumping duties on bicycles were being circumvented in two ways:

    • by shipping semi- or completely knocked down bicycles, which only required minimum assembly in the EU
    • by transhipping containers with bikes from China through 3rd countries to be sold in the EU without anti-dumping duty.

    So, the EU extended the anti-dumping duties to some countries accused of assisting in transhipping, as well as to the import into the EU of certain components. However, assemblers in the EU were enabled to obtain an exemption from anti-circumvention duties on components from the Commission. They had to prove that no more than 59% of the value of their bikes consisted of Chinese components or that they added 25% to the value through their assembly.

    Almost all EU bicycle companies who applied in 1997 and shortly afterwards, obtained the exemption for an indefinite period and without much further ado. Obtaining an exemption in a later stage proved to be much more challenging. According to the Regulation, you must first import for at least 6 months, in other words pay an extra 48.5% on Chinese components before you can apply for an exemption. Not many start-ups would be able to overcome such a financial pitfall.  For one party we know of, the Commission took 4 years, whilst the applicant was subject to the 48.5%.

    27 years anti-dumping

    So, this measure is almost an insurmountable obstacle to start a new bike assembly operation in the EU. The companies behind the anti-dumping complaint saw their mission accomplished. The anti-dumping measures ensured that China would be kept away from their core business, i.e. mid- and high-range bicycles. What’s more, the exemption system for anti-circumvention duties ensured that very few new EU competitors would come on the market. Everything went on quietly. No more competition meant no opposition against five yearly reviews, which resulted in 5 extensions. Today, 27 years later there is no prospect of ever getting rid of this temporary measure for a temporary problem. This is all the more the case since the EU bicycle manufacturers now also rely on the anti-dumping measures against bicycle and bicycle components from China to secure a similar position in the EU e-bike market. This is how the fork is in the stem.

    Some but not all so-called EU bicycle manufacturers were involved in the e-bike trend from the beginning. Again, these “manufacturers” were not manufacturing e-bikes, they were buying parts assembling them into e-bikes. As for those e-bike components, Bosch at that time was non-existing in the e-bike world and Shimano was still doubting heavily as to the longevity of the new invention.

    Hesitation in the conventional bicycle sector allowed new companies to come on the market and thrive. Whilst the “old” EU bicycle companies were tied to the demand and expectations of their dealer-network, the new companies could choose between Internet, brick and mortar shops or both, whilst not carrying any history in negotiating distribution deals. Some of these EU companies became extremely successful and fast growing. They had managed to set up a lean and efficient supply chain in China. As a result, they offered more reasonably priced e-bikes and more tempting terms and conditions.

    0.9% below expectation

    Even though the EU market grew consistently, the EU bicycle assemblers were confronted with more competition, the inability to conquer Internet and e-bike growth being at the expense of their conventional bike business. So, once again they went to the Commission whom they had been frequenting so long. The Commission chose to believe the allegations about distressed EU manufacturers, thousands of EU jobs being under threat and assorted concoctions about cheap Chinese e-bikes flooding the market. The Commission found the profitability of the distressed companies to be 0.9% below their expectation and consequently hit large numbers of European companies assembling in China with up to 79.3% duties.

    These European companies had to turn their business plan upside down overnight. LEVA-EU assisted a group of 14 importers in this case. We calculated that the damage to these 14 alone, resulting just from the investigation amounted to € 100 million. When the duties became effective in January 2019, some EU assemblers definitively moved their activities to the EU, others went elsewhere in Asia.

    Of those who came to the EU, some managed to have their assembly being done by companies that had an exemption for conventional bicycle parts. But capacity in the EU was too limited to meet the full demand. So, others set up new assembly activities in the EU and very quickly ran into trouble again.

    Horror stories

    Everywhere in Europe, alarm bells at customers’ services went off. Essential bicycle components were imported by non-exempted parties. Not that they had any premeditated intention to circumvent the duties on essential bicycle parts. They were simply unaware of the fact that their electric bike parts were identical to bike parts subject to anti-circumvention duties. They were also unaware of the fact that the Commission had published Regulation 512/2013 as a result of which essential bicycle components were exempted from duties, if used for the assembly of e-bikes.

    Only, to obtain that exemption, you had to prove to customs that you were not using the parts for conventional bikes nor selling them to non-exempted parties. Only with a so-called end-use authorisation, were you allowed to import these components for e-bikes free of anti-circumvention duties. And the national customs’ services had the liberty of developing their own rules for proving end-use.

    Several young European companies have applied for end-use authorisation but are confronted with customs who are making their life extremely difficult. We have a growing collection of downright horror stories.

