Trade Remedies Spring 2023.docx

January 11, 2023 (Class 1) [email protected] 202 945 8396 Agencies involved in Trade Remedies US DOC ITA (ACCESS username) US ITC (EDIS) * create user names for both DOC and ITC A Paper Assignment (20%) Choose an issue from an investigation Look at arguments from both sides in briefs (DOC &...

January 11, 2023 (Class 1) [email protected] 202 945 8396 Agencies involved in Trade Remedies US DOC ITA (ACCESS username) US ITC (EDIS) * create user names for both DOC and ITC A Paper Assignment (20%) Choose an issue from an investigation Look at arguments from both sides in briefs (DOC & ITC vs. Petitioner) Can show the draft to Professor Then, a student presentation by the end of the semester Final Exam 2 Hour In class examination Closed book, except the WTO agreement Short Answer, mini essays About basic principles of substance and procedural aspects of trade remedies Social Event Professor will announce an event at his place on a weekend What are Trade Remedies All Trade Agreements are in Annex 1A Basic principles: Article I (MFN); Article II (Tariff Concession - schedule of concessions) Every WTO member has a schedule of concession which outlines the maximum tariff to be levied on certain goods Bound rate (maximum duty allowed to levy based on schedule of concession) E.g. for passenger automobiles, 2.5% is the bound rate Article XI ( Restricts use of quantitative non-tariff barriers) Trade Remedies are then, contingent exceptions to concessions on bound rates Remedies allow tariff rates above bound rate But they are contingent trade remedies based on certain conditions This class is about what the conditions are and what procedures are used to determine those conditions are met 2 Government Agencies in the U.S. US agencies decide whether conditions necessary for exceptions are met If dissatisfied, then sue at CIT or at WTO dispute settlement system Trade Remedy Type 1 - Unfair Trade Remedies Designed to address unfair trade practices - behaviors that give unfair advantage to exporters Antidumping duties Where there are dumped imports into the U.S. Pricing practices by companies Causing or threaten to cause material injuries to U.S. industries Countervailing duties Where there are subsidized imports Subsidy policies by countries Causing or threatening to cause material injuries to U.S. industries These measures are exceptions to Article I (MFN) and Article II (Tariff concessions) Measures are put in terms of % Fair Trade Remedies Safeguards are designed to address fair trade practices, conditions are harder to meet Serious material (measurable) injury to U.S. industries Imports increased rapidly, unexpectedly Against the whole world (global safeguards) in principle Escape clause (which allows safeguards) are about preventing “pods” from exploding Must offer a compensation to affected foreign companies in principle (meaning not in $, but some degree of concession) If concessions are not given, then retaliations against the U.S. are allowed Measures end up with quantitative restriction Three ways of calculating dumping (is it below normal value?) 1. Exporter’s home price - exporting price 2. 3rd country price 3. Combination of production costs, other expenses, and normal profit margins Anti-dumping measures must expire five years after the date of imposition, unless an investigation shows that ending the measure would lead to injury. January 18, 2023, Class 2 Review of Last Week Trade Remedies for Fair and Unfair Trade Practices Unfair (AD / CVD) Dumping and Subsidy Material injury to domestic industries (producers of like products) Cap is dumping margin / subsidization rate As long as necessary to have in place to counteract unfair practices U.S. has a right to have these measures in place (not discretionary) because dumping and unfair subsidization are tortious behaviors to be condemned Fair (Safeguards) Against all trade partners on MFN basis Serious material injury to domestic industries (because no unfairness) Up to the level to mitigate unexpected harms caused by large influx Have to pay compensation for parties hurt by safeguards or face retaliation (suspension of concession) Temporary measure (max 4 years, possible to extend another 4 years, need a review in the middle, developed countries can have it 8 years for max, and for the same product SG you have to wait for the amount of time you had the SG) Discretionary measure, with POTUS having the final say on yes or no Trade remedies are used by both developed countries, and more recently, more by LDC’s The range of countries using trade remedies have increased Developing countries started opening borders and imposed more AD / CVDs Mostly developed countries with low bound rates favored trade remedies Dumping Margin Calculations Dumping: “situation where exported products are sold at price less than 1) home market price or 2) less than cost of production” Investigation is against a specific country then to a specific exporting company E.g. in UNA case, Russia and Trinidad and Tobago have natural resource endowment with energy producers ADA 6.10: by rule, find dumping margins for each known exporter or producer concerned If it is impracticable, samples and largest % Acron and EuroChem are ones chosen for investigation (mandatory respondent) POI, is the period of investigation during which we choose to find if there was dumping Mandatory respondents provide stats to defend themselves Product in consideration is noticed in Federal Register and the way you define a product determines the range of data needed ITA and ITC usually just rely on the definition given by petitioners Article 2.1 of ADA defines dumping as Product introduced into another