Dumping, Subsidies and Safeguards


Dumping, subsidies and safeguards are regulated by GATT Art. 6 first, then the WTO supplement the article with the Anti Dumping Agreement (ADP); the SCM Agreement and the Agreement on Safeguards

Definitions:

  • Dumping
    • Flooding a market with products at less than the normal value, with the chance of hurting a domestic industry
  • Subsidies
    • Payments made to domestic businesses by the government which artificially increase their competitiveness
  • Safeguards
    • Where another country can, fairly, dominate the domestic market because of greater efficiency, a domestic market may put up a temporary trade barrier to protect the domestic industry

Comparison (see Laura Table)

  • Dumping
    • Trade partner is the wrongdoer
    • Fixed by applying an anti dumping duty to counter the effects of the dumping
    • Material Injury required for action
  • Subsidies
    • Domestic economy is the wrongdoer
    • Fixed by outlawing certain types of subsides, or allowing countervailing measures (which make the effects of the subsidy internal only … they would no longer affect the export market
    • Material Injury required for action
  • Safeguards
    • There is no wrongdoer, the domestic market can’t yet compete
    • Fixed by creating a temporary barrier to trade
    • Serious injury required for action

Dumping

Governed first by GATT Art. 6 and then by the ADP Agreement (Agreement on Implementation of Article 6), which sought to clarify the GATT article

  • Defining “Dumping”
    • Less than the normal price
      • (GATT Art. 6:1(a); ADP Art. 2:1) less than the comparable price in ordinary trade for like product, destined for consumption in the exporting country
        • OR
      • (GATT Art. 6:1(b)(i); ADP Art. 2:2) less than the highest comparable price of the like product exported to any third country in ordinary trade
        • OR
      • (GATT Art. 6:1(b)(ii);) less than the cost of production; (ADP Art. 2:3) less than the price first resold to an independent buyer
    • Material Threat
      • (GATT Art. 6:6:a) It is only an actionable dumping if there is an actual, material threat to domestic current or nascent industries
  • Determination of injury
    • Dumping Margin” = export price less normal price(GATT Art. 6:2; ADP Art. 3)
  • Anti Dumping Duty
    • May be levied to nullify the dumping margin (GATT Art. 6:2; ADP Art. 9)
    • These are imposed by a national body, not with reference to the WTO
      • WTO cases, in the DSB, are only able to be brought to assess whether the national body did its job adequately (ADP Art. 17:5; 17:6)

Why is Dumping different?

  • Usually, WTO disciplines members, here, it punishes individual corporations
  • The member does not ask the WTO for permission to take action, the member has presumed authority to do so: all the WTO does is review the member’s action
  • There is no DSU, rather, there is, here Art. 17:6

Subsidies and Countervailing Measures

Subsidies may be legal, if they obey the strict requirements of the agreement. Countervailing measures minimise the effect of the subsidies on the international market – domesticating the effect.

Note, agricultural subsidies are under the Ag Agreement, not SCM.

To protect your market from foreign subsidies

Countervailing measures (SCM Part V)

Countervailing measures, like Anti-Dumping Duties, are allowed to nullify the effects of a subsidy on a market other then the market the subsidy is enacted in. E.g. A Colombian subsidy: USA is allowed a countervailing measure, equal to the subsidy, to nullify the effect on the subsidy of products in the the US market.

Step 1: Is it a subsidy? (Brings within SPS Agreement)

  • What is a subsidy (SPS Art. 1)?
    • It is a subsidy if (1:1):
      • EITHER there is a financial contribution (1:1:(a)(1)); OR There is income or price support (1:1:(a)(2))
        • Financial contribution, e.g.: direct transfer of funds (grants, loans, etc.), loan guarantees (1:1:(a)(2)(i)), government revenue forgone such as tax credits (1:1:(a)(2)(ii)), government provided goods and services above general infrastructure (1:1:(a)(2)(iii)), or indirect government payment through a funding mechanism (1:1:(a)(2)(iv)). This list is non-exclusive.
      • AND a benefit is thereby conferred (1:1:(b))
    • Such a subsidy is Prohibited under art. 3, unless it satisfies the requirement for specificity
  • If these requirements are met, then the subsidy is within the SPS Agreement.

“Grade” of the subsidy – the Traffic Light System

  • Red Light (SCM Art. 3:1)
    • Export subsidies (subsidies contingent on the product being exported) (3:1:(a))
    • Import substitution subsidies (subsidies contingent on using domestic rather than imported products) (3:1:(b))
  • Dark Amber Light (SCM Art. 6)
    • Subsidy > 5% (6:1:(a))
    • Subsidising operating losses in an industry (6:1:(b))
    • Subsidising operating losses for an enterprise, only “one time measures” permitted (6:1:©)
    • Debt forgiveness (6:1:(d))
  • Yellow Light
    • Subsidies which do not fall into the Red and Dark Amber categories are Yellow Light subsidies
  • Green Light
    • These have expired (Footnote 25), and would now fall into the Yellow Light category, with the requirement to prove the same things
    • Did include, R&D, environmental subsidies, etc.

Response

  • Red Light
    • All red light subsidies are prohibited (SCM Art. 3), and are deemed to be specific (2:4)
    • If there is a red-light subsidy: “The panel shall recommend that the subsidising member withdraw the subsidy without delay” (Art. 4:7)
  • Yellow Light
    • Is it specific (Art. 2)
      • If not (i.e. it is “general”, then it is un-actionable (Art. 8:1:(a))
    • If it is, does it have adverse effects(*Art. 5)?
      • Does it injure the domestic industry of another member (5:(a)) OR
      • Does it seriously prejudice another member (5:©)?
    • If it is, then it is an actionable subsidy
  • Amber light categories
    • As Yellow Light, but “adverse effects” are rebuttably presumed
    • Specificity still has to be shown for the subsidy to be actionable (Art. 8:1:(a))
  • If there is a specific dark-amber subsidy; or a specific and adversely effective yellow-light subsidy: “the member … shall take appropriate steps to remove the adverse effects, or withdraw the subsidy” (Art. 7:8). If the member fails to do so, countermeasures may be used by the affected party (Art. 7:9).

Safeguards

Safeguards are different from subsidy and dumping protections, since the person they are against has not done anything wrong.

This is an “escape valve” in the GATT/other agreements, allowing protection if you have bound yourself to too low tariffs.

This has been used for “steel”, and other industries considered important to a nation.

  • Based on GATT Art. 19 (Emergency action on imports of a particular product)
    • (19:1:(a)) If there is an unforeseen event, relating to WTO
      • and it impacts a member
      • so as to threaten serious injury
      • to like or directly competitive goods
    • Then the member may suspend obligationsto prevent injury (e.g. raise tariffs)
    • (19:2) if it is a major industry, there should be a warning, and an allowance of time for consultations
    • (19:3) if consultations fail, a member may take action
  • The SG(Agreement on Safeguards)
    • the preamble states an important dilemma between free trade and the allowance for safeguards
      • Recognising the importance of structural adjustment and the need to enhance rather than limit competition in international markets

    • (SG Art. 2:1) Member may apply a safeguard IFF:
      • Member has determined that
      • the product is being imported in such increased quantity(relative to the market)
      • which would cause or threaten to cause serious injury to the domestic industry that produces like or directly competitiveproducts
        • Defined in Art. 4 (Determination of Serious Injury)
          • Serious Injury= significant overall impairment in the position of the domestic industry
          • Threat of serious injury = Serious injury that is clearly imminent
      • (2:2) These measures should apply to all import partners (reverse MFN)

This is reviewed under the DSU

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