Trade Remedies - 16:01:24.docx

Trade Remedies Class 1 Trade remedies are actions taken in response to subsidies (countervailing duties), sales at less than fair value (antidumping) and import surges (safeguards). Three separate WTO agreements deal with these topics: The Agreement on Subsidies and Countervailing Measures (the Subs...

Trade Remedies Class 1 Trade remedies are actions taken in response to subsidies (countervailing duties), sales at less than fair value (antidumping) and import surges (safeguards). Three separate WTO agreements deal with these topics: The Agreement on Subsidies and Countervailing Measures (the Subsidies Agreement); The Agreement on Implementation of Article VI (the Antidumping Agreement); and The Agreement on Safeguards (the Safeguards Agreement). Important Concepts Eliminating domestic competition Discretion over market pricing with removal of all competition from the market Import duties imposed on international goods to keep domestic products competitive [protect domestic jobs etc.] GATT 1994, Articles VI and XIX Article VI “No product of the territory of any contracting party imported into the territory of any other contracting party shall be subject to both anti-dumping and countervailing duties to compensate for the same situation of dumping or export subsidization.” As Article VI only included some basic rules for the determination and imposition of anti-dumping duties, contracting parties to the GATT agreed to its review. Was later reviewed during the Kennedy Round and later the Tokyo Round in 1979 which created the ‘General Agreement on Tariffs and Trade [Anti-Dumping Agreement]’ Article VI of GATT 1994 provides for the right of contracting parties to apply anti-dumping measures, that is measures against imports of a product at an export price below its ‘normal value’ (usually the price of the product in the domestic market of the exporting country) if such dumped imports cause injury to a domestic industry in the territory of the importing country. Article XIX - "escape clause," Authorizes a contracting party to withdraw concessions temporarily on specific products if, as a result of unforeseen developments, imports of those products are increasing rapidly and injuring the domestic industry. Anti-Dumping Dumping = when a manufacturer lowers the price of an item entering a foreign market to a level that is less than the price paid by domestic customers in the originating country. The practice is considered intentional with the goal of obtaining a competitive advantage in the importing market. Predatory dumping: Under the predatory type, exporters drive out competition in the international market by selling goods at low prices. Once the competition is eliminated, the firm can raise the product’s price and gain additional revenue. The importing country can be skeptical and cautious of this practice because it can result in a foreign monopoly controlling its market. Sporadic dumping: It is the practice of occasionally dumping products at lower prices primarily to eliminate excess inventory stocks. It signifies that the business does not regularly sell its products at such low prices. Hence it is an impermanent phenomenon. Persistent dumping: This type is the most popular form of cross-border dumping due to constant demand for a particular product. It helps exporting entities establish a presence and a significant market share in overseas marketplaces. Reverse dumping: In this type, the scenario is the product is priced low in the local market. At the same time, the product price is set high in the foreign market because high prices do not affect the demand. Advantages The method helps firms who want to grow their financial footprint globally. They enter a foreign nation, seize control of the existing market, and remove the competitors by selling goods at cheaper rates. Importers gain from the lower price of products. Production on a large scale enables producers to take advantage of economies of scale in their operations. As a result, they reach a point where they fully utilize limited available resources. Exporters can obtain subsidies from the government. Increases in production and market contribute to an increase in employment in the exporter’s country. Disadvantages Sometimes the revenue from the export is less than the production cost, indicating that the business is losing money on exports. The cost of subsidies affects the government. The exporting entity can form a monopoly and sets its prices. Moreover, they could grow to such a size that they begin to influence the government in the importing country and its policies, which would harm any nation. Dumping below the cost of production affects the local markets. Goods are not competitive with foreign goods – eg. Goods being sold at an increasingly low rate – Given an unfair advantage in the int’l market (Anti-Dumping – Create a level playing field to address unfair pricing) WTO Anti-Dumping Agreement Allows governments to act against dumping where there is genuine (“material”) injury to the competing domestic industry. In order to do that, the government has to be able to show that dumping is taking place, calculate the extent of dumping (how much lower the export price is compared with the exporter’s home market price), + show that the dumping is causing injury or threatening to do so. If the investigation shows dumping is taking place and domestic industry is being hurt, the exporting company can undertake to raise its price to an agreed level in order to avoid anti-dumping import duty. Anti-dumping measures must expire five years after the date of imposition unless an investigation shows that ending the measure would lead to injury. The number of initiations of anti-dumping investigations rose from 