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Anti-dumping, and
Countervailing Issues - WTO Provisions
Potential gains through
liberalization of world trade within the framework of the
multilateral trading system cannot be denied. All countries of
the world have a shared interest in the success of the WTO
Programs of trade liberalization. But along with other
factors unfair trade practices like “dumping”1
and “subsidies”2
are also posing threats to this process of trade
liberalization.
Anti-dumping (AD) measures and
countervailing duties (CVD) share a number of similarities.
Many countries handle the two under a single law, apply a
similar process to deal with them and give a single authority
responsibility for investigations. Occasionally, the two WTO
committees responsible for these issues meet jointly. The
reaction to dumping and subsidies is often a special
offsetting import tax (countervailing duty in the case of a
subsidy). This is charged on products from specific countries
and therefore it breaks the GATT principles of binding a
tariff and treating trading partners equally (MFN). The
agreements provide an escape clause, but they both also say
that before imposing a duty, the importing country must
conduct a detailed investigation that shows properly that
domestic industry is hurt.
But there are also fundamental
differences, and these are reflected in the agreements.
Dumping is an action by a company.
With subsidies, it is the government or a government agency
that acts, either by paying out subsidies directly or by
requiring companies to subsidize certain customers. But the
WTO is an organization of countries and their governments. The
WTO does not deal with companies and cannot regulate companies
actions such as dumping. Therefore the Anti-Dumping Agreement
only concerns the actions governments may take against
dumping. With subsidies, governments act on both sides: they
subsidize and they act against each other’s subsidies.
Such a situation may arise under
three WTO agreements. 1.The Anti-dumping Agreement
(Agreement on Implementation of Article VI of the General
Agreement on Tariffs and Trade 1994), 2.The Agreement on
Subsidies and Countervailing Measures and 3. The
Safeguard Agreement. The first two are measures against
what are considered to be ‘unfair trade practices’, the third
one i.e. the safeguard measure is fair and permissible under
WTO but the imports are equally damaging domestic production
which is for a short term.
In the first two cases the
exporter is expected to reform, in the last case the domestic
industry is given time to become more efficient. The presence
of anti-dumping agreements could be considered to be a lever
that may help domestic governments in managing the pressure on
the affected local industries.
Dumping
The WTO Agreement on dumping
defines it broadly as a company exporting a product at a price
lower than the price it normally charges on its
home market for a “like product”3.
When goods are imported at a price below the domestic
producers price, allegations of ‘unfair competition’ and
‘dumping’ are heard. There is then pressure on the government
to impose duties against the imports. Therefore,
Dumping
= when a product is sold for export to another country at less
than its “normal value”4.
Normal Value
is - a) the price in the home market when the good is
sold at a price above the cost of production, b)
the price charged for the good when sold at
a price above cost in third-country markets and c)
“constructed normal value” calculated as the total costs of
producing the product plus a reasonable amount for selling,
general and administrative expenses and profit.
Dumping =
When the Domestic price of export
> Export price
Or,
Normal value (NV) > “Export
price” 5 (EP)
There are
two main types of possibility:
i) The good is being dumped and ii) ‘fair competition
’behaviour. The difficulty lies in determining whether the low
price is a result of dumping or fair competitive practices.
Firstly, the exporter is selling the goods at a
price lower than the production price or selling price of the
exporter’s domestic market with an intention to put the
domestic producers or other words the domestic industry6
of the importing country out of business, which would then
allow prices to increase and substantial profits to be made.
That is through “predatory pricing”7
Second possibility is that during an economic
downturn, the exporter has to reduce prices below the cost of
production, as there is surplus production. This is a
short-term measure to maintain production through difficult
times.
Fair competition
In a ‘fair competition’
the reason for selling at a price below the domestic price is
that the cost of producing the good in another country is
lower than the cost of producing the good domestically. The
cost may be lower due to lower labour costs, more efficient
production methods and so on. Where the cost of production is
lower, trade means that consumers benefit from lower prices.
Those producers that use the imported goods in their
production will also benefit from cheaper inputs.
One further concern is that
certain manufactures have their prices determined on the
international market, implying that their price fluctuates
with changes in the market conditions. For those exporting
these products, they are compelled to be ‘price takers’ rather
than ‘price setters’. Where the price that they have to take
is below their cost of production, there is concern that this
is then interpreted as dumping.
