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Overview of Overview of Trade Remedies in WTO System Trade Remedies in WTO System Antidumping, Subsidies, Safeguards Presented by Kenneth J. Pierce and Matthew R. Nicely Willkie Farr & Gallagher for the Georgetown University Law Center NCIEC WTO Conference sponsored by the U.S. – Vietnam Trade Council 11 March 2004

Overview of Trade Remedies in WTO System Antidumping, Subsidies, Safeguards Presented by Kenneth J. Pierce and Matthew R. Nicely Willkie Farr & Gallagher

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Overview ofOverview ofTrade Remedies in WTO SystemTrade Remedies in WTO System

Antidumping, Subsidies, SafeguardsPresented by Kenneth J. Pierce and Matthew R. Nicely

Willkie Farr & Gallagher

for the Georgetown University Law Center

NCIEC WTO Conference

sponsored by the U.S. – Vietnam Trade Council

11 March 2004

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Willkie Farr & Gallagher LLP

New York-based law firm with more than 500 attorneys in offices around the world

Washington DC office houses our international trade practice – one of the largest and most prominent in the United States

Practice includes 18 lawyers and 5 trade analysts with decades of experience in the field

Focus of practice is international trade remedies, particularly antidumping and countervailing duties and safeguard measures

Our successes span all aspects of the litigation, from work before U.S. agencies to appeals before U.S. courts and the WTO

Currently representing Vietnam in shrimp antidumping case

Introduction to Willkie Farr & GallagherIntroduction to Willkie Farr & Gallagher

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AgendaAgenda

Introduction to trade remedies Safeguard Measures Anti-dumping Duties Countervailing Duties WTO Dispute Settlement

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What are trade remedies?What are trade remedies?

Permissible import restraints that otherwise would be contrary to WTO principles essentially, exceptions to the bedrock rules of binding tariffs and

MFN (most favored nation) treatment

Designed to allow relief from imports deemed “unfair,” or adjustment from a surge in imports often called the “safety valve” to allow further trade liberalization

WTO identifies three primary types: safeguards (temporary relief from import surges) countervailing duties (counteracting subsidies) antidumping (counteracting unfairly low prices)

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Historical DevelopmentHistorical Development

In early years, little attention paid to trade remedies original GATT: Article VI covered anti-dumping measures; Article

XVI covered subsidy practices and Article XIX dealt with safeguards focus of GATT was reducing tariffs

Over time, focus on trade remedy measures Kennedy Round (1969) produced first rules on antidumping duties;

but only agreed to by a limited number of countries Tokyo Round (1979) expanded Anti-Dumping Code; produced

Subsidies and Countervailing Duties Agreement, but did not really address substance of subsidy practices

Uruguay Round produced first agreement on application of safeguard measures; addressed substance of subsidies

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Frequency of UseFrequency of Use

As tariffs are reduced or eliminated, more countries are invoking WTO trade remedies to assist domestic industries

From 1995 through June 30, 2003: 259 safeguard proceedings were initiated (huge

increase in 2002 due to steel measures) 2,156 antidumping proceedings were initiated 160 CVD proceedings were initiated

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Frequency of Use - cont’dFrequency of Use - cont’d

0

50

100

150

200

250

300

350

Trade Remedy Cases Initiated

Antidumping

Subsidies

Safeguard

Antidumping 156 221 242 232 339 251 348 285

Subsidies 9 5 8 16 40 16 27 10

Safeguard 2 5 3 10 15 26 53 132

1995 1996 1997 1998 1999 2000 2001 2002

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Frequency of Use - cont’dFrequency of Use - cont’d

Historically, relatively few users of trade remedies; recently, more and more countries have utilized

Countries Initiating AD Investigations - 2001

Argentina Australia Brazil Canada China Colombia EC Egypt

India Indonesia Israel Jamaica Japan Korea Malaysia Mexico

New Zealand

South Africa

Taiwan Thailand Turkey Uruguay Venezuela USA

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Frequency of Use - cont’dFrequency of Use - cont’d

Country No. Country No. Country No. Country No.

