WTO - PRINCIPLES OF TRADE DEFENCE INSTRUMENTS
The World Trade Organisation (WTO) agreement contains three principles of trade defence instruments. The principle of trade defense is also one of the areas of the European Union (EU) Common Commercial Policy. These are the anti-dumping, anti-subsidy and safeguard instruments.
The WTO provides a dispute settlement procedure for the resolution of disputes over the use of the instruments. The UK is party to all the WTO trade defence instruments, namely the Anti-Dumping Agreement, the Agreement on Subsidies and Countervailing Measures and the Agreement on Safeguards. The purpose of all these agreements is to ensure consistency in the use of trade defence instruments by all WTO members.
Agreement on Anti-Dumping
Dumping occurs essentially when a company's sales price for a certain product is higher on the domestic market than on an export market. This is usually only possible if a certain degree of international market segregation exists. If the exporting producer had a comparative advantage vis--vis the producers in the importing country, this would, in open international markets, not only lead to low export prices but also to low prices on the domestic market of the exporter. If the exporter is operating from a protected domestic market it may be able to compensate low revenues generated by low priced exports through the unnaturally high profit margins obtained at home.
Anti-dumping is designed to allow countries to take action against dumped imports that cause or threaten to cause material injury to the domestic industry. Goods are said to be dumped when they are sold for export at less than their normal value. The normal value is usually defined as the price for the like goods in the exporter's home market.
The Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, the Anti-Dumping Agreement (AD), governs the application of anti-dumping measures by Members of the WTO. Anti-dumping measures are unilateral remedies which may be applied by a Member after an investigation and determination by that Member in accordance with the prov isions of the AD Agreement, that the dumped imports are causing material injury to a domestic industry producing the like product. Measures usually take the form of additional duties but occasionally take the form of an agreement by the exporters of the product in question not to sell that product below a certain price.
The Agreement sets out certain substantive requirements that must be fulfilled in order to impose an anti-dumping measure, as well as detailed procedural requirements governing the conduct of anti-dumping investigations and the imposition and maintenance of anti-dumping measures. A failure to respect either the substantive or procedural requirements can be taken to the WTO's Dispute Settlement Body and the offending country may be required to bring the measure into conformity with the Agreement and face retaliation if it fails to do so.
Agreement on Subsidies and Countervailing Measures
A subsidy is deemed to exist, firstly, if there is a financial contribution by a government or if there is any form of income or price support within the meaning of Article XVI of the 1994 GATT Agreement and, secondly, if a benefit is thereby conferred.
There is a financial contribution where:a government practice involves a direct transfer of funds (grants, loans, equity infusion) or potential direct transfers of funds or liabilities (loan guarantees); government revenue which is otherwise due is not collected (tax credits); a government provides goods or services other than general infrastructure, or purchases goods; a government makes payments to a funding organisation or entrusts a private body to carry out one or more of the functions which are normally its responsibility.
Anti-subsidy measures were designed to combat subsidies, which are made available to manufacturers by public authorities and which can also dist ort trade when they help to reduce production costs or cut the prices of exports to the EU unfairly.
Agreement ("ASCM Agreement")
The Agreement on Subsidies and Countervailing Measures (ASCM) addresses two separate but closely related topics: multilateral disciplines regulating the provision of subsidies (financial assistance given to an enterprise by a government) and the use of countervailing measures to offset injury caused by subsidised imports. Multilateral disciplines are the rules governing whether or not a subsidy may be provided by a Member. They are enforced through the WTO dispute settlement mechanism. Countervailing duties (CVDs) are a unilateral instrument which may be applied by a Member after an investigation by that Member and a determination that the criteria allowing the application of CVDs, as set out in the ASCM, are satisfied.
The Agreement forbids export subsidies and subsidies contingent on the use of domestic over imported goods. Other subsidies are permitted but subject to the right of other WTO Members to challenge them in individual cases and, following an investigation in accordance with the provisions of the Agreement, to impose countervailing duties on the subsidised products where they cause injury to domestic suppliers. The Agreement also provides for much greater transparency through a system of notifications and reviews of measures.
It is important to note that the Agreement does not apply to trade in agricultural products, where export subsides is common in some countries. There are also special rules for developing countries which provide some scope for the maintenance of export subsidies under certain conditions.
Agreement on Safeguards
The rationale behind both anti-dumping and anti-subsidy is that countri es are entitled to take action in cases of unfair foreign competition. Safeguards carry no such accusation that the competition is unfair. Safeguards are designed to protect countries from unforeseen surges in imports that cause or threaten to cause serious injury to the domestic industry.
Safeguard measures, which may be applied to imports that increase in such quantities and are made under such conditions as to cause or threaten to cause serious injury to the Community industry, provided there is a Community interest to do so. At the request of a Member State or at the Commission's own initiative, an investigation may be initiated on the basis of which measures may be applied on a case-by-case basis. Industry may not directly request the introduction of these measures. These measures must respect the WTO Agreement on Safeguards.
The Agreement on Safeguards contains the rules for ap plication of safeguard measures provided for in Article XIX of the General Agreement on Tariffs and Trade 1994.
Major principles of the Agreement with respect to safeguard measures are that such measures must be temporary; that they must be imposed only when the imports are found to cause or threaten serious injury to a competing domestic industry; that they be applied to imports from all sources on a non-selective basis; that they be progressively liberalised while in effect; and that the Member imposing them may be required to compensate the Members whose trade is affected.
As a general rule, trade defense actions are assessed on the basis of the entire EU. This is logical, because the EU has one single internal market, where all operators from all Member States participate and compete.
The WTO trade defence agreements are incorporated into European law and are applied at a European level. The European Commission are the investigating authority on behalf of member states. Anti-dumping, anti-subsidy or safeguard investigations are carried out by Directorate General Trade of the European Commission in response to complaints lodged by EU industry. Measures are adopted by the Council of Ministers.