The Anti-dumping measures
Action is taken for protecting the
legitimate interest of local industries by preventing unfair
trade. The WTO Anti-dumping Agreement (Agreement
on Implementation of Article VI of the General Agreement on
Tariffs and Trade 1994) stipulates that WTO Members can
impose anti-dumping duties, if, after investigation in
accordance with the Agreement, a determination is made that
(a) dumping is occurring, (b) the domestic industry producing
the like product in the importing country is suffering
material injury8,
and (c) there is a causal link between the two. The Agreement
specifies substantive rules governing the determination of
dumping, injury, and causal link. In addition, the Agreement
sets forth detailed procedural rules for the initiation and
conduct of investigations, the imposition of measures, and the
duration and review of measures. If any foreign product is
exported to any country below its normal value (exfactory
price) it is a case of dumping.
This is injurious to local industries and is considered unfair
trade. In this situation, anti-dumping duties can be imposed
to protect local industries from such injury.
The main measure is
anti-dumping duties. This is effectively a tax on the
imported good (found to be dumping after investigation) that
raises the price of that good relative to domestic prices.
Which means charging extra import duty on the particular
product from the particular exporting country in order to
bring its price closer to the “normal value” or to remove the
injury to domestic industry in the importing country. This
increase in the price of imports then provides domestic
producers with a level of protection.
Another possibility is for
the exporter in question to agree to a price undertaking.9
This undertaking by an exporter to raise the export price
of the product to avoid the possibility of an anti-dumping
duty. A price undertaking is not supposed to exceed the
alleged margin of dumping, and preferably it should be at the
lowest possible level that would be adequate to remove the
threat of injury from domestic industry.
The process for implementing an
anti-dumping measure
The process for implementing an
anti-dumping measure begins with the domestic industry making
a complaint. This is then investigated by the designated
authority of the
domestic government, based on the
detailed requirements of the WTO Agreement. If they find
evidence to support the claim, which requires proof of injury
and causation, then anti-dumping measures can be applied for
up to five years.
If the country from which the
goods have been exported disagrees with the finding, then that
country can initiate a dispute settlement in the WTO.
Anti-dumping investigations are to
end immediately in cases where the authorities determine that
the margin of dumping is insignificantly small that is De-minimis
dumping margin10
(defined as less than 2% of the export price of the product).
Other conditions are also set. For example, the investigations
also have to end if the volume of dumped imports is negligible
(i.e. if the volume from one country is less than 3% of total
imports of that product — although investigations can proceed
if several countries, each supplying less than 3% of the
imports, together account for 7% or more of total imports).
Anti-dumping measures taken by WTO
Members
During the period from 1 January
1995 to 31 December 2004, 38 WTO members applied a total of
1,656 anti-dumping measures.
Argentina (139)
Australia (54) Brazil (62) Canada (80) Chile (6) China (52)
Colombia (11) Costa Rica (1) Czech Republic (1) EC (193) Egypt
(30) Guatemala (1) India (302) Indonesia (23) Israel (15)
Jamaica (4) Japan (3) Korea (43) Latvia (1) Lithuania (7)
Malaysia (18) Mexico (69) New Zealand (14) Nicaragua (1)
Pakistan (4) Paraguay (1) Peru (34) Philippines (9) Poland (9)
Singapore (2) South Africa (113) Taiwan (2) Thailand (23)
Trinidad & Turkey (77) United States (219) Tobago (7) Uruguay
(1) Venezuela (25)
From the above scenario it is
apparent that 10 major users now are India, the United States,
the EC, Argentina, South Africa, Canada, Turkey, Mexico,
Brazil and Australia.
The type of countries initiated
dumping investigations has changed over the last five years.
Initially, developed countries were dominant. But now the
developing countries are also initiating (approximately 50
percent) investigations.
WTO Members victim by
Anti-dumping measures from 01/01/95 to 31/12/04:
Argentina (9) Australia (8)
Belarus (10) Belgium (13) Brazil (57) Bulgaria (10) Canada
(13) Chile (14) China (297) Czech Republic (14) EC (38) France
(24) Germany (35) Hong Kong (12) Hungary (7) India (60)
Indonesia (54) Italy (25) Japan (82) Kazakstan (18) Korea
(118) Latvia (7) Malaysia (34) Mexico (21) Netherlands (13)
Poland (18) Romania (24) Russia (76) Singapore (21) Slovak
Republic (7) South Africa (33) Spain (21) Sweden (6) Taiwan
(89) Thailand (63) Turkey (22) Ukraine (47) UK (20) United
States (83) Venezuela (12)
Top 10 victims
include China, the EC (its member states), Korea, Taiwan, the
United States, Japan, Russia, Thailand, India and Brazil.
