Briefing note: Anti-dumping, subsidies and safeguards

Anti-dumping

The WTO Anti-dumping Agreement, or more formally the Agreement on the Implementation of Article VI of the GATT, 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), and show that the dumping is causing injury or threatening to do so.

Anti-dumping measures can be applied if the dumping is hurting the industry in the importing country. Therefore, a detailed investigation has to be conducted according to specified rules first. The investigation must evaluate all relevant economic factors that have a bearing on the state of the industry in question. 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.

Detailed procedures are set out on how anti-dumping cases are to be initiated, how the investigations are to be conducted, and the conditions for ensuring that all interested parties are given an opportunity to present evidence. Anti-dumping measures must expire five years after the date of imposition unless an investigation shows that ending the measure would lead to injury.

Anti-dumping investigations are to end immediately in cases where the authorities determine that the margin of dumping is insignificantly small (defined as less than 2 per cent 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 per cent of total imports of that product — although investigations can proceed if several countries, each supplying less than 3 per cent of the imports, together account for 7 per cent or more of total imports).

The agreement says members must inform the Committee on Anti-Dumping Practices of all preliminary and final anti-dumping actions, promptly and in detail. They must also report on all investigations twice a year. When differences arise, members are encouraged to consult each other. They can also use the WTO’s dispute settlement procedure.

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.

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Subsidies and countervailing measures

The WTO Agreement on Subsidies and Countervailing Measures does two things: it 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.

The agreement contains a definition of subsidy. It also introduces the concept of a “specific” subsidy — i.e. 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. 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 (see below). 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, subject to certain provisions of the Agreement on Agriculture

• Prohibited subsidies: 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. 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 immediately. Otherwise, the complaining country can take countermeasures. Alternatively, if domestic producers are hurt by imports of products benefiting from a prohibited subsidy, a countervailing measure can be imposed.

• Actionable subsidies: for subsidies in this category, to obtain a remedy under the dispute settlement system, the complaining country has to show that the subsidy has an adverse effect on its interests. The agreement defines three types of damage that can be alleged in a dispute. One country’s subsidized exported product can hurt a domestic industry in an importing country. A subsidized product can hurt rival exporters from another country when the two compete in third markets. Or domestic subsidies in one country can hurt exporters trying to compete in the subsidizing country’s domestic market. If the Dispute Settlement Body rules that the subsidy has such an adverse effect, the subsidy must be withdrawn or its adverse effect must be removed. Alternatively, if domestic producers are hurt by imports of products benefiting from an actionable subsidy, a countervailing measure can be imposed.

The disciplines on countervailing measures 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, extendable in certain circumstances) of countervailing measures. The subsidized exporter can also agree to raise its export prices, or the subsidizing government can agree to remove or reduce the subsidy or its effects, as an alternative to its exports being subject to a countervailing duty.

The number of countervailing initiations in 2012 was 23, a small dip from 25 initiations recorded in 2011. Australia and the European Union had the most initiations in 2012 with six each, followed by the United States with five. The member subjected to the most initiations in 2012 was China with 10, followed by India, Indonesia and the United States with two each.

The Agreement provides for special treatment for developing and least-developed members, and for members transitioning from centrally planned to market economies. Least-developed members and certain low-income developing members are exempted from the prohibition on export subsidies, and other developing members were subject to a transition period to eliminate their export subsidies. The Agreement includes a mechanism for extending this transition period, which was used by a number of developing members. Some of these used sets of fast-track extension procedures adopted by Ministers and the General Council for certain types of export subsidies of developing members with defined small shares of world trade and total GDP below a defined threshold. In 2012, the Committee on Subsidies and Countervailing Measures approved on the basis of these procedures the final extension of the transition period — until end 2013 — for certain export subsidy programmes of the countries concerned.

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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.

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. The WTO Agreement on Safeguards sets out requirements for safeguard investigations by national authorities. The emphasis is on transparency and on following established rules and practices — avoiding arbitrary methods. The authorities conducting investigations have to announce publicly when hearings are to take place and provide other appropriate means for interested parties to present evidence. The evidence must include arguments on whether a measure is in the public interest.

The agreement sets out criteria for assessing whether “serious injury” is being caused or threatened, and the factors which must be considered in determining the impact of imports on the domestic industry. When imposed, a safeguard measure should be applied only to the extent necessary to prevent or remedy serious injury and to help the industry concerned to adjust. Where quantitative restrictions (quotas) are imposed, they normally should not reduce the quantities of imports below the annual average for the last three representative years for which statistics are available unless clear justification is given that a different level is necessary to prevent or remedy serious injury.

In principle, safeguard measures cannot be targeted at imports from a particular country. However, the agreement does describe how quotas can be allocated among supplying countries, including in the exceptional circumstance where imports from certain countries have increased disproportionately quickly. A safeguard measure should not last for more than four years although this can be extended up to eight years, subject to a determination by competent national authorities that the measure is needed and that there is evidence the industry is adjusting. Measures imposed for more than a year must be progressively liberalized.

When a country restricts imports in order to safeguard its domestic producers, in principle it must give something in return. The agreement says the exporting country (or exporting countries) can seek compensation through consultations. If no agreement is reached, the exporting country can retaliate by taking equivalent action — for instance, it can raise tariffs on exports from the country that is enforcing the safeguard measure. In some circumstances, the exporting country has to wait for three years after the safeguard measure was introduced before it can retaliate in this way — i.e. if the measure conforms with the provisions of the agreement and if it is taken as a result of an increase in the quantity of imports from the exporting country.

To some extent, developing countries’ exports are shielded from safeguard actions. An importing country can only apply a safeguard measure to a product from a developing country if the developing country is supplying more than 3 per cent of the imports of that product, or if developing country members with less than 3 per cent import share collectively account for more than 9 per cent of total imports of the product concerned.

The WTO’s Safeguards Committee oversees the operation of the agreement and is responsible for the surveillance of members’ commitments. Governments have to report each phase of a safeguard investigation and related decision-making, and the committee reviews these reports.

Initiations of safeguard investigations more than doubled from 11 in 2011 to 25 in 2012. In 2012, Indonesia notified the most safeguard initiations, with seven, followed by Egypt with four, Russia with three, and Thailand with two. The product sector with the most initiations was base metals, with six, followed by chemicals with four, and vegetable oils and prepared foodstuff with three each.

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