Q14: Protection of local industry

Question 1

It’s possible for a WTO member to protect its local industry

Answer 1

Yes. Reasons:
1- 1. According to the preamble of the WTO agreement, the ultimate objectives of WTO are: (1) the increase of standards of living; (2) the attainment of full employment; (3) the growth of real income and effective demand; and (4) the expansion of production of, and trade in, goods and services. However, it is clear from the Preamble that in pursuing these objectives the WTO must take into account the need for preservation of the environment and the needs of developing countries.

2. The WTO, or its origin, GATT, it’s not about free trade, it’s about eliminating the trade discrimination and avoiding protectionism.

Question 2

What is protectionism?

Answer 2

This is when you disfavour foreign products just to enrich yourself

Question 3

What is protection?

Answer 3

When you indeed treat less-well imported products, but you have policy justification.

Question 4

How to protect the local industry under the WTO framework?

Answer 4

1. Tariffs, respecting art I (MFN) and art. II (schedules of concessions)
2. Subsidies
3. Government assistance to economic development (GATT Art. 18)
4. Trade remedies including: Safeguard measures (Art. XII & XIX; Agreement on safeguards); Countervailing measures (Art. VI of the GATT, SCM agreement); Anti-dumping measures (Art. VI of the GATT)

Question 5

What is tariff?

Answer 5

It’s a custom duty. In principle, WTO Members are free to impose customs duties on imported products.

Question 6

What is a tariff concession?

Answer 6

It’s a commitment to don’t raise the customs duty on a certain product above an agreed level. They are set out in the Member’s Schedule of Concessions.

Question 7

What is a subsidy?

Answer 7

A financial contribution by a government or any public body

conferring a benefit.

Question 8

Types of subsides?

Answer 8

1) Prohibited subsidies: WTO Members may not grant or maintain: (a) export subsidies; or (b) import substitution subsidies. These subsidies are prohibited because they aim to affect trade and are most likely to cause adverse effects to other Members. Members can’t use prohibited subsidies to protect local industries.

2) Actionable subsidies: They are subject to challenge only if they cause adverse effects on the interests of another Member.
Members can use actionable subsidies which does not cause adverse effect to protect their local industry.

3) Non-actionable subsidies: Certain narrowly defined regional subsidies, environmental subsidies and research and development subsidies. At present, these subsidies, provided that they are specific, are actionable.

Question 9

What are the particularities of subsides for developing countries?

Answer 9

Pursuant to Art.27, the prohibition on export subsidies under Art.3 does not apply to the least-developed countries and several developing countries.

Furthermore, certain subsidies which are normally actionable are not actionable when granted by developing-country Members in the context of privatisation programmes.

Question 10

Are subsidies for agriculture permited?

Answer 10

Export subsidies on agricultural products specified in the Schedule and listed in Article 9.1 of the Agreement on Agriculture are not prohibited but are subject to reduction commitments.

Question 11

What is the Government assistance to economic development?

Answer 11

Least-developed countries, they are allowed to use some measures normally not consistent with GATT to protect their infant local industries as long as they meet the conditions of Art.18.

Question 12

What are Trade remedies?

Answer 12

Safeguard measures.
Countervailing measures
Anti-dumping measures.

Question 13

Anti-dumping measures:

Answer 13

Art.6 GATT and the Anti-Dumping Agreement.

Question 14

What are the conditions to take anti-dumping measures?

Answer 14

• There is dumping margin that is the difference between the export price and the ‘normal value’.
• There is a material injury, a threat of material injury to the domestic industry or a material retardation of the establishment of a domestic industry.
• Casual link.

Question 15

What are countervailing measures?

Answer 15

A countervailing measure is “a special duty levied for the purpose of offsettining any subsidy bestowed, directly or indirectly, upon the manufacture, production or export of any merchandise.

Legal basis: GATT art. VI and Subsidies and Countervailing Measures Agreement(SCM)

For a subsidy which is prohibited or actionable, the government could take two kinds of remedies:

• The multilateral remedy - to file a case to dispute settlement proceeding according to Art.4 or 7 of the SCM Agreement
• The unilateral remedy consist in initiate investigation and take countervailing measures

The footnote 35 states that the government could initiate these two remedies simultaneously but could only benefit one of the outcomes.

Question 16

Conditions to apply a countervailing measure

Answer 16

a. Subsidized imports: imports of products from producers who benefit from specific subsidies within the meaning of Articles 1, 2 and 14 of the SCM Agreement. The government should calculate the amount of subsidy.
b. Injury: there is injury to the domestic industry of the like products within the meaning of art.15 16 of SCM. (likely to Anti-dumping)
c. Causal link: between the subsidized imports and the injury to domestic industry. Again, the injury caused by other factors should not be attributed to the subsidized imports.

Question 17

Period of countervailing measures

Answer 17

5 years + interim review + sunset review.

Question 18

What is a safeguard measure?

Answer 18

A WTO member may restrict imports of a product temporarily if its domestic industry is injured or threatened with injury caused by a surge of imports.

Legal basis: art 19 GATT and the Safeguard Agreement

Question 19

What are the conditions to apply a safeguard measure?

Answer 19

a. An unforeseeable development.
b. An increase import: increase could be a real increase (a absolute increase), or an increase in the imports’ share of a shrinking market, even if the import quantity has not increased (relative increase.)
c. (threatens) a serious injury: the injury to domestic industry should be serious, not only material (under anti-dumping and countervailing).
d. Causation link

Question 20

Duration of Safeguard measure?

Answer 20

The period shall not exceed 4 years, but may be extended, the total period of safeguard measure should not exceed 8 years. But, for the developing countries could bet 10 years.

Cooling-off period- no safeguard measure shall be applied to in a period of at least 2 year. (1 year to developing countries)

Question 21

Condition to apply safeguard measure

Answer 21

Compensation

Question 22

special condition for developing countries

Answer 22

An importing country can only apply a SG measure to a developing country if the developing country is supplying more than 3% of the imports of that product, or if developing country members with less than 3% import share collectively account for more than 9% of total imports of the product.

Question 23

Difference between anti-dumping, countervailing measures and safeguard measures.

Answer 23

1) There is no unfair practice in safeguard measures.
2) The Anti-dumping and countervailing measures are exporter-specific and country-specific, while the safeguard measure is applied to all imports of a product based on the MFN principle.
3) The form of AD and CVD could be extra duties or undertaking (raising the price); while the safeguard measures could extra duties, quantity restriction and tariff rate quotas. So the AD and CVD are exceptions to GATT Art. I, II, while SG may be exception to GATT Art. II, XI.
4) The conditions for applying a safeguard measure is stricter than the AD and CVD because there is no unfair practice. For example, the injury must be serious not just material.
5) The definition of domestic industry under SG agreement is broader: not only to the industry of like product, but also to the directly competitive product.
6) Compensation: under SG agreement, the government applying the measures should give the exporting countries something else to compensate. But it is very trick because this compensate should be given on a MFN basis, so it’s difficult to have a consensus in case of SG and it’s difficult to impose SG
7) SG has a period on non-application (2 years)
8) The SG measure should be progressively liberalized if it lasts more than 1 year.