Which countries are subjected to
investigation ?
Predominantly the developing
countries are the target for investigations. The country that
was most frequently targeted in 2000 was China, which was
subject to 33 investigations. The EU member states were
subject to 23 investigations.
WTO rules
govern the use of antidumping duties by national authorities;
however, variation exists in countries’ willingness to use
antidumping duties and in their procedures and rules. This
divergence in domestic institutions and rules means that the
national authorities in some countries are able to protect
their domestic industries to a greater degree compared to
other countries.
Impact of developing country
exports that are subject to anti-dumping duties.
Where a developing country’s
exports are found to be ‘dumped ’and as a result extra duties
are applied, there are numerous impacts on that developing
country.
Reduction in exports. The
first impact is on the exporter. The increase in duty means
that the price of the good is higher, which is very likely to
reduce the quantity sold. This in turn implies a reduction
in the employment in his firm. As developing country
products are subject to approximately two-thirds of
investigations, this means that developing country firms may
be understood as unreliable sources of those products subject
to anti-dumping duties, by developed country importers.
Wider economic downturn if
this producer has strong links to the wider economy in the
developing country, (e.g. buys local inputs or local services
such as telecommunications) then these industries will also
see a reduction in their demand and potentially a reduction in
employment.
Increased uncertainty and lower
investment perhaps even more importantly than these direct
impacts, are the indirect effects. If an industry is being
investigated, then the uncertainty of the investigation will
curb or even stop any further investment in the business and
thus affect employment.
Exports depressed the
threat of anti-dumping duties being applied may curb the
expansion of exports in products that have been subject to
anti-dumping duties, from developing countries. Overall,
anti-dumping duties, whether applied, being considered through
investigation or merely just being a tool that can be
relatively easily adopted, serve to undermine the expansion of
trade from developing countries.
Impact of Developing countries
imposing anti-dumping duties against imported goods.
Developing countries are
introducing an increasing number of investigations and as a
result a growing number of anti-dumping duties are being
applied. Impacts on the developing countries
Increased price for consumers.
The impact will depend on how competitive the other
producers are and whether or not there are goods that can be
bought as substitutes. In the case of small developing
countries, their small market makes this problem particularly
severe.
Increased price for producers.
As the additional tariff means that domestic producers can
sell at a higher price. Increased sale prices can mean
increased profits. These higher profits provide an incentive
for businesses to ‘encourage ’politicians to find in their
favour in investigations.
Increased costs to other
producers. Where the imported good is used as an input
into another product (e.g. machinery par used to cut fabric)
then the increase in input costs will reduce the
competitiveness of the business. This could threaten the
sector and generally undermine economic growth. Deters imports
into country where a country uses anti-dumping measures, this
may act as a deterrent to possible new suppliers. As a result,
the variety of goods and their competitiveness may be limited,
again increasing the cost of goods for both consumers and
other producers.
Increased administrative costs
to government. As all
anti-dumping duties must be justified through an
investigation, imposing such duties implies a relatively high
administration burden on governments that are scarce in
resources. Although, where anti-dumping duties are applied,
there would be an increase in duty revenues ha may offset all
or part of these costs.
The future of anti-dumping duties
The number of anti-dumping cases
has risen dramatically over the last five years. Growth in the
use of anti-dumping duties in the future is hard to predict.
But it is anticipated that the use of such measures could
continue to increase. One such pressure is the end of the
Multi-fibre Arrangement, which has been fully phased out. As
textiles are one of the most important types of exports for
developing countries, there is a threat of anti-dumping
measures being used by developed countries to protect their
domestic textile producers. Although, as developed countries
use textiles from developing countries as inputs, as well as
compete with them on final products, there may be pressure not
to impose anti-dumping duties on products that are used in the
manufacture of garments in developed countries. Developing
countries may also increase their use of anti-dumping
measures. As their legislative and Administrative capabilities
increase, this may induce domestic producers to lobby harder
for increased protection. This trend is worrying. Taking
increased trade as a necessary (but not sufficient) condition
for developing countries to grow, the increasing use of
anti-dumping measures may undermine the considerable progress
that has been made in liberalizing world trade. However, there
is perhaps some hope that policy makers and industry alike are
beginning to realise that imposition of anti-dumping measures
is not always in the interest of their own countries.
There are various levels in which
progress can be made, domestic, regional and multi-lateral.