    Exclusive favour

    As said, companies that started from conventional bikes had an exemption and were using this to import components for electric bicycles. However, there was uncertainty as to the legality of this procedure. Last September, the Commission published a new Regulation as a result of which exemptions attributed for bicycle components are extended to include those components for electric bicycles.

    The Commission decided to grant this favour only to bicycle companies that also produce electric bicycles, not to companies that only produce electric bicycles. Also, the procedure appears to be automatic and the Regulation does not mention any procedure to control the system. The question is for instance what happens if components are imported for e-bikes but, in reality used for conventional bicycles, thus exceeding the 59% circumvention threshold.

    Whilst conventional bicycle assemblers who also assemble electric bicycles can rejoice over this extremely useful favour from the Commission, EU electric bike assemblers are suffering and sometimes confronted with the most surreal problems. Most of them are kept waiting by the customs for an end-use authorisation. One of these waiting assemblers has been recently raided by customs and accused of anti-circumvention, despite the fact that he has consistently paid 48.5% on the bike components in anticipation of the end-use authorisation. In another case, the customs are in the process of proving that the wheels with hub-motors he imported are components for conventional bikes. He had to pay 48.5% on them as a guarantee.

    Shutting doors

    In the meantime, the Commission continues to shut doors. Upon the duties announced in January 2019, some assemblers moved to countries with non-preferential origin such as Taiwan, Thailand or Malaysia. Recently, the Commission decided to change the rules of origin for these countries. An electric bike will only be considered to originate in these countries if 45% of the ex-works price is originating. The question is how many of these companies will be able to obtain a motor and/or battery in the country where they are assembling. Also, there is no transition period whilst, in normal times, lead-times for e-bikes are 3 to 6 months. Today, some companies have already ordered components for 2022.

    And what is the alternative for these companies? GSP and LDC countries are still an option today but how long before the EU shuts that door as well? In that case, they are only left with the option of assembly in the EU. Here however, they will have great difficulties to obtain end-use authorisation to be able to import certain components without 48.5%. And by now, there are no European bicycle assemblers with exemptions left who have any available capacity.

    The big losers?

    There is still one measure to be taken: anti-circumvention duties on e-bike components. Only those companies that today have secured the supply of motors and possibly also batteries from outside China are certain to survive such anti-circumvention measures. And those are … the EU bicycle assemblers who are behind the anti-dumping duties. Competition wiped out, supply secured, control over prices regained, Commission convinced to keep the measures on for the next 27 years … mission accomplished.

    Besides the EU companies that are bound to perish, who are the big losers? The EU-citizens! They will have to pay a lot more for their electric bikes. A lot less e-bikes will come on the market then what is needed to make mobility more sustainable.

    Furthermore, the chance to achieve climate goals will be considerably reduced. Again, the citizens loose. But the EU bicycle assemblers have even this covered since they have very close and friendly ties with the European cyclists’ congregation. And as for the Commission, it is ironic how one DG issues a Green Deal to throw billions at green mobility, while another DG is assisting in the assassination of part of the sector that should produce that green mobility. A rather special interpretation of the Biblical saying: do not let your left hand know what your right hand does.

    In light of all the above, LEVA-EU is consulting with lawyers on the possible infringement of EU competition rules and on possible court actions.

    Annick Roetynck,
    LEVA-EU Manager

    Photo by Felix Mittermeier on Unsplash

  3. UK to end Anti-Dumping Conventional Bicycles

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    Most questions as to how the Brexit transition will be on 1st January 2021 remain unanswered. Nevertheless, at least one question appears to have been sorted.

    There is still no certainty for instance as to the technical rules that will apply to LEVs in the UK. Another unresolved matter concerns the import and export rates for LEVs and their components between Britain and Europe. But what is certain now is that, on 1st January next year, the UK will no longer apply anti-dumping measures on bicycles from China.

    This decision has been taken despite the fact that UK businesses, which produce bikes had applied for a continuation of the measures. The termination has been based on the fact that the market share of these producers is insufficient to allow for continuation of the dumping duties. There is still a possibility for appeal until 30th October.

    This measure only concerns conventional bicycles. The issue of dumping duties on Chinese e-bikes has not been resolved yet. The termination of duties on conventional bicycles, will also remove the anti-circumvention measures against certain essential bicycle components. That will make life considerably easier for assemblers of electric bikes in the UK. If they want to import those components from China, they will no longer have to apply for end-use authorisation. The question as to what import duties will be applied for bikes and components from China still remains unanswered. Definitely to be continued …

    Photo by Frederick Tubiermont on Unsplash

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