166 in 2011 to 208 in 2012. Brazil, with 47, had the largest number of initiations in 2012, followed by India with 21, Turkey with 14, the European Union with 13, and Argentina and Australia with 12 each. The member subjected to most initiations in 2012 was China, with 60, followed by the Republic of Korea and Chinese Taipei with 22 each, and India and Thailand with 10 each. Examples of Anti-Dumping Cases at the WTO 2003; USA Shrimp Case against Brazil, China, Ecuador, India, Vietnam - https://www.wto.org/english/res_e/booksp_e/casestudies_e/case17_e.htm Flat panel display (FPD) screens dumping by Japanese companies in 1991:- In the 1990s, American businesses had complained about the dumping of the FPD screens by Japanese companies in their domestic markets. The US Department of Commerce took cognizance of these complaints and ruled that Japanese companies were liable for dumping the FPD screens in the US market. Consequently, the ITC initiated an investigation and concluded that the Japanese companies had indeed dumped FPD screens, causing material damage to the American businesses. The ITC recommended a 62.5% anti-dumping duty on FPD screens imported from Japan. Dumping of steel by Chinese companies in 2015 Large American steel producers filed complaints with the US Department of Commerce about the dumping of steel by Chinese companies in the US markets. Imports of steel in large quantities had resulted in an unfair competition since the imports were unfairly low in price. The ITC investigated the allegations on the recommendation of the Department of Commerce and found that the Chinese companies were guilty of dumping steel products, causing material damage to the American businesses. The ITC then imposed a 500% import duty on select steel imports from China to protect the domestic steel industry. Subsidies and Counter-Vailing Measures Disciplines the use of subsidies, and it regulates the “countervailing” actions countries can take to counter the effects of subsidies. Under the subsidy disciplines, a country can use the WTO’s dispute settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse effects. Alternatively, the country can launch its own investigation and ultimately charge extra duty (known as “countervailing duty”) on subsidized imports that are found to be hurting domestic producers. “Specific Subsidy” - a subsidy limited to an enterprise, industry, group of enterprises, or group of industries, or region, in the country (or state, province, municipality, etc.) that provides the subsidy. Can be domestic or export subsidies WTO Agreement on Subsidies and Countervailing Measures only applies to Specific Definition of Subsidy [WTO agreement] Agreement contains a definition of the term “subsidy”. The definition contains three basic elements: a financial contribution by a government or any public body within the territory of a Member which confers a benefit. [not easy to determine] All three of these elements must be satisfied in order for a subsidy to exist. For a financial contribution to be a subsidy, it must be made by or at the direction of a government or any public body within the territory of a member. Thus, the SCM Agreement applies not only to measures of national governments, but also to measures of sub-national governments and of such public bodies as state-owned companies. The agreement defines two categories of subsidies Prohibited Subsidies that are conditioned on export performance, or on the use of domestic goods instead of imported goods. They are prohibited because they are specifically designed to distort international trade, and are therefore presumed to hurt other countries’ trade Actionable The complaining country has to show that the subsidy has an adverse effect on its interests. For prohibited subsidies, the complaining country does not need to show any adverse effect on its own industry (exceptions are made for developing countries). For actionable subsidies, the complaining country must demonstrate an adverse effect. The agreement used to contain a 3rd category – Non-actionable subsidies = Removed post 1999 The three categories of non-actionable, or "green light," subsidies are: (A) government assistance for industrial research and pre-competitive development activity(10); (B) government assistance to disadvantaged regions; and (C) government assistance to adapt existing plant and equipment to new environmental SAFEGUARDS A WTO member may restrict imports of a product temporarily (take “safeguard” actions) if its domestic industry is injured or threatened with injury caused by a surge in imports. Here, the injury has to be serious. A safeguard is a temporary import restriction (for example a quota or a tariff increase) that a country is allowed to impose on a product if imports of that product are increasing so as to cause, or threaten to cause, serious injury to a domestic industry that produces a similar or directly competitive product. An import “surge” justifying safeguard action can be a real increase in imports (an absolute increase) or it can be an increase in the imports’ share of a shrinking market, even if the import quantity has not increased (relative increase). Industries or companies may request safeguard action by their government Anti- Dumping + CVD = Material Injury GATT Art XIX Safeguards are authorized under Article XIX of GATT. (titled: “Emergency Action” – this is notable). Article XIX permits members to restrict imports where the following conditions are met: 1) imports are increasing as a result of unforeseen developments 2) imports are increasing as a result of the effect of obligations incurred by the Members under GATT 3) imports are increasing in such quantities as to cause or threaten serious injury to domestic producers of “like or