1 US 46 1 US 79 1 India 80 1 US 16

2 Argentina 36 2 India 75 2 US 35 2 India 12

3 India 35 3 Argentina 28 3 China 29 3 China 11

4 EC 31 4 EC 27 4 Thailand 21 4 Canada 6

5 Canada 21 5 Canada 25 5 EC 20 5 Indonesia 6

6 South Africa 20 6 Australia 23 6 Australia 16 6 Mexico 6

7 Australia 15 7 Brazil 17 7 Argentina 14 7 Turkey 6

8 Brazil 11 8 Turkey 13 8 Peru 13 8 EC 3

9 New Zealand 8 9 China 12 9 Turkey 12 9 S. Korea 3

2000 2001 2002Number of Initiations: 2000-June 2003

2003 (6 months)

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DistinctionsDistinctions

Nature of underlying activity AD and CVD counteract “unfair” trade practices

– unfairly priced (AD) and government subsidized (CVD) imports

– the added tariff is intended to offset the improper dumping or subsidy

– allegation of unfairness means must target individual country

In safeguard cases, there is no issue of unfairness– by law, all imports examined in a safeguards case are considered fairly traded

– since fairly traded, all sources should be included (though exceptions apply for developing country exclusions, country-specific safeguards (China and Vietnam), and possibly FTA partners)

Nature of injury varies AD and CVD require only material injury Safeguards require serious injury

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DistinctionsDistinctions

Nature of remedy AD and CVD limited to the amount of dumping or

subsidization Safeguard remedies more flexible

Duration of remedy AD and CVD can last forever, although there are

reevaluations every five years Safeguard measures usually shorter in duration –

often three years to avoid need to compensate

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SimilaritiesSimilarities

Cases usually brought by domestic industries struggling to compete with imports

Usually triggered by an increase in imports Some degree of injury to domestic industry must be

demonstrated regardless of dumping or subsidy margin (or size of

import surge), no import relief unless finding of injury and causation

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Safeguards – OverviewSafeguards – Overview

Intended to “safeguard” domestic industries from consequences of trade concessions made through GATT/WTO process

Allows countries to temporarily suspend tariff concessions to give domestic industry “breathing room” necessary to adjust to increased import competition

Belief is that having such a “safety valve” makes it easier for countries to maintain the political resolve to negotiate trade concessions

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Safeguards – The New AgreementSafeguards – The New Agreement

Before WTO Agreement, countries often imposed “gray measures”, such as “voluntary export restraints” U.S. demanded VERs on imported steel, autos and semiconductors

during 1980s EU demanded strict VERs on cars

New WTO Agreement prohibits gray measures Detailed mechanism for addressing import surges that

cause serious injury New agreement applies to all WTO members

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Safeguards – The New Agreement Safeguards – The New Agreement

Under WTO Agreement three conditions must be satisfied before imposing safeguard measures (1) must find a recent increase in import volume that was

unforeseen and the result of trade concessions (2) must find that the increased imports have caused (or threatened

to cause) the domestic industry to suffer serious injury (3) must craft appropriate remedy that is no more restrictive than

necessary to eliminate the serious injury caused by the imports

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Safeguards – Developing CountriesSafeguards – Developing Countries

Developing countries are accorded some favorable treatment under Agreement safeguard measures may not be applied against

developing countries that account for less than 3% of total imports of the like product, UNLESS total share of all developing countries is more than 9%

Example of U.S. steel case

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Safeguards – The Doha RoundSafeguards – The Doha Round

Safeguards agreement not currently on agenda; however, very well could become “sleeper” issue

Recent Appellate Body decisions have interpreted Safeguards Agreement to make it difficult to impose import restraints

In particular, U.S. has lost every safeguard decision that was challenged

Adverse domestic reaction to WTO rulings could make U.S. willing to seek to revise Agreement

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Antidumping – OverviewAntidumping – Overview

Definition what it is:

– “dumping” refers to situation when an exporter sells goods in an export market at prices lower than those same goods are sold in its home market

what it is not:– dumping has nothing to do with actions of a foreign government;– dumping does not involve predatory pricing

antidumping remedy consists of additional tariff equal to the amount of injurious dumping (discuss “lesser duty rule”)

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Antidumping – rationaleAntidumping – rationale

Economic theory is that it is unfair for foreign companies to use profits earned from a closed market to capture export markets

Rationale not reflected in AD Agreement or, in turn, national laws law does not require showing that home market is closed law does not even require showing of excess profits in home

market

Competition authorities dislike AD laws competition officials understand anticompetitive nature but politicians love them

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Antidumping – historical developmentAntidumping – historical development

Concept of “dumping” has long history first national AD law adopted in 1904 by Canada many other countries followed GATT 1947 recognized problem of dumping - Article VI

Increased use of AD laws, combined with lack of specificity in GATT, led to attention during trade negotiations refining AD rules became part of each round of negotiations

Kennedy Round: 11 pages, 4,613 wordsTokyo Round: 17 pages, 6,712 wordsUruguay Round: 26 pages, 11,746 words

more recently, dispute over AD Agreement almost derailed new round

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Antidumping – WTO AgreementAntidumping – WTO Agreement

Primary purpose of WTO AD Agreement is to establish disciplines for imposition of AD duties

Detailed rules on how to determine the magnitude of any dumping

General rules on how to analyze whether the domestic industry is suffering material injury

New rules on how long AD duties can be imposed

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Antidumping – Developing CountriesAntidumping – Developing Countries

No real “breaks” for developing countries Article 15 historically ineffective

De minimis rule applies to all countries Negligibility rule applies to all countries Cumulation largely negates negligibility exception Special rules for “non-market economies”

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Antidumping – the Doha RoundAntidumping – the Doha Round

Bona fide agenda item Carefully negotiated mandate

“improve and clarify” “but preserve “basic concepts and principles” U.S. agenda to strengthen anti-dumping measures,

avoid new disciplines.

