March, 2002

March, 2002

Trading Remedies To Remedy Trade -

The NAFTA Experience

Beatriz Leycegui and Mario Ruiz Cornejo

Content and Purpose

Overview of Trade Remedy Measures- A look at the objective, origin, evolution, legal framework and use or abuse of antidumping (AD), countervailing duties (CVD) and safeguard measures.

Trade Remedy Laws in North America- A look at how much have

NAFTA parties traded remedies to remedy trade vis a vis themselves and third countries.

Trading remedies to remedy trade under NAFTA- A look at the negotiation history, the description and objectives of the most relevant commitments, and experience during the first 8 years of the Agreement’s implementation.

0 100 200 300 400 500 600 700

Canada

Mexico

United States

Number of initiations

Cases with measures

Cases with no measures

AD/CVD Cases (1987 - 1999):Total number of initiations

598

228

225

Total number of initiations and measures

Success ratio: 0.47

Success ratio: 0.52

Success ratio: 0.70

AD/CVD cases (1987 - 1999):“Success ratio”

Of the cases initiated by each country, those against NAFTA partners had lower success ratios than against other countries.

Success ratio by country

Country NAFTA Otherpartners countries

Canada 0.61 0.73Mexico 0.43 0.56United States* 0.32 0.49

* This ratio does not consider the cases concluded because of price undertakings.

Antidumping81%

Countervailing19%

Antidumping92%

Countervailing 8%

Antidumping95%

Countervailing5%

AD/CVD Cases (1987 - 1999):Initiations by type of investigation

United StatesMexico

Canada

Safeguards

The only country active in the use of safeguards is the United States: from 1995 to 2001 it has initiated 10 cases.

Canada and Mexico have not initiated a safeguard investigation since 1995.

From the initiated cases, 9 have concluded. In five cases measures were imposed.

Canada and Mexico have been excluded from 4 of the 5 measures, since it was determined that they didn’t contribute to the injury.

AD/CVD cases (1987 - 1999):Initiations by country

United StatesMexico

Canada

United States29%

China17%Brazil

10%

Others34%

Venezuela4%

South Korea4%

Canada 2%

Japan10%

China9%

Korea7%

Others59%

Taiwan6%

Canada6%

Mexico3%

United States21%

Others54%

France4%

United Kingdom

5%

Brazil5%

Taiwan4%

Germany6%

Mexico1%

Prepared foodstuffs

6%

Footwear5%

Pulp and paper10%

Electrical equipment

10%

Base metals51%

Other18%


11%

Chemicals10%

Minerals4%

Plastics8%

Other15% Base metals

52%

AD/CVD cases (1987 - 1999):Initiations by Sector

United StatesMexico

Canada

Base metals36%

Other21%

Plastics7%


6%

Textiles10% Chemicals

20%

Intensity in the use of AD/CVD measures

One way to infer the intensity with which each country uses its AD/CVD tools, is simply calculating the number of cases for each percentual point in the imports/GDP ratio.

The numbers suggest that the most intensive user against NAFTA partners is the United States, followed by Mexico and finally Canada.

It is interesting to note that for the three countries the intensity ratio with respect to other countries is higher, suggesting that they use AD/CVD measures less against NAFTA partners.

Investigating Total cases NAFTA's imports/ Intensity Total cases Other countries Intensity country against NAFTA GDP ratio ratio against other imports/GDP ratio

countries ratioCanada 49 23.05 2.13 176 9.89 17.80Mexico 70 23.17 3.02 158 7.15 22.09United States 53 3.37 15.72 545 8.06 67.65

Intensity in the use of AD/CVD

AD/CVD Initiations affecting intra-NAFTA Trade by partner 1987-1999

0

2

4

6

8

10

12

14

16

18

20

Init

iati

on

s

Canada

Mexico

United States

Average intra-NAFTA initiations by year : 18

Average intra-NAFTA initiations by year: 8

Chapter 19 Binational Panels - Investigated Authority (January 1994- January 2002)

vs. DOC and ITC (United

States) 2

4560%

vs. SEDECO

(Mexico) 1

1115%

vs. DMNR o

CITT (Canada)3

1925%

1 Secretaría de Economía (Ministry of Economy)

2 Department of Commerce and International Trade Commission

3 Deputy Minister of National Revenue or Canadian International Trade Tribunal

Source: Elaborated with data from the Ministry of Economy and the Mexican Section of the Secretariat of Free Trade Agreements.