country in the ordinary course of trade is sold at price cheaper than it is at exporting country for consumption Article 2.2 But if export and home price are not comparable in ordinary course of trade, then you start looking at cost of production * ordinary course of trade means that price is not below cost of production, this term first appeared in the ADA agreement Home market sales comparison cannot be used in cases: 1) there are no sales in your home market 2) Not OCT by reason of cost (abnormal and irrational point of comparison) 3) Particular market situation 4) Low volume of the sales in the domestic market If you can’t use home price comparison you have 2 options to construct a normal value (ADA 2.2) 1) Comparable price in exports made in a representable 3rd country * this is rarely used because you don’t care what’s 2) Cost of Production / selling and general costs / profit Price should be where your profit is maximized ADA 2.2.1., price below COP are disregarded (not ordinary course of business) 11 January 2023 LTFV Preliminary Decision Memorandum Questions to Guide Your Reading Procedural · What agency prepared this Memo, and what is that agency’s role in this investigation? International trade Administration of the Commerce Department · What is a “preliminary determination”? (ADA Art. 6.7) Initial determination of dumping margin before the final determination of dumping. If affirmative, cash deposits are required from exporters. Regardless of the decision, investigation continues. · What is the function of a “Decision Memorandum”? (ADA Art. 12.2) It is a public notice on any conclusion reached by AD / CVD investigation. Provides details on names of suppliers, countries, products, dumping margin, and methodology. Who/what is being investigated · What is the product “scope” of this investigation? o Why does product scope matter? LTFV UAN from Russia. A broad scope of the product can include more products. · What country & exporters/producers are being investigated? (ADA Art. 6.10) Petition was against Russia and the Republic of Trinidad and Tobago o What is a “mandatory respondent”? Exporters subject to investigation and those who timely responded to Q & Vs (pg6) o Why does the agency examine “affiliation/single entity” among exporters? Affiliated companies can avoid AD measures if they are so intertwined that they can share manufacturing and operation infrastructures o What is “volume/value” questionnaire, and why did the agency apply “adverse facts available” to exporters that did not respond to it? (ADA Art. 6.9) Those who did not respond to the questionnaire presumably did not “defend” themselves in sufficient time · What is the “period of investigation” in this investigation? o What role does the POI play? April 1, 2020 through March 31, 2021. The period of investigation is when petitioners allegedly got injured by dumping. How are dumping margins calculated? · What are the “normal value” and “export price”? (GATT Art. VI, ADA Art. 2.1) o How do we compare them to determine the dumping margin? 1. A like product’s price at exporting country’s domestic market 2. Price at a 3rd party country’s import market 3. Cost + Reasonable addition for selling cost and profit · What is “home market viability”? (ADA Art. 2.2, footnote 2) o Why does it matter how many sales were made in the home market? o Was the home market “viable” in this case? Domestic market sales quantity is large enough for normal value determination if such sales constitute 5% or more of sales in the foreign (importing country’s) market. Home market was not viable in this case · Why does it matter whether home market sales are made to an affiliated company? If sales to an affiliated company is not an arm’s length transaction, then the prices are likely to be lower, thus representing distorted market price o Were the home market sales to affiliates here? Yes, EuroChem sold the products at prices between 98% to 102% charged to unaffiliated companies, thus it was at arm’s length. Those affiliated sales not at arm’s length were not considered (for they are outside of the ordinary course of trade). o What implications did this have for the calculations? Only the arms length transactions with affiliated companies were considered for calculating dumping margin. Thus, making it more likely to conclude that there was dumping because those prices are likely to be higher · Why does the agency calculate the “cost of production””? (ADA Art. 2.2.1) o Were there below cost home market sales in this investigation? There was no home market viability during the POI for Acron, and Acron and EuroChem’s sales in Canada were not at the same level of trade as the sales in the U.S. They did not provide data as requested by ITA. · Why does the agency use a “constructed” export price? (ADA Art. 2.3) o Why do we care if the exporter and importer are “affiliated”? the export price is unreliable because of association or a compensatory arrangement between the exporter and the importer or a third party, the export price may be constructed on the basis of the price at which the imported products are first resold to an independent buyer, or if the products are not resold to an independent buyer, or not resold in the condition as imported, on such reasonable basis as the authorities may determine. · What are the different “comparison” methodologies considered? (ADA, Art. 2.4.2) o What is a “level of trade” adjustment? o Were there sales a different levels of trade here? 1) Ad Note 2 to to Article VI:1 of GATT 1994 (Ad notes are basically end notes, at the back of the GATT). Under what circumstances can an investigating authority ignore an exporter's home market prices and costs on the