The European Commission carries out its investigations based
on the European Union’s Regulations on Anti-dumping. In
addition to meet the standards set out in the WTO Agreement,
the EU Regulations state that the community interest must be
brought into account. This is interpreted as the economic
interest of the community being fully considered, when
assessing whether or not to impose duties. This provision aims
to ensure that the various impacts are included in the
investigation. At the domestic level, the UK’s position when
considering the European Commission’s recommendations is that
anti-dumping measures should only be applied when there is
strong economic justification. The Department for Trade and
Industry take the lead role in assessing the recommendations
of the Commission and determining policy positions on
anti-dumping matters.
Many developing countries are
currently pushing to discuss anti-dumping, particularly to
consider ways in which the agreement can be modified to
recognise their specific needs.
Subsidies and Countervailing
Measures
For the sake of fair trade,
countervailing measures can also be taken in case of export of
any product to any country at subsidized prices, which
eliminate similar local products from competition in the
domestic market, forcing the local industry to reduce the size
of operation or close down. The designated authority of any
government is authorized to receive and examine requests from
local industries alleging such injury and recommend
appropriate Countervailing duties as per relevant agreements
of the World Trade Organization (WTO).
The WTO Agreement on Subsidies
and Countervailing Measures does two things: it
disciplines the use of subsidies, and it regulates the actions
countries can take to counter the effects of subsidies. It
says a country can use the WTO’s
dispute settlement procedure to seek the withdrawal of
the subsidy or the removal of its adverse effects. Or the
country can launch its own investigation and charge extra duty
known as “countervailing duty”
on subsidized imports that are found to be hurting domestic
producers.
The agreement contains a
definition of subsidy. It also introduces the concept of a
“specific” subsidy — i.e. a subsidy available only to an
enterprise, industry, group of enterprises, or group of
industries in the country or state, etc. that gives the
subsidy. The disciplines set out in the agreement only apply
to specific subsidies. They can be domestic or export
subsidies.
The agreement defines two
categories of subsidies: prohibited and actionable.
It originally contained a third category: non-actionable
subsidies. This category existed for five years, ending on 31
December 1999, and was not extended. The agreement applies to
agricultural goods as well as industrial products, except when
the subsidies are exempt under the Agriculture Agreement’s
“peace clause”, due to expire at the end of 2003.
Prohibited subsidies:
subsidies that require recipients to meet certain export
targets, or to use domestic goods instead of imported goods.
They are prohibited because they are specifically designed to
distort international trade, and are therefore likely to hurt
other countries’ trade. They can be challenged in the WTO
dispute settlement procedure where they are handled under an
accelerated timetable. If the dispute settlement procedure
confirms that the subsidy is prohibited, it must be withdrawn.
Otherwise, the complaining country can take counter measures.
If domestic producers are hurt by imports of subsidized
products, countervailing duty can be imposed.
Actionable subsidies: In
this case the complaining country has to prove that the
subsidy has an adverse effect on its interests. Otherwise the
subsidy is permitted. The agreement defines three types of
damage they can cause a) one country’s subsidies can hurt a
domestic industry in an importing country, b) can hurt rival
exporters from another country when the two compete in third
markets and c) domestic subsidies in one country can
hurt exporters trying to compete in the subsidizing country’s
domestic market. If the Dispute Settlement Body (DSB) rules
that the subsidy does have an adverse effect, the subsidy must
be withdrawn or its adverse effect must be removed. Again, if
domestic producers are hurt by imports of subsidized products,
countervailing duty can be imposed.
Some of the disciplines are
similar to those of the Anti-Dumping Agreement. Countervailing
duty (the parallel of anti-dumping duty) can only be charged
after the importing country has conducted a detailed
investigation similar to that required for anti-dumping
action. There are detailed rules for deciding whether a
product is being subsidized (not always an easy calculation),
criteria for determining whether imports of subsidized
products are hurting “causing injury to” domestic industry,
procedures for initiating and conducting investigations, and
rules on the implementation and duration (normally five years)
of countervailing measures. The subsidized exporter can also
agree to raise its export prices as an alternative to its
exports being charged countervailing duty.
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Conclusions
There exists widespread concern that anti-dumping measures are
both misapplied and used to protect domestic industries. With
this in mind, negotiators in the WTO and other fora are
attempting to amend and improve certain provisions of the WTO
Agreement on Antidumping to clarify the rules in an effort to
assure that as trade barriers are further eliminated, market
access is not avoided by the inappropriate use of these laws.