directly competitive products” NOTES: The imports that are considered are from all sources. these imports need not be dumped or subsidized. They can be fairly traded but still subject to a safeguards action. Therefore, Article XIX, which is implemented in U.S. law under Section 201, is a “remedy” that addresses a key problem with AD/CVD – the failure of this remedy to adequately cope with multiple sources of imports. WTO Safeguards Agreement During the Uruguay Round, negotiators decided to clarify and update Article XIX with a Safeguards Agreement (Annex 5). The key paragraph of the Agreement is Article 2: “A member may apply a safeguard measure... only if that Member has determined... that such product is being imported in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten serious injury to the domestic industry that produces the like or directly competitive products.” NOTE that this language eliminates the requirements in the first line of Article XIX about 1) foreseeability, and 2) linkage to tariff concessions. THOUGH Argentina Footwear decision found that the “unforeseen developments” requirement of Art. XIX was not eliminated by the adoption of the SGA The two have to be read together As a result, the “unforeseen developments requirement is once again a criterion for safeguards cases. Duty = Quantitatively expressed Safeguard can be a quantitative restriction/ duty Key language Increased imports (Art II.1) Can be an absolute or relative increase. Serious injury (Art. IV.1): significant overall impairment in the position of a domestic industry. Must analyze specific factors: rate of increase of imports, market share, change in level of sales, production, productivity, capacity, profits and losses, and employment. Can also show threat of serious injury – must be “clearly imminent”, as shown by the facts. Causation (Art. 4.2(b)) Art. 4.2(b): “When factors other than increased imports are causing injury to the domestic industry at the same time, such injury shall NOT be attributed to imports.” Note: “disaggregation” of causes -- quantify the harm due to imports alone. difference in causation standard Section 201: imports must be an important cause of injury, and as important a cause as any other v. SGA Article 4.2(a) and (b): imports alone must be shown to be causing serious injury. remedies permitted quotas, tariffs, Tariff Rate Quotas, and other remedies additional requirements If a quota level, cannot be set below the level of actual imports during last three years, unless there is clear justification otherwise non-discriminatory remedies must be applied on an MFN basis developing countries single members are exempt if they do not account for more than 3% of total imports of the product, so long as all developing countries below 3% do not collectively account for more than 9% of those imports degressivity Article 7(4) of the SGA provides that if a measure lasts for over one year, it shall be progressively liberalized in order to “facilitate adjustment Safeguards is a higher standard of injury because you’re placing measures on fairly traded imports An Introduction to U.S. Trade Remedies Unfair foreign pricing and government subsidies distort the free flow of goods and adversely affect American business in the global marketplace. Enforcement and Compliance, within the International Trade Administration of the Department of Commerce, enforces laws and agreements to protect U.S. businesses from unfair competition within the U.S. resulting from unfair pricing by foreign companies and unfair subsidies to foreign companies by their governments. What is Dumping? Dumping occurs when a foreign producer sells a product in the United States at a price that is below that producer's sales price in the country of origin ("home market"), or at a price that is lower than the cost of production. The difference between the price (or cost) in the foreign market and the price in the U.S. market is called the dumping margin. Unless the conduct falls within the legal definition of dumping as specified in U.S. law, a foreign producer selling imports at prices below those of American products is not necessarily dumping. What is a Countervailable Subsidy? Foreign governments subsidize industries when they provide financial assistance to benefit the production, manufacture or exportation of goods. Subsidies can take many forms, such as direct cash payments, credits against taxes, and loans at terms that do not reflect market conditions. The statute and regulations establish standards for determining when an unfair subsidy has been conferred. The amount of subsidies the foreign producer receives from the government is the basis for the subsidy rate by which the subsidy is offset, or "countervailed," through higher import duties. How is Dumping or Subsidization Remedied? If a U.S. industry believes that it is being injured by unfair competition through dumping or subsidization of a foreign product, it may request the imposition of antidumping or countervailing duties by filing a petition with both Enforcement and Compliance and the United States International Trade Commission. Enforcement and Compliance investigates foreign producers and governments to determine whether dumping or subsidization has occurred and calculates the amount of dumping or subsidies. What is the role of the International Trade Commission The International Trade Commission determines whether the domestic industry is suffering material injury as a result of the imports of the dumped or subsidized products. The International Trade Commission considers all relevant economic factors, including the domestic industry's output, sales, market share, employment, and profits. For further information on the International Trade Commission's injury investigation, see