grounds of heavy state intervention? Exporting country has a complete or substantial monopoly of its trade And, all domestic prices are fixed by the state 2) Then read the selected provisions from China's Protocol of Accession. This is in effect the special terms under which China joined the WTO in 2001. Does the Protocol let importing Members use a different test than that in the Ad note? If so, for how long? Do these Protocol provisions still apply? (a)(i) if producers can show market economy conditions exist in the like product’s industry with respect to the manufacture, production, and sale, Chinese prices or costs for the industry can be used for price comparability (a)(ii) strict price or cost comparison cannot be used if the Chinese cannot clearly show that market economy conditions exist with respect to manufacture, production, and sale (c) Importing country must notify the methodology used (d) If an importing country determines that China is a market economy, provisions of (a) will terminate, provided that the importing country had national laws with market economy criteria as of the date of the accession. a(ii) will terminate after 15 years since the accession date 3) Then take a quick look at the EU's First Country Report (on China). Really, you can focus mainly on the internet cover page explaining it, you don't have to agonizingly read the whole actual report. Is the EU treating China as a "NME" under its Protocol? Or are they doing something new and, if so, why? EU is treating China as a NME No distorted price or cost can be used in AD margin determination Benchmarks and 3rd country cost price will be used with social and environmental standards in mind 4) Finally, read the DOC Memo regarding the reconsideration of market economy status for Russia in the UAN investigation. What did DOC decide about Russia's status? Does Russia qualify for different treatment under the Ad Note? Pg. 3, DOC determined that Russia has a ME for AD purposes. January 25, 2023 Class 3 Review AD requires 1) Dumping Practice, 2) Material Injury, and 3) Causation What is dumping Exporting price is lower than (Normal Value, HMP, or COST/SFA) Sales are not in the ordinary course of business (OCT) if sold at a price lower than cost You can’t use home market price when No sales Singapore snowmobile example Insufficient volume Exporting country sales is greater than 5% of sales in importing country Sales below cost Irrational pricing if below cost, this can’t be used for NV determination PMS NME If you can’t find home market prices, then Construct a normal value (CNV) Cost of production + SG&A (selling, general, and administrative cost like CEO private jet) + profit CoP + SG&A + Profit Export price cannot be representative of market price if you are selling to subsidiary (for lower corporate income tax purposes) In this case treat hq and subsidiaries in US as a same company then find the US distributor price minus import cost Or You can use 3rd Country Export Price or 3rd country cost of production E.g. perhaps Canada Adjustment comes in when you have Slightly different goods (apples and oranges) And different levels of trade (wholesales and retail difference) Or even if face prices are same (100 vs 100) you can subtract cost adjustments with respect to ex factory price Non-market Economy Normal value is not exporter home market price if it is non market economy According to Ad Article VI:1 2 Exporting country has a complete or substantial monopoly of its trade And, all domestic prices are fixed by the state February 1, 2023 Review Dumping: selling below home price or cost of production NV > EP How we determine NV? Sales / Market viability / Ordinary course of trade / When some sales are below and above cost, then exclude ones below cost because they are not in ordinary course of business Constructed normal value / 3rd Country comparison In case of NME Your home market price means nothing and you have a 3rd country to compare and create a hypothetical market price For China, 15 years were provided for China to switch from NME to ME Now, after 15 years, because we still want to treat China as NME So Particular market Situation gave a new way to do so If there are significant distortions in a country, you can use 3rd country benchmark price Constructed normal value - (cost of production + SG&A + profit) Russia joined WTO without being treated as a NME But when Russia invaded Ukraine, it was treated as NME Overview AD measures need DM + Material Injury + Causation (or threaten to cause) CVD needs Subsidized imports + Material Injury + Causation (or threaten to cause) Then, WTO is about trade liberalization and creating conditions for trade liberalization Subsidies can harm level playing field that goes against the idea of comparative advantage ITA & DOC investigates whether there is subsidized import Agreement on Subsidies and CV Measures Art. 1 (definition of subsidy) 1) Financial contribution What form of the measure this is Direct transfer of funds (grants, loans, equity infusion meaning a claim to ownership right ) Potential direct transfer of funds Loan guarantees from a guarantor Govt revenue forgone Tax credit or liability forgiven Goods/services (in kind provision) Government buys or gives a good E.g. natural gas provided 2) govt or a public body Does the government “control” the entity? “Possesses, exercises, or is vested with, governmental authority” Entrustment or direction from the head of the government In UAN case, GAZPROM (government monopoly) was in dispute with respect to whether it is a government body *AB said that a government or public body must be vested with government authority SOE’s are not public body SOB’s are public body