Q10 The wood table producers Flashcards
Sudden floods in Country A destroyed a year’s worth of logged wood. The wood table producers are suddenly faced with supply issues, which consequently significantly reduce table production for that year. Country B, however, is not hit by the catastrophe. Its exports of logged wood and tables to Country A are growing because of new demands in Country A. The trade minister of Country A consults you because he fears this bad year.
Could mean the end for the table producers of its country. Following the WTO rules, what could he do to avoid this outcome?
It is necessary to review which kind of measure the trade minister of Country A can take.
- Subsidies ?
- Countervailing measures ?
- Anti-dumping measure?
- Safeguard measures ?
Can the trade minister get an emergency measure to grant subsidies?
No. Subsidies are governed by the SCM Agreement. Subsidies on Agricultural products are governed by the Agreement on Agriculture. The SCM Agreement defines two categories of subsidies: prohibited and actionable. It originally contained a third category - non-actionable subsidies. This category existed for five years and ended on 31 December 1999.
Are considered as prohibited subsidies (Art 3 SCM), subsidies that require recipients to meet certain export targets, or to use domestic goods instead of imported goods. They are prohibited because they are specifically designed to distort international trade, and are therefore likely to hurt other countries’ trade.
Otherwise, they can be challenged in the WTO dispute settlement procedure where they are handled under an accelerated timetable. If the dispute settlement procedure confirms that the subsidy is prohibited, it must be withdrawn immediately. Otherwise, the complaining country can take countermeasures. If domestic producers are hurt by imports of subsidized products, countervailing duty can be imposed.
- Can the trade minister take countervailing measures: measures to protect their producer?
No, countervailing measures relate to a situation of subsidies, subsidized imports. There has to be a financial contribution, by a government or a public body that confirms a benefit. Subsidies are given by governments but they may not give them to all domestic producers.
Article VI:3 GATT says that a countervailing duty shall be understood to mean a special duty levied for the purpose of offsetting any bounty or subsidy bestowed, directly, or indirectly, upon the manufacture, production or export of any merchandise.
They are a response to an unfair behaviour but in this case are related to subsidized products. There has to be a material injury, so you can impose a measure equal to the amount of the dumping, or the amount of the subsidy. So the measure can stay as long as the injury caused by this behaviour prevails. And there’s no compensation duty either. The measures still have to be specific to the particular export producer.
Can the trade minister take anti-dumping measures against country B?
There is a huge difference between anti-dumping measures and safeguard measures which falls in the MFN exception of an unfair behaviour targeting the country who is not properly behaving, it is not a quota.
Indeed, anti-dumping measures is a response to an unfair competition remedy. If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product.
In this case, the WTO agreement allows governments to act against dumping where there is genuine (“material”) injury to the competing domestic industry. In order to do that, the government has to be able to show that dumping is taking place, calculate the extent of dumping (how much lower the export price is compared to the exporter’s home market price), and show that the dumping is causing injury or threatening to do so.
Otherwise, anti-dumping measures must expire five years after the date of imposition, unless an investigation shows that ending the measure would lead to injury.
Can the trade minister can take Safeguard-measures?
No, Safeguard measures are based on MFN principles. They are basically measures that allow you to impose restrictions for specific reasons. Under the WTO, the new safeguard agreement says it has to be temporary and max 4 years. You can renew it once for developed countries, max. 10 years for developing ones.
However, you have to prove substantive conditions:
a) unforeseen developments : Yes, we were unable to predict natural catastrophe.
b) GATT/WTO obligations:
- increase in imports
The determination of increased quantity of imports that a Member must make before it may apply a safeguard measure can be of either an absolute increase or an increase relative to domestic production. - serious injury
The agreement sets out criteria for assessing whether “serious injury” is being caused or threatened, and the factors, which must be considered in determining the impact of imports on the domestic industry. When imposed, a safeguard measure should be applied only to the extent necessary to prevent or remedy serious injury and to help the industry concerned to adjust. Has to be in like products.
Under the article 4 of Marrakesh Agreement there is the determination of Serious Injury or Threat:
a) “serious injury” shall be understood to mean a significant overall impairment in the position of a domestic industry;
b) “threat of serious injury” shall be understood to mean serious injury that is clearly imminent, in accordance with the provisions of paragraph 2. A determination of the existence of a threat of serious injury shall be based on facts and not merely on allegation, conjecture or remote possibility; and
c) in determining injury or threat thereof, a “domestic industry” shall be understood to mean the producers as a whole of the like or directly competitive products operating within the territory of a Member, or those whose collective output of the like or directly competitive products constitutes a major proportion of the total domestic production of those products.
- causal link
A determination of serious injury cannot be made unless there is objective evidence of the existence of a causal link between increased imports of the product concerned and serious injury. Further, when factors other than increased imports are causing injury to the domestic industry at the same time, such injury must not be attributed to increased imports. The criterion of a causal link falls short, however, of proposals made during the Uruguay Round that would have required imports to be the “principal cause” of injury.
Procedure
Industries or companies may request safeguard action by their government. The WTO agreement sets out requirements for safeguard investigations by national authorities. The emphasis is on transparency and on following established rules and practices. The authorities conducting investigations have to announce publicly when hearings are to take place and provide other appropriate means for interested parties to present evidence. The evidence must include arguments on whether a measure is in the public interest.
And.. QUOTAS? Maybe, but very difficult.
In principle, safeguard measures cannot be targeted at imports from a particular country. However, the agreement does describe how quotas can be allocated among supplying countries, including in the exceptional circumstance where imports from certain countries have increased disproportionately quickly. When a country restricts imports in order to safeguard its domestic producers, in principle it must give something in return. The agreement says the exporting country (or exporting countries) can seek compensation through consultations. If no agreement is reached, the exporting country can retaliate by taking equivalent action — for instance, it can raise tariffs on exports from the country that is enforcing the safeguard measure. It is difficult because we will have to apply MFN principle.