The
anti-dumping talks are without doubt one of the most
politically sensitive negotiating issues at the
WTO.
Due to the concern over anti-dumping expressed
by government officials, academics, and industry, the WTO does
not appear to be making progress in their negotiations.
Between 2002 and mid 2004 nearly 150 position papers were
submitted to the WTO Committee on Rules for changes to the WTO
Antidumping Agreement. However, no public document indicates
that the committee has even reached a framework for
negotiations, and recent documents indicate that parties
remain far apart on the goal of the negotiations. In addition,
relatively little analytical work has been done to assist
negotiators in evaluating the consequences of various
proposals, or even to rank them in terms of importance. This
stands in sharp contrast to the negotiations on tariffs, in
which the academics and multilateral institutions have
examined in detail the consequences of different formulas for
tariff reduction. Progress on anti-dumping in the WTO depends
on agreement of a goal for the negotiations and criteria for
the rules. Until that occurs negotiators are unlikely to
progress, as the negotiations appear to be focused on creating
uniformity in rule implementation, without requisite agreement
on underlying goals and principles.
Measures of Anti-dumping and
subsidies and countervailing duties are real threats to the
liberalization of global trade. It is more so for developing
countries and Least Developed Countries to achieve long-term
sustainable growth, each global trading partner must aim to
minimize the use of such measures. If it is failed to achieve,
then there will be considerable losses both for the exporting
country and for the country imposing the duties.
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1.
Dumping is defined in the Agreement on Implementation of
Article 6 of the GATT 1994 (The Anti-Dumping Agreement) as
the introduction of a product into the commerce of another
country at less than its ‘normal value’.
2.
Subsidies, in this context, are either direct or indirect
government grants on the production or exportation of goods;
for example, credits against taxes, loans with artificially
low interest rates, etc., that provide an unfair competitive
advantage to foreign exporters.
3.
Like product is defined as "a product which is
identical, i.e. alike in all respects to the product under
consideration, or in the absence of such a product, another
product which, although not alike in all respects, has
characteristics closely resembling those of the product under
consideration". [Article 2.6].
4.
“Normal Value”
·
Ex-factory price (If not available, may be
determined by deducting sales and other local taxes,
retailer’s and wholesaler’s profit margins, transport and
insurance charges from retail price of the product in the
exporting country). If the above is not available, then
·
Price when exported to a third country in the
ordinary course of trade
·
Third country price as normal value in case of
non-market economies
·
Constructed normal value (Raw materials,
labour, energy and reasonably estimated general selling &
administrative and other business expenses plus profit)
5.
“Export price.” The
price paid or payable for the export product. In other words,
the export price is normally based on the transaction price at
which the foreign producer sells the product to an importer in
the importing country.
6.
The GATT Article 6 of 1994 or the Anti-Dumping Agreement
defines the term domestic industry to mean ‘the
domestic
producers as a whole of the like products or those of them
whose collective output of the products
constitutes a major proportion of the total domestic
production of those products’.
7.
“Predatory pricing” Predatory pricing occurs when a firm
initially lowers its price to drive out competitors from a
market, and then increases its price to profit from the
lessening of competition.
8.The
Anti-Dumping Agreement defines the term "injury" to mean
either (i) material injury to a domestic industry, (ii)
threat of material injury to a domestic industry, or (iii)
material retardation of the establishment of a domestic
industry.
9.
“Price undertaking.” An undertaking by an exporter to raise
the export price of the product to avoid the possibility of an
anti-dumping duty. A price undertaking is not supposed to
exceed the alleged margin of dumping, and preferably it should
be at the lowest possible level that would be adequate to
remove the threat of injury from domestic industry.
10.
“De-minimis dumping margin.”
Dumping
margins of less than 2% expressed as a percentage of the
export price in the country of origin. The volume of dumped
imports shall normally be regarded as negligible if the volume
of dumped imports from a particular country is found to
account for less than 3 per cent of imports of the like
product in the importing Member, unless countries which
individually account for less than 3 per cent of the imports
of the like product in the importing Member collectively
account for more than 7 per cent of imports of the like
product in the importing Member. In the case of de minimis
margins, a country may not take anti-dumping measures.
WTO
Annual Report, pp
45–47 (WTO Geneva 2004).
WTO
website, consulted.
The WTO
Anti-Dumping Agreement,
A Commentary,
EDWIN VERMULST,
OXFORD
UNIVERSITY PRESS, 2005. | 