for following government lending policy 3) confer a benefit Art. 2 (specificity) - TARGETED for specific certain enterprises Was the subsidy targeted or specific? In other words, do we have anything better than what you can get from a market? February 8, 2023 Review Elements of Subsidy - More than what you can get from a market Financial contribution (distorting the market place - not through market) Must fall under the list of financial contributions Government or a public body (state attribution) For UAN, we wanted to find out if Gazprom was a state entity Confer a benefit + Specificity For Gazprom provision of gas Financial contribution was given as In kind provision Public body, because it's a state owned enterprise with Government control Benefit happens when: a corporate gets something more than a market can get If you received $ 50,000 for preferential loan benefit Divide it by number of sales 50,000 / 10,000,000 = 0.5% Benchmark Price Often use surrogate market price if home price market is so distorted 1 million in loan First determine the subsidy by comparing it with a benchmark. Here benchmark for example – 5% subsidy and 10% interest in market by a bank. Here, 10% is the loan benchmark and the difference 5% is the subsidy. Then, Calculate the subsidy by total export sales of the recipient 5% na for example – 50000/1000000 = 0.5% is the amount to offset by customs. For example, a million dollar loan, which is for one year with 5% interest. The market rate for such a loan for one year is 10%. There is subsidy because the current terms are lower than what would have been provided by the market. The market rate would be called the benchmark. The amount of subsidy is 50000 dollars in this case. To find out the percentage of the subsidization, we have to divide the total amount of subsidy with the recipient’s total number of sales. In the current case, 50000 divided by 10,000000, it would become 0.5%. Specificity is needed for a subsidy to be countervailable Targeted, made available to certain enterprise / enterprises Specific to a certain industry / industries Regional specificity Prohibited subsidy (export subsidy - subsidy provided only when you sell abroad) (local contents subsidy) *** Carbon black from mexico case Used for tires only and in practice, subsidy was provided to tire industries only De jure vs. De facto specificity What may look like lacking specificity may in practice be a specific subsidy *** the carbon black case was the de facto specific *** carbon black case was an inherent specificity example Georgetown Steel v. United States Facts In November 1983, Georgetown Steel & Continental Steel filed two CVD petitions for Carbon Steel Wire Rod from Czechoslovakia and Poland “Subsidized and countervailable” under Section 303 of the Tariff Act of 1930 1) Exporters received higher exchange rate than the official rate 2) Export price > Domestic price 3) “Hard currency” obtained from the export sales by exporters 4) “Trade conversion coefficient” for more return on the exports 5) Income tax rebates for sales ITA issued final negative determination for exports not receiving “bounty” or “grant” within the meaning of Section 303 ITA said Section 303 does not apply to nonmarket economies “Subsidy” is a market economy concept which doesn’t apply to NME ITA also said the same for potash petition against the Soviet Union and the East Germany Petition by Amax-chemical and Kerr-McGee Chemical Petition was was dismissed Georgetown Steel & Amax Chemical + Kerr-McGee sought review in the CIT and the cases were consolidated CIT said CVD laws cover NME, remanded the cases to the ITA for further proceedings * Georgetown Steel’s complaint was dismissed for not filing the complaint within 30 days after the filing of the summons Issue Are economic incentives and benefits provided to exporters in NME (Soviet and Germany) constitute countervailable “bounty” or “grant” within the meaning of Section 303? If NME existed when Section 303 was enacted in 1930, did the Congress intend to cover NME the same way as ME? Holding No, Section 303 of the Tariff Act of 1930 does not apply to to NME based on actions that Congress has taken in other statutes that address NME CVD protects domestic producers from “unfair competition” caused by market distortions created by foreign governments to facilitate exports Such unfairness cannot exist with respect to NME Pp 46 “There is no reason to believe that if the Soviet Union and the German Democratic Republic had sold the potash directly rather than through a government instrumentality, the product would have been sold in the United States at higher price or on different terms” AD laws can better handle this case than CVD, and this is the Congressional intent as shown by the Trade Act of 1974 “Surrogate country” method was so created in AD investigations CIT said that Article 15 of the Subsidies code allows AD or CVD application for state-controlled economies and NME participated in preparing the Code BUT, the Subsidies Code was a joint agreement among countries on determining thow to find the existence of subsidy Congress elected to deal with the problem under the ad law and not under cvd law Congress must answer whether we should now apply CVD to NME CIT decision is vacated for reversing ITA’s decision Ian from CC-TEC February 15, 2023 (Injury Determination) Serious material injury for Safeguards Material injury for AD/CVD “Material injury” - “harm which is not inconsequential, immaterial, or unimportant” according to the U.S. definition In the WTO, GATT Article VI and Agreement on Implementation of Article VI (AD/CVD Agreement) provide legal framework Agreement on Implementation of Article VI Article 