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Regulating Import Competition and Unfair Trade

Regulating Import Competition and Unfair Trade

Chapter 11

© 2002 West/Thomson Learning

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Free Trade & ProtectionismFree Trade & Protectionism

How do international rules serve to check competing national interests

Focus on laws that safeguard domestic industry from import competition

GATT / WTO & US law Authorize “import relief” or “ adjusting

imports” “Safeguards” against injury from imports

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GATT Escape ClauseGATT Escape ClauseGATT Escape ClauseGATT Escape Clause GATT Article XlX allows escape from

previous tariff concessions GATT 1994 Agreement on Safeguards

sets rules for safeguarding domestic industry and providing import relief Is product being imported in such increased

quantities and under such conditions as to cause or threaten to cause serious injury to domestic industry?

Country seeking to apply safeguard must first undertake administrative investigation

Safeguards only temporary – 4 years, subject to extension to 8 years

Safeguards must be non-discriminatory, and lifted gradually as conditions warrant

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GATT 1994 Agt. on SafeguardsGATT 1994 Agt. on Safeguards

Countries imposing safeguards must notify WTO Safeguards Committee – monitors compliance

Tariffs preferred “safeguard” mechanism If use quotas, must allocate among supplying

nations based on proportion of total imports and can’t reduce imports below average of last 3 years

Limits on imposing safeguards on developing countries

GATT encourages countries imposing safeguards to compensate supplying nations for burden

Reduce tariffs on other products If no agreement on compensation, supplying

nation can raise tariffs in retaliation

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Argentina Safeguard Measures on Imports of Footwear (WTO App. Body, 1999)

Argentina initiated safeguard investigation and determined that increased imports of footwear caused serious injury to domestic producers

Increased duty on imported footwear to 200%, except for imports from MERCOSUR nations

EU requested WTO panel, US joined as 3rd party Must events leading to increased imports be

“unforeseen developments” to justify imposition of safeguards?

Safeguards to be extraordinary measures – when member confronted with unexpected events

Art. 4.2 of Agt on Safeguards requires investigation to examine all relevant factors – included those listed

Argentina’s investigation didn’t examine 2 of listed factors – didn’t comply with Agt. on Safeguards – can’t justify excluding imports from non-MERCOSUR nations

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US Law on Safeguards: Section 201 of Trade Act, as AmendedUS Law on Safeguards: Section 201 of Trade Act, as Amended

Allows import relief when“article being imported in such increased quantities as to be a substantial cause of serious injury or threat thereof to domestic industry producing an article like or directly competitive with the imported article”

President may “adjust” imports after ITC investigation if it will “facilitate efforts by domestic industry to make positive adjustment” and if provides greater economic and social benefits than costs

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Enforcement of S. 201Enforcement of S. 201 Initiated by petition filed with ITC – or ITC can self-

initiate ITC holds public hearings

considers statutory list of factors Prepares detailed analysis of affected market

ITC makes recommendation to the President President decides whether to implement

safeguards; temporary (4-8 yrs. maximum) 50% tariff increase tariff rate quotas absolute quotas negotiated agreements

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Trade Adjustment Assistance Workers displaced by increased imports

may file petition with the Dept. of Labor Sec. of Labor must determine that

imports have contributed to separation Program administered through sate

unemployment programs Direct cash payments to workers Job retraining for workers and relocation Help for companies as well

Separate assistance program for workers losing jobs as result of NAFTA

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US Steel Industry: Case Study “Glut” of steel on world market – US firms face

heavy competition 2002 – ITC finds imports “substantial cause of

serious injury or threat” Bush Admin. Imposes 30% tariff under S. 201 –

some countries excepted – for 3 years WTO complaint filed by many countries

WTO panel held not result of “unforeseen developments” and couldn’t show imports have increased, no showing of serious injury and violated non-discriminatory principle

2003 – WTO Appellate Body upholds panel Japan and EU threaten $2 Bil in retaliatory

tariffs Bush Admin. removes tariffs in Dec. 2003

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Unfair ImportsUnfair Imports

Dumping Subsidies

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DumpingDumping

Dumping is the selling of products in a foreign country for less than the price charged in producer’s home market

