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Safeguards and Exceptions

Chapter 9The Political Economy of The World Trading System

Presented by Hang Nguyen

Agenda Re-negotiation of Concessions Waivers Emergency Protection (Safeguards) Antidumping Actions Measures to Countervail Subsidized Imports Trade Restrictions for BOP Purposes Infant Industry Protection General Exceptions Conclusion

Source: WTO, Global Antidumping Database

9.1 Re-negotiation of Concessions

Article XXVIII:1 Re-negotiation: centres on the compensation

‘open season’: conducted every 3 years following a binding

‘special circumstances re-negotiations’: approved by GATT contracting parties

‘reserved right re-negotiations’: occur anytime during 3 years

The contracting party: The country – initial negotiating rights – INRs The country – ‘principal supplying interest’ (negotiation

rights)/‘substantial interest’ (consultation rights)

9.1 Re-negotiation of Concessions

The Uruguay Round Understanding on the Interpretation of Article XXVIII Enhanced the opportunities of affected exporters

to participate in tariff re-negotiations. Before UR: over 30 GATT contracting parties

utilized the re-negotiation option more than 200 times (1955-95 period)

After UR: implemented Harmonized System 24 re-negotiations (1995-2008)

9.2 Waivers

Tariff re-negotiations are limited: they only pertain to instances in which a country wants to raise tariffs above previously bound levels.

Article XXV:5 GATT allows a member to request a waiver from one or more other obligations

The most famous waiver: US in 1955 (inconsistent with Section 22 of the Agricultural Adjustment Act).

Waivers under WTO are time bound: are reviewed annually to determine if the exceptional circumstances requiring the waiver continue to exist.

9.3 Emergency Protection (Safeguards)

Article XIX: permits governments to impose measures to protect domestic producers seriously injured by imports. Necessary conditions: Unforeseen developments Resulting from the effects of obligations incurred

by a contracting party (e.g. tariff concessions made in a MTN)

Leading to increased imports That cause or threaten serious injury to domestic

producers

9.3 Emergency Protection (Safeguards)

Affected exporting countries were protected by a requirement of compensation made Article XIX a substitute for Article XXVIII re-negotiation

By the time of UR: to constrain the use of AD and VERs and to reassert the dominance of Article XIX Tighten the disciplines on the use of VERs and AD Reduce the disincentives to use Articles XIX

9.3.1 The Uruguay Round Agreement on Safeguards

Major achievement: prohibition of VERs and similar measures on the export or the import side

SG measures: investigation demonstrates “serious injury” considering factors

Protection is limited to what is necessary to prevent or remedy serious injury caused by imports causal link

Article XIX – ‘Emergency Action’: in ‘critical circumstances the Agreement on SG allows Members to put in place SG immediately on a provisional basis.

9.3.2 The WTO experience with safeguards

SG measures: infrequently compared to other instruments i.e. antidumping

Key terms are not defined in the agreement. ‘Unforeseen developments’ test to safeguard

actions by Appellate Body (AB) However, if SG conform to WTO rules, will be

nondiscriminatory and thus affect all imports.

9.3.3 Special Safeguards Cases

The 2001-2 US Steel Safeguards QRs: starting in 1970s, AD and CVD actions in 80s-

90s 2001: imposing SG actions fail to show a ‘causal

link’ termination of SG actions in Dec, 2013 Special Safeguards (SSG)

WTO Agreements on Textiles and Clothing (ATC) Agreement on Agriculture

China’s Protocol of Accession

9.4 Antidumping Actions

AD mechanism in US: replace a system in which specific industries lobbied the US Congress for specific tariffs with one where industries seeking protection had to go through an administrative system.

Increasing controversial during 1980s 1950: 37 cases Since 1970s: over 4000 AD investigations initiated by

WTO members 1995-2007: 3200 investigations 2049 led to AD

measures. Main users: Australia, Canada, EU and US Most frequent target: China, followed by US and EU.

9.4.1 A brief summary of GATT disciplines

Dumping (GATT): offering a product for sale in export markets at a price below normal value.

Article VI: not prohibit dumping, but actions to offset dumping

Actions against dumping: only if material injury is shown

Injury determinations: Positive evidence An objective examination of the volume of the dumped

imports Their effect on prices in the domestic market Impact on domestic producers of like products

9.4.2 What’s wrong with dumping

9.4.2 What’s wrong with dumping

Discourage domestic firms from engaging in the development of a competing product by establishing a large market share

Predation: a foreign firm could deliberately price products low enough to drive the existing domestic firms out of business and establish a monopoly. AD is unlikely to encourage.

The predation has very little to do with AD: US cases Antidumping Act of 1916: very rarely invoked. The Tariff Act of 1930: usually invoked by import-

competing industries

9.4.3 What’s wrong with antidumping

AD is not about fair play. Its goal is to tilt the rules of the game in favour of import-competing industries.

AD is a useful safety valve that allows countries to implement and sustain more general trade liberalization positive relationship between deterioration in macroeconomic conditions and the use of AD.

AD constitute an obstacle to free trade in developing countries: ‘retaliation’ – tit-for-tat responses by targeted countries effect in restraining the use of AD by importing countries.

9.4.3 What’s wrong with antidumping

AD is costly for affected firms, consumers and third countries

Impact on affected exporters is significant Discretion of investigating authorities: dumping

margins can be inflated Injury criteria may be manipulated by firms By initiating and winning an AD action, upstream

suppliers may be able to manipulate the health of downstream firms to the advantage of both cascade along the chain of production.

9.4.3 What’s wrong with antidumping

Negotiating price undertakings with exporters that are subject to AD investigations

Exporters prefer undertakings to the alternative of paying AD duties

Undertaking are more detrimental to the national welfare of countries using them than duties are: due to transaction costs.

Thank you for your attention!