http://www.usitc.gov. Both the International Trade Commission and Enforcement and Compliance must make affirmative preliminary determinations for an investigation to go forward. What relief is the end result of an Antidumping or Countervailing Duty Investigation? If both Commerce and the International Trade Commission make affirmative findings of dumping and injury, Commerce instructs U.S. Customs and Border Protection to assess duties against imports of that product into the United States. The duties are assessed as a percentage of the value of the imports and are equivalent to the dumping and subsidy margins, described above. For example, if Commerce finds a dumping margin of 35%, U.S. Customs and Border Protection will collect a 35% duty on the entered value of the product at the time of importation into the United States in order to offset the amount of dumping. Information on the U.S. Customs Service may be found at https://www.cbp.gov. How long does it take for Antidumping or Countervailing Duty Orders to be issued? If both the International Trade Commission and Enforcement and Compliance make affirmative preliminary determinations (within 190 days of initiation of the antidumping investigation, or 130 days for countervailing duty investigation) importers are required to post a bond or cash to cover an estimated amount for the duties which would be collected in the event that an AD or CVD order is issued upon the completion of the investigations. Typically, the final phases of the investigations by Enforcement and Compliance and the International Trade Commission are completed within 12 to 18 months of initiation. What are the requirements for filing an Antidumping or Countervailing Duty Petition? Petitions may be filed by a domestic interested party, including a manufacturer or a union within the domestic industry producing the product which competes with the imports to be investigated. To ensure that there is sufficient support by domestic industry for the investigation, the law requires that the petitioners must represent at least 25% of domestic production. The statute requires the petition to contain certain information, including data about conditions of the U.S. market and the domestic industry, as well as evidence of dumping or unfair subsidization. Antidumping and countervailing duty trade remedies have been successfully pursued by a variety of domestic industries, including producers of steel, industrial equipment, computer chips, agricultural products, textiles, chemicals, and consumer products. Both the Enforcement and Compliance and the International Trade Commission have staff available to assist domestic industries in deciding whether there is sufficient evidence to file a petition for antidumping or countervailing duty investigations. The staff may also assist eligible small businesses with the filing process CLASS NOTES Rules Division – Working on the treaties What are trade remedies and how do they fit into the WTO system? The distinction between trade remedies that address "fairly" v. "unfairly" trade goods. Overview of the conditions for the application of trade remedies. US Systems – department of commerce Government Agency – “Quasi Judicial” Actions have to conform, in principle, to the WTO agreement – signed + ratified the ‘contract’ Article 11 of the GATT 1994 – FREE TRADE Article 1 of GATT – MFN (Can’t single out any particular country w/ imposition of a probe on imports) Article 2 of GATT – Every WTO member cannot impose a tariff that is above the binding/bound rate [every country promises that for each product, under the tariff schedule/WTO commitments, they will not impose above the maximum duty] Harmonized tariff schedule Bound Rate is, on average, 3-4% Automobiles = 2.3% in the US Exceptions (largely public policy reasons) Impact to human, animal, or plant life (e.g. Asbestos) Conserve natural resources Article 21 of GATT – Security Exceptions Invoking National Security with industries such as Steel (Trump = need a strong steel industry to be secure) Imposing measures in time of war/ other emergency int’l relations Trade Remedies = Another type of exception to the WTO Rules Three limited exceptions to the rules above (eg. MFN etc.) Q that need to be established to use this exception to protect domestic industry WHICH TYPE OF TR WHAT CONDITIONS NEED TO BE MET? Two Requirements: Procedural and Substantive To move outside the WTO agreement, you need to show AD: “Unfair Trade Remedy” Show that there are dumped imports (Example of substantive requirements) WTO says Domestic country has to decide whether there are dumped imports (Investigative authority in the US; Department of Commerce) 2)) Injury/ Causation (Investigative authority = USITC) If both of these are satisfied, they can get an anti-dumping duty [capped at the margin of dumping – measure is a response to the behavior] Imposing a special anti-dumping duty on the country/ies that are doing the dumping Identify pricing behavior by foreign exporters Art. 6 = “Dumping is to be CONDEMNED” Language shows that we are looking at a practice that is considered to be unfair CVD – ‘offset’ imports that are being subsidized by foreign governments Counter-vail the effect of subsidies Subsidized Imports Injury/ Causation [subsidized imports are causing injury to domestic markets] CVD + AD = Both measures that are intended to off-set unfair trade practices (e.g. Unfair pricing behavior) Determination of whether unfair practices are taking place are “outsourced” by the WTO to Domestic agencies Can be challenged in the Domestic Courts and the WTO Ie. whether unfair practices are taking place + whether the countervailing measures are practical AD + CVD – DUTY Safeguards – Quantitatively Restrict MFN Measures – Safeguards