INTRODUCTION TO TRADE REMEDIES & DEFENSE Jakarta, 20-22 March 2017 Alexandre Larouche-Maltais Senior Trade and Investment Expert Conference Board of Canada Partner: Project Executed by:
Agenda: Introduction to Trade Remedies & Defense Defining and Distinguishing • Distinguishing Trade Remedies and Trade Defense Part 1 • Defining Anti-dumping, subsidies & countervailing duties, and safeguards • Economic rationales for dumping and subsidizing History and Principles • A century of Trade Remedies Part 2 • Four WTO pillars • Exceptions International Trends • Free Trade Agreements Part 3 • Trade remedies notified to the WTO • Some facts about Canada
PART 1 DEFINING AND DISTINGUISHING Distinguishing Trade Remedies and Trade Defense Defining Anti-dumping, subsidies & countervailing duties, and safeguards Economic rationales for dumping and subsidizing
Distinguishing Trade Remedies and Trade Defense Trade Remedies Trade Defense • Trade remedies refer to anti- • Trade Defense is dealing with dumping, countervailing duties and challenges to a country’s domestic safeguards which are used to prevent practices, including trade remedies, damage from imports to your exports, competition in third domestic industry markets. E.g, Indonesia — Iron or Steel Products (Chinese Taipei) Source: Peter Clark
THREE TRADE REMEDIES Anti-Dumping measures Countervailing duties Safeguards
Under specific circumstances, dumping can be sanctioned by WTO and national laws: What is • Article VI of GATT “dumping”? • Anti-Dumping Agreement “Dumping is a form of price • Canada’s Special Import discrimination, which takes Measures Act (SIMA) place when the price of a product when exported to • Indonesia’s Government another country is less than the price of that same product when Regulation Number 34 of 2011 sold in the market of the concerning Antidumping exporting country.” Measure, Countervailing Measure, and Safeguard Measure. Source: WTO, “Technical Information on anti-dumping”
Why is dumping condemnable? What’s wrong with dumping? Is it illegal then? GATT Art. VI:1 Could Indonesia submit a “The contracting parties recognize that dumping … is to complain against another be condemned if it causes or WTO member for “dumping”? threatens material injury to an established industry in the territory of a contracting party or materially retards the What’s the adequate remedy? establishment of a domestic industry.” Source: WTO, “Technical Information on anti-dumping”
Under specific circumstances, subsidizing can be sanctioned by WTO and national laws: What is a • Articles VI and XVI of GATT “subsidy”? • Agreement on Subsidies and Countervailing Measures The definition of subsidy contains three basic elements: (i) • Canada’s Special Import a financial contribution (ii) by a Measures Act (SIMA) government or any public body • Indonesia’s Government within the territory of a Member Regulation Number 34 of 2011 (iii) which confers a benefit. concerning Antidumping All three of these elements must Measure, Countervailing be satisfied in order for a subsidy Measure, and Safeguard to exist. Measure. Source: WTO, “Subsidies and Countervailing Measures”
What’s wrong with Why applying CVDs if subsidies are permitted under subsidizing? the GATT? GATT Art. III.8(b) Could Indonesia submit a complain against another “this Article shall not prevent WTO member for the payment of subsidies exclusively to domestic “subsidizing”? producers” Source: WTO, “Technical Information on anti-dumping”
Export subsidies and SCM Agreement: Subsidies contingent on Art. 3 the use of domestic Three-pronged products “traffic-light system” Subsidies that are not “specific” or offer specific Art. 8 forms of assistance (research; disadvantaged Since 2000, the Green Light regions; adaptation; etc.) has lapsed (Art. 31) Other subsidies can be countervailed or Art. 5 challenged directly if conditions are met Source: Guzman & Pauwelyn, “International Trade Law” (2009)
Under specific circumstances, taking safeguard actions is What is a allowed by WTO and national laws: “safeguard” • Article XIX of GATT 1994 action? • Agreement on Safeguards Safeguard measures are defined as “emergency” actions with • Canadian International Trade respect to increased imports, Tribunal Act ( CITT Act) where they have caused or • Indonesia’s Government threaten to cause serious injury Regulation Number 34 of 2011 to the importing Member's concerning Antidumping domestic industry. Measure, Countervailing They can consist of quantitative Measure, and Safeguard import restrictions or of duty Measure. increases to higher than bound rates. Source: WTO, “Agreement on Safeguards”
Distinguishing 3 types of Trade Remedies Anti-dumping and countervailing Safeguards duties • Protection against “unfair trade” • Protection against “free/fair trade” practices practices • Imposed against all imports of a • Applicable selectively against only dumped or subsidized imports - on particular kind, not just unfairly the theory that dumping and traded imports subsidization are unfair practices. • Temporary by nature • Last as long as the targeted • Invoking country must compensate practices continue affected exporting countries (or such countries may retaliate) • Exporting country has no claim to compensation . Source: Barcelo III, “A History of GATT Unfair Trade Remedy Law – Confusion of Purposes” (1991)
ECONOMIC RATIONALES Why are companies dumping? Why are governments subsidizing?