3 - Determination of Injury Article 4 - Determination of domestic industry There are 3 Types of injuries Material injury (actually damaged) For UAN, ITC said that there was no material (actual) injury Threat of material injury (not yet happened but foreseeable) Injury must be imminent and domestic industry must look vulnerable For UAN, ITC considered foreign and domestic inventory to see threats What are the likely effects on price and supply Material retardation (hurting infant industries) Hurting establishment of your own domestic industry But this usually involves developing countries Aluminum resealable bottles case between Korea and Japan is an anomaly which involved developed countries Often newly invented high-tech goods can get involved in this For this analysis we need to think about 1) is the injury about to happen or has happened?; 2) to whom? - What is the “producer” - in general to whole domestic industry Certain domestic producers might be “users” rather than “producers” Look at % comparisons It has to be “domestic producers of the “like product *Exceptions apply to: 1) exporter’s subsidiary in importing country 2) junky tv importers 3) regional industry (like in Lima, Peru) 3) by what product Petitioners argue for product description and DOC confirms it “Like product” definition at 2.6 at page 179 1) identical 2) physical characteristics 3) Consumer taste and habits You can cumulate subsidized/dumped imports for injury determination purposes if: 1) the margin of dumping established in relation to the imports from each country is more than de minimis 2) based on conditions of competition between importers and exporters - compete with each other for like products Conditions of competitions between different countries of the like products can determine whether you want to cumulate or not If country A and country B’s products are fungible / substitutable then you can cumulate because these products are in competition E.g. cement from Canada used only in Maine and cement from Mexico used only in Texas, so you don’t cumulate them for injury purposes because they are not in competition Cross-cumulation between dumped import and subsidized import can happen as well 4) What is Injury? *WTO agreement does not really give a bright-line definition 1) look at the damage in fact or 2) look at the condition now and what it could have been without dumping Revenue Profit Employment Inventories Market shares Productivity 5) Causation Domestic industry is injured by the reason of imports Often injury is also from other causes than imports “Genuine and substantial” contribution to the injury To determine causation, we usually look at: volume effects Correlation between import volume and domestic industry volume of production Price undercutting Purposely lowering your price to outcompete Price depression Price suppression Not taking into account inflation because of competition ITC gathers information through Questionnaire Preliminary + Final Determination March 1, 2023 AD/CVD Process Enforcement of WTO AD/CVD rules are outsourced to individual state’s government entities WTO lets importing countries to self-determine AD/CVD through a complying process AD/CVD determinations are administrative proceedings not judicial Article 5 of Implementation of Article VI requires threshold evidence level to avoid excessive chilling effect on free trade U.S. AD/CVD Process Starts with petition from a domestic industry that accounts for at least 25% of total production in the domestic market With initiation, the U.S. reports to the WTO Comments are gathered from exporters, importers, consumers Then DOC and ITC uses questionnaires to find more information (quantity questionnaire is the first) To verify questionnaires from respondents, DOC investigators have to go out and verify * Just like a settlement in other cases, you can reach a pre-trial settlement through price undertaking, meaning you are taking an obligation by agreeing to have the price match the fair-value ** Price undertakings are very rare because the U.S. government does not like it March 8, 2023 Review 3 types of trade remedies are - AD / CVD / SG AD and CVD are responses for unfair trade practices SG is a response to fair trade practice Dumping is - when goods exported are sold at a price lower than at home or When sold at a price lower than the cost of production Home price can’t be used if it is outside the course of ordinary course of sale If some are in the ordinary course of sale and some are not, then you only consider the sales that are in the ordinary course of sale * average out all prices and exclude the ones that are below cost of production CVD counters subsidized imports Article 1 gives definition of subsidy Article 2 defines specificity Agreement on Subsidies and CV Measures provides Art. 1 (definition of subsidy) 1) Financial contribution (this is an exhaustive list) What form of the measure this is Direct transfer of funds (grants, loans, equity infusion meaning a claim to ownership right ) Potential direct transfer of funds Loan guarantees from a guarantor Govt revenue forgone, (which is otherwise owed) Tax credit or liability forgiven Goods/services provided (in kind provision) Government buys or gives a good E.g. natural gas provided *But, government’s purchase of services is not financial contribution 2) govt or a public body (even through a private entity) Does the government “control” the entity? “Possesses, exercises, or is vested with, governmental authority” Entrustment or direction from the head of the government In UAN case, GAZPROM (government monopoly) was in dispute with respect to whether it is a government body *AB said that a government or public