Developing countries want better rules on negligibility, make Article 15 real

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Subsidies – OverviewSubsidies – Overview

Harder issue than AD because no consensus about the “problem” many believed assisting industry was legitimate function of

government U.S. had strongly held contrary view

1979 Agreement was optional 1995 Agreement binds all WTO members

first time adoption of substantive rules traffic light approach standards for determining countervailability

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Subsidies and CVD MeasuresSubsidies and CVD Measures

Addresses definition of “subsidy” for first time Provides alternative ways to attack subsidies

WTO dispute settlement Countervailing Duties

Provides procedural framework for CVD measures

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Definition of SubsidyDefinition of Subsidy

Financial contribution by government government versus private sector

Benefit conferred use of market benchmarks

Specific to some industry certain companies or industries all export subsidies de jure versus de facto

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Subsidies – The New AgreementSubsidies – The New Agreement

Framework for possible WTO challenge Prohibited subsidies (“red light”)

export subsidies, import substitution

Actionable subsidies (“yellow light”) government financing; beneficial tax rates but must demonstrate “serious prejudice”

Non-actionable subsidies (“green light”) R&D assistance; facility adaptation for environmental regulations have since expired

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CVD – The New AgreementCVD – The New Agreement

Can attack red light or yellow light subsidies Common theme: use of market benchmark to

evaluate subsidy Must be “specific,” which is often a major issue to be

debated Procedural framework largely mirrors Antidumping

Agreement

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Subsidies – Developing CountriesSubsidies – Developing Countries

Developing and least-developed countries given time to comply with new anti-subsidy rules least developed countries (less than $1,000 per capita) are exempted

from disciplines on prohibited subsidies other developing countries have until 2003 to eliminate export

subsidies least developed countries to eliminate import substitution policies by

2003

More favorable de minimis and negligibility rules

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Subsidies – The Doha RoundSubsidies – The Doha Round

Bona fide agenda item Same careful mandate More fundamental issues

(e.g. renewing “green light” subsidies)

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Attacking trade remediesAttacking trade remedies

As more countries use trade remedies, more countries are turning to the WTO.

Binding dispute settlement makes WTO alternative more attractive.

The trend will accelerate as developing countries rush to use trade remedies.

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WTO Panel DecisionsWTO Panel Decisions The WTO has adopted 84 panel reports. Of those 84

reports, 54 (or 64%) covered AD/CVD or Safeguard Measures:

AD - 21 (or 25%)(includes 2 regarding Mexico's High Fructose Corn Syrup, 2 regarding EC Bed Linen, 2 regarding Korean DRAMs, and 2 regarding Guatemala cement)

Subsidies/CVD - 25 (or 30%)(includes 2 regarding Australian leather, 3 regarding Brazilian aircraft, 2 regarding Canadian aircraft, 3 regarding Canadian milk/dairy and 2 regarding US-FSC)

Safeguards - 8 (or 10%)

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Dispute Settlement: Issues to considerDispute Settlement: Issues to consider

Strength of claim. Authorities often make many mistakes; attack the weakest

parts of the decision. Special standard of review for antidumping; others subject to

DSU Article 11 standard.

Alternatives under domestic law may be faster and more effective

Commercial stakes: Need to balance governmental systemic concerns with commercial stakes.

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Special antidumping standardSpecial antidumping standard

Unique standard of review accept any “permissible” legal interpretation accept any “unbiased” and “objective” factual findings

Uncertain future for this special rule Panels have been deferential, but not excessively Can succeed in challenge anti-dumping measures

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Implementation challengesImplementation challenges

WTO process takes 18-24 months. “Reasonable period of time” adds another 12-15

months. National authority may repeat its decision. Overall pattern is mixed; authorities sometimes

implement

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The longer term viewThe longer term view

WTO review takes time, and outcome uncertain. But can influence how authorities handle future

cases under that particular trade remedy. Can also influence how authorities handle other

cases involving the complaining country.

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The role of new negotiationsThe role of new negotiations

Some changes are better pursued in negotiations rather than litigation.

Ongoing negotiations for antidumping and countervailing duties.

Possibility of safeguard issues being added directly or indirectly.