Why are companies dumping? • Different trade barriers Program or Policy • Need generate hard currency • Industrial policies • Inexpensive way of maximizing Expand Market investments in longer term Shares • Killing competition • “Sporadic” dumping Dispose Excess • Cover variable costs Domestic Production • “Exporting burden of recession” Source: Terence P. Stewart, “Administration of the Antidumping Law: A Difference Perspective” (1991)
Why adopting anti-dumping rules? Proponents Opponents • Reduced investments : price drop • Beneficial to Consumers : Dumping leads to cancellation or does not harm consumers as they postponement of investment may buy at lower cost. Dumping could even make decisions, and negatively impact on domestic industry’s competitiveness manufacturers/transformers more in the longer term competitive in GVCs • Predatory pricing : killing • No economic justification : ADD fails competition will eventually lead to to prevent market destabilization price raises and reduce consumers' and “international predation” is very welfare in the longer term unlikely • Unfair trade : Unfair trade may not • Limited social justice impact : ADD be excused by free trade, which law is very rarely used for distributive would have negative impact justice concerns (Canadian study) and they are inappropriate responses Source: Terence P. Stewart, Source: Trebilcock & Boddez, “The Case “Administration of the Antidumping for Liberalizing North American Trade Law: A Difference Perspective” (1991) Remedy Laws” (1995)
Why are governments subsidizing? • Financial support for industries with positive “socially externalities of production and consumption. E.g. renewable energy subsidies beneficial goods” • Industry that has the potential to become competitive but needs temporary support to Infant industry grow and compete internationally (Canadian manufacturing in 19 th century) • Industries with high potential for job creation, Strategic technological advantage, or natural resources transformation (aerospace, IT, auto, etc.) industry Source: Harris, Keay, and Lewis, US - Renewable Energy “Protecting Infant Industries: Canadian Manufacturing and the National Policy, (India) 2016 1870-1913” 2013
Why adopting countervailing duties? Proponents Opponents • Threat of CVDs: Prospect of CVDs • No harm : from the perspective of can reduce the use of “wasteful” the importing country, subsided subsidies by governments. imports may hurt domestic producers, but not consumers or • Protection against unfair trade : manufacturers/transformers who illegal subsidies unfairly increase competitiveness of foreign products would greatly benefit from cheap against which domestic producers imports would have to compete • Bad response : instead or imposing • “Strategic” trade policy arguments : CVDs, WTO members should in situations where extraordinary challenge the legality of those profits possible and where subsidies before the DSB international market could support only one firm and where competition would raise cost dramatically. “Optimal tariff argument”. Source: Guzman & Pauwelyn, “International Trade Law” (2009)
PART 2 HISTORY AND PRINCIPLES A century of Trade Remedies Four WTO pillars Exceptions
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