body must be vested with government authority 3) confer a benefit Terms better than you can get through the market Art. 2 (specificity) - TARGETED for specific certain enterprises Was the subsidy targeted or specific? In other words, do we have anything better than what you can get from a market? Specificity is needed for a subsidy to be countervailable Targeted, made available to certain enterprise / enterprises Specific to a certain industry / industries Regional specificity Prohibited subsidy (export subsidy - subsidy provided only when you sell abroad) (local contents subsidy) Injuries There are 3 Types of injuries Material injury (actually damaged) For UAN, ITC said that there was no material (actual) injury Threat of material injury (not yet happened but foreseeable) Injury must be imminent and domestic industry must look vulnerable For UAN, ITC considered foreign and domestic inventory to see threats What are the likely effects on price and supply Material retardation (hurting infant industries) Hurting establishment of your own domestic industry But this usually involves developing countries Aluminum resealable bottles case between Korea and Japan is an anomaly which involved developed countries Often newly invented high-tech goods can get involved in this For this analysis we need to think about 1) is the injury about to happen or has happened?; 2) to whom? - What is the “producer” Certain actors might be “users” rather than “producers” It has to be “domestic producers of the “like product *Exceptions apply to: 1) exporter’s subsidiary in importing country 2) junky tv importers 3) regional industry (like in Lima, Peru) 3) by what product Petitioners argue for product description and DOC confirms it “Like product” definition at 2.6 at page 179 1) identical 2) physical characteristics 3) Consumer taste and habits You can cumulate subsidized/dumped imports for injury determination purposes if: 1) the margin of dumping established in relation to the imports from each country is more than de minimis 2) based on conditions of competition between importers and exporters - compete with each other for like products Conditions of competitions between different countries of the like products can determine whether you want to cumulate or not If country A and country B’s products are fungible / substitutable then you can cumulate because these products are in competition E.g. cement from Canada used only in Maine and cement from Mexico used only in Texas, so you don’t cumulate them for injury purposes because they are not in competition Cross-cumulation between dumped import and subsidized import can happen as well 4) What is Injury? *WTO agreement does not really give a bright-line definition 1) look at the damage in fact or 2) look at the condition now and what it could have been without dumping Revenue Profit Employment Inventories Market shares Productivity 5) Causation Domestic industry is injured by the reason of imports Often injury is also from other causes than imports “Genuine and substantial” contribution to the injury To determine causation, we usually look at: volume effects Correlation between import volume and domestic industry volume of production Price undercutting Purposely lowering your price to outcompete Price depression Matching your price to price undercutters Price suppression Not taking into account inflation because of competition AD / CVD Investigations are done by domestic investigative authorities WTO let’s domestic investigative authorities to decide Domestic authorities are to provide explanations for due process purposes for reviewability purposes Decision to impose trade remedies are up to importing member’s discretion Article 9.1 makes this clear But, U.S. makes it mandatory to impose AD / CVD when requirements are met Some states go through “public interest test” before deciding whether to impose remedies In UK’s case For AD / CVD, it is presumed that EIT test is supporting the imposition For Safeguard measures, there is no such presumption EIT test is harsher for safeguard measures Lesser Duty Rule Whether to impose to the full dumping margin or less is up to the discretion (9.1) WTO says that it would be desirable to impose less than the full dumping margin’s worth for the remedy (9.1 sentence 2). Acron 8.16% Azot 23.98% PJS 122% For the U.S. to impose a duty not to the full dumping margin, then the government asks what price would help the domestic like-product producers * non-injurious price determined by cost model of domestic producers **use constructed domestic fair price March 22, 2022 *Review How mandatory respondents are selected? Biggest exporters from data First Questionnaire is called Quality and Value questionnaire AFA applies to Those who did not cooperate with questionnaire All others (residual rates) Weighted average Exclude those who did not dump and the AFA applied companies data It is Permissive to impose a duty below the dumping margin “It is desirable to impose less duty than dumping margin” Public / Economic interest test before the imposition of AD/CVD duties are not required in the U.S. Lesser Duty Rule Sunset Review Counterfactual If the measures end would injury continue or recur? Administrative Review can happen before the initiation of sunset review Admin review cna happen every year if someone asks for it Anti-Circumvention Sunset Reviews / Admin Reviews / Changed Circumstances Reviews New Shipper review Anti circumvention reviews April 5, 2023 Safeguards Remedies for serious material injury or threat thereof to domestic injury caused by an increase in imports from all sources Because safeguards are countering fair trade practices, you need serious material injury to justify enforcements “Gotta do something before espresso shot explodes” Safeguards are favored by developing countries because they are easier than AD/CVD with respect to investigation and data collecting Agreement on Safeguards (Page 311) Article I says that this is more specific details to Article XIX Article 2 gives conditions 1) Increased imports 2) causing or threatening serious injury to 3) Domestic industry of like or directly competitive product Definition of domestic industry is broader with safeguard agreements Article XIX 1.