Total: 75 cases

Chapter 19: Binational Panels Affected Sectors (January 1994- January 2002)

Mineral and Metals

3445%

Chemical5

7%

Manufacture15

20%

Food and Agricultural

Products1115% Construction

1013%

Total: 75 cases


Status of Chapter 19 Cases (January 2002)

Cases Mexico U.S. Canada TotalConcluded 5 11 10 26Withdrawn 3 14 4 21Pending 3 20 5 28Total 11 45 19 75Source: Elaborated with data from the Ministry of Economy and the Mexican Section of the Secretariat of Free Trade Agreements.

Panels decisions (January 2002)

Mexico U.S. Canada TotalConfirmed 1 5 8 14Remanded 4 7 2 13Total 5 12 10 27Source: Elaborated with data from the Ministry of Economy and the Mexican Section of the Secretariat of Free Trade Agreements.

Of the 27 cases in which the panels have issued a decision, in 14 (52 percent) they confirmed the determinations. Of those reviewing U.S. decisions they confirmed 42 percent; of Canada, 80 percent; and Mexico only 20 percent.

Panel´s vote (January 2002)

Mexico U.S. Canada TotalUnanimous 3 11 10 24Majority vote 2 1 0 3Total 5 12 10 27

Of the 27 decisions rendered by binational panels, 24 of them were adopted unanimously (89 percent); and 3 with a majority vote. In these latter cases, in neither of them the vote splitted according to nationality.


Average total time of Chapter 19 cases (January 2002)

Cases Procedure (26 cases)

Panel integration (38 cases)

Implementation of the decision

(26 cases)Canada (days) 522 164 148U.S. (days) 568 303 138Mexico (days) 843 184 260Average total time (days)603 245 165


Chapter 19-Assessment

Time- Since the average time of binational panel proceedings is 603 days, it is not clear that they are more expeditious than national judicial reviews. Delays are associated with panels’ integration process (average time, 245 days).

Cost- Their cost is equal or higher that U.S. and Canada’s national review procedures and nearly six times higher than those of Mexico.

Expertise- Since panels comprise five experts in international trade law, in general they are considered more specialized than internal review bodies.

Chapter 19-Assessment

Fairness and objectivity- Since in 85 percent of the cases the panels vote was unanimous; only one of the 26 decisions rendered has been challenged; and the investigating authorities of the NAFTA Parties have complied in all cases with the panels decisions; these have proven to be fair and objective.

Main contribution- Chapter 19 panels have contributed to discipline the use of AD/CVD measures within the North American region. In recent years there has been a decrease of initiation of cases between NAFTA Parties (despite important increases in trade), since administrative authorities have been more careful when initiating and imposing duties against their trading partners.

Final comments and prospective thoughts

Under a scenario in which NAFTA partners will continue to use “trade remedies to remedy their trade” because of market imperfections, they shall observe the principles and obligations of the WTO Agreements and NAFTA.

NAFTA Parties shall continue negotiating multilaterally on pending issues in order to further discipline the application of trade remedies, reducing the discretionality that is still present in trade remedy investigations.


Considering the serious problems associated with the integration of NAFTA’s Chapter 19 binational panels, it is urgent that parties agree: on a roster of panelists; on improving the benefits and payments offered to them; and if necessary on substituting the present ad hoc panels by a permanent tribunal.

Since the elimination of AD and CVD laws within NAFTA seems unfeasible in the short and middle term, Parties should work towards negotiating less trade-restrictive AD and CVD rules to be applied between them and in strenghtening the use of safeguards when required.


Finally, a diminishment in the trading of remedies to remedy trade among NAFTA partners will occur when:

A higher degree of specialization in the production processes is reached within the North American region.

Consumers and domestic producers (users of intermediate goods usually investigated), become better organized to counter the political pressure exerted by very specific domestic industries.

The North American market becomes further integrated with the implementation of the agreed trade liberalization.

The domestic industry of Canada, Mexico and the U.S. have better adapted to competition and thus the reallocation of the production factors has taken place to improve the regions’ competitiveness.

The losers of the liberalization are substantially reduced or have disappeared.

Documents

March, 2002