(a) Unforeseen developments / As a result of GATT obligation Above language are not there in Agreement on Safeguards This is because Agreements on safeguards wanted to make safeguards more available and easier to use to prevent voluntary export restraints Thus, purposely the Safeguards Agreement has dropped unforeseen developments language And dropped effect of GATT obligations and concessions (tariff reduction) * Korea milk powder case - Korea opened milk powder imports and charged extremely high tariff with minimum imports allowed without tariff for certain few amounts Then, Koreans immediately applied SG Europeans said this was not unforeseen development If all the conditions are met, then you can withdraw or modify the concession How to Start SG? Just like in AD/CVD, you need to define what the subject product is In the Solar SG case the subject product was solar cells and modules Then, define domestic industry Like OR directly competitive products Now, show increased imports What POI AB said (Argentina Football case?) mere increased imports is not enough sudden / sharp / significant / recent April 12, 2023 Safeguards If, as a result of, unforeseen developments (this is the language from Article XIX) / As a result of GATT obligations including tariff concession Increased Imports (absolute / relative) Serious injury or threat thereof - causation Domestic industry * Only if there is a conflict between a general rule and a specific rule, then the specific prevails ** In safeguards agreement, adding unforeseen developments does no conflict with the safeguards agreement You can suspend your obligations In the solar case All commissioners said that there was serious material injury Unforeseen development in this case (the one the Panel bought) was that we didn’t expect China to use nonmarket measures to mass produce Against whom? In principle, safeguards are against all imports (MFN) Article 9 of SG agreement has the small developing country exception Less than 3 % of total imports and less than 9% when all developing country imports are accumulated FTA partners can be excluded from safeguards when not causing significant harm *** AD / CVD vs. SG AD / CVD are automatic when conditions are met because the WTO agreement said that it is desirable POTUS has the final discretion on implementation of safeguard measures Safeguards do not always have to be duties Quotas - last 3 representative years are used to find the volume before the sudden increase Trump’s decision Goal is to Eliminate injury Facilitate adjustment ITC requires an adjustment plan before the implementation to plan out how to revive the industry * 1970’s motorcycle safeguards had a successful adjustment plans by Harley Davidson Compensation Because safeguards counter fair trade behaviors, the country implementing the measure may pay compensation or face retaliation But you don’t have to pay the compensation or face retaliation for the first 3 years If, the safeguards are WTO-consistent Increase in imports are absolute The idea is to avoid VRA April 19, 2023 Advantage Protect US producers Enable trade liberalization Trade remedies are necessary tools in the course of trade liberalization Safeguard argument CVD counters and offsets unfair subsidies Dumping = EP < NV *NV is (Home market price or Cost of Production) Charging higher price at home and lower at home might be because they are leveraging the higher price at home as a sanctuary markets Predation creates monopolies when barriers to entry are low for that industry Disadvantages Hurts Industrial Users Less Competitor Consumer interests Moderating Trade Remedies 1. Public interest test 2. Lesser duty rule (impose lesser than dumping margin duty if that is sufficient to eliminate the harm caused by dumped imports) 3. Temporary suspension of trade remedies Happened in reaction to Katrina; Congress passed a law to temporarily suspend duties against Mexican cement Biden applied the Katrina suspension against solar goods from China to help build renewable energy industries April 26, 2023 Review Session Safeguards Rules are Article 19 and Agreement on Safeguards Elements 1. Increased imports Absolute Or Relative to domestic production (e.g. Ukraine automobile case - USSR fell, imports didn’t increase but Ukraine car production went to zero) Sudden, sharp, significant increase in *this is from Argentinian foot ware case that ran simultaneously with Korean milk powder case Unforeseen developments as a result of obligations to WTO rules * This is because SG are escape clause to violate WTO rules against your tariff concessions ** For jurisprudence as per Korea Milk Powder Case *** Goal was to ban VRA and deter protectionism 2. Serious material injury to DC / Like product producers This is harder to prove than material injury *No material retardation (unlike in AD/CVD) 3. Cause or threaten to cause Decision Up to the President’s discretion Based on public interest test (in Article 9.1), and sustainability concerns for the Biden Admin QR / TQR In principle, against all imports based on MFN Except Special Developing Countries and FTAs * ITC said in solar case that Mexico is still an injury contributor and need to be included ** FTA countries can be excluded but not always, if contributed significantly to the injury *Self-initiation for AD / CVD If domestic industries are fragmented and can’t bring a case on their own Brazilian Coconut Case Length of SG measures Article 7 of SG Agreement 4 yeasts in principle, can be extend for up to 8 years Length of AD/CVD measures ADP Article 11.3 5 years in principle Sunset reviews can determine possibility of continuation or recurrence Difference between AD/CVD and SG The following are some of the principal differences: 1) Safeguard measures require a higher level of injury (serious) than AD/CVD measures (material), because there has been no unfair behavior. 2) AD/CV measures are imposed in respect to specific exporting countries/exporters who have engaged in unfair behavior, while safeguard measures are (in principle) MFN. 3) AD and CVD measures are intended to offset the unfair behavior, and thus must not exceed the margin of dumping/rate of subsidization. Safeguard measures may not be more restrictive than necessary to prevent or remedy the serious injury. 4) A Member imposing safeguard measures must (in principle) offer trade compensation, or face a suspension of equivalent concessions (trade retaliation). This is not true when a Member imposes AD/CVD measures. 5) Safeguard measures are time-limited. AD/CVD measures, although subject to periodic review, ultimately can be continued as long as they are necessary to address injurious dumping or subsidization. 6) A Member considering imposition of a safeguard measure must consider the broader public interest before imposing a measure. By contrast, although some Members choose to apply a public interest test in AD/CVD cases, a Member may however imposition of AD/CVD as a matter of right in cases where injurious dumping/subsidization has been shown to exist. For example, while Canada and the EU apply a public interest test, the United States and India do not. 7) A domestic industry in a safeguard investigation must develop an adjustment plan. The domestic industry in AD/CVD cases need not, presumably because it cannot be expected to "adjust" to unfair behavior. Sample Exam In principle, safeguard measures require compensation from the imposing Member to avoid suspension of equivalent concessions, but this is not the case for antidumping or countervailing measures. The main reason for such difference between AD / CVD and SG is that AD / CVD are targeting to offset the impacts of unfair trade practices that involve dumped imports for AD and subsidized imports for CVD. These unfair trade practices are to be condemned according to the WTO agreement, and the member state that faced or about to face material injuries from them are entitled to a right to act against them. On the other hand safeguard measures are not in place to offset any unfair trade practices. Safeguard measures are imposed in the absence of any unfair trade practice, so a member state trying to impose safeguard measures is not automatically entitled to a right to have trade remedies. Safeguard measures are imposed as an escape clause measure - at least in the U.S. - to temporarily help domestic producers to adjust to impacts of unforeseen, sudden, sharp, significant, and recent increase in imports that caused serious harm to domestic producers of like or directly competitive products of subject imports. Because a member state imposing a safeguard is not affected by unfair trade practices of trade partners, compensation is required to offset negative impacts that the affected trade partners have to face although they did not commit any unfair trade practice. Indeed, ad tariff cannot exceed the dumping of margin and CVD rate cannot exceed the rate of subsidization. However, SG measures can take the form of quota, tariff, or tariff-rate-quota, and the choice is up the discretionary choice of the government authority - the President in the U.S. - as long as it is not more restrictive than necessary to prevent or remedy the serious injury. Because the type and form of the measure can be chosen discretionarily for SG, it is arguably less predictable and can be harsher than AD/VD. Thus, compensation is required to be paid by a member imposing a SG measure. Moreover, AD is imposed against the producers of dumped imports and CVD is imposed against the specific government that provided the subsidy. However, SG is imposed in MFN basis against all sources of imports, except for developing countries and free trade agreement countries. Because SG can potentially be imposed against all trading partners, such flexibility requires a compensation to be paid to those affected by SG measures. The issue of specificity in the Agreement on Subsidies and Countervailing Measures is about whether the subsidies are targeted, and without such specificity, CVD cannot be imposed. There are four broad types of specificity: 1. Enterprise or enterprises specificity; 2. Industry specificity; 3. Regional specificity; and 4. Prohibited specificity such as export subsidies. 9. Two export sales Ep1 = $440 EP2 = $450 Weighted average of the two export sale prices is (440 + 450) / 2 = $445 3 Home market sales Hp1 = $400 Hp2= $440 Hp3 = $460 CoP = $400 SG&A = $50 Profit = $50 Normal value in the ordinary course of trade would be the weighted average of CoP + SG&A which is $450 Because Hp1 and Hp2 are below CoP + SG&A they are not in the ordinary course of trade because they are sold below the cost. Hp3 however is above CoP + SG&A. Thus, we can use Hp3 as the normal value. Then, dumping margin is (Hp3 - Weighted average of export prices)/Weighted average of export prices. This equals to (460 - 445) 445 = 3.37%