Alleged price discrimination causing injury to domestic competitors

Controversy over economic effects of dumping

Anti-dumping provisions most commonly used trade laws in EU and US

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GATT Provisions on DumpingGATT Provisions on Dumping

GATT 1994 Antidumping Agreement allows members to impose duties if dumped goods threaten or cause material injury to domestic industry

GATT says dumping is at less than normal value US states dumping is a sale at less than “fair

value” Normal value - export price = dumping

margin Export price = price w/o shipping charges

sold to unrelated buyer in importing country Use “constructed price” if products from

“non-market” country GATT requires formal investigation to

determine material injury before imposing duties

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US Antidumping ProvisionsUS Antidumping Provisions

Petition filed with government to initiate process

ITA determines if goods sold in US at less than fair value

ITC determines extent of material injury to US producers

If injury due to dumping, impose antidumping duties

US Customs Service collects antidumping duties

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Pesquera Mares Australes v. US (Fed. Pesquera Mares Australes v. US (Fed. CA 2001)CA 2001)

Facts: PMA, Chilean salmon exporter accused of dumping ITA based “normal value” on sales in Japan Japanese sales of higher grade – ITA held

was “like product” ITA imposed duties; affirmed by Court of

Int. Trade; PMA appeals Issue: Were Japanese sales of “like

product”? Decision: Yes, affirm CIT decision Reasons: distinctions btwn grades nominal

Commercial practice didn’t recognize grade above “superior”

ITA definition of “identical in physical characteristics” as not requiring products be exactly the same is permissible under statute

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WTO Role in Anti-DumpingWTO Role in Anti-Dumping

WTO Committee on Antidumping Practices created in 1994

Dumping disputes may be submitted to WTO DSB for resolution

WTO panel may review final antidumping order of admin. Agency for consistency with GATT Antidumping Agt

If order violated GATT, panel can recommend measures to be taken against importing country

Limited scope of review: Can’t reconsider determinations of fact from

investigation Can’t overturn interpretation of agreement

made by investigating agency

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Dumping and Non-Market Economies US – specific rules for calculating dumping margins in

NME countries Define “surrogate normal value” by price of factors of

production in market economy country at same level of development and significant producer of comparable merchandise

Market–oriented industries: inputs procured at free market prices, production due to market forces and producers mostly privately-owned

Bulk Aspirin from PRC (ITA 2000): R alleges that aspirin from PRC being dumped on US market

Only 2 Chinese firms responded to request for information – they weren’t subject to govt. control

Apply single PRC-wide rate to all other producers Use India as surrogate – significant producer of

comparable merchandise – use Indian figures for normal value

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SubsidiesSubsidies Government confers a benefit on a

domestic firm and provides income, price support or financial contribution (not collecting a tax, providing grant or loan at favorable rate)

Domestic subsidies are permitted as part of government’s responsibility to fund social programs and provide growth

Subsidies distort trade patterns, give unfair competitive advantage, and encourage activity unprofitable without subsidy

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GATT and Subsidies GATT provides 3 types of subsidies:

Prohibited subsidies: Export or import substitution subsidies

Domestic or adverse subsidies: government programs as part of legitimate responsibility of government to direct industrial growth and fund social programs

Socially-beneficial subsidies: subsidies to expand knowledge through R & D; subsidies to poor or depressed regions, or subsidies to help firms meet one-time costs of environmental or antipollution requirements

Member nations should notify WTO Committee on Subsidies and Countervailing Measures in advance of granting subsidy

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GATT and SubsidiesGATT and Subsidies

1994 Agreement on Subsidies and Countervailing Measures

WTO member can appeal to WTO for dispute resolution

WTO can recommend elimination of subsidy, elimination of harmful effects, or countermeasures

Adverse effects of subsidies actionable under WTO if:

Cause injury to domestic industry in another WTO member

Cause nullification and impairment of member rights under GATT

Cause “serious prejudice” to another member Importing country may also initiate admin.

proceedings to impose countervailing duties to eliminate subsidy advantage

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US Procedure for Countervailing DutiesUS Procedure for Countervailing Duties

Complaint filed with ITA ITA determines is subsidy exists ITC then determines if subsidy causes material injury to

domestic industry “material injury” standard less than “serious injury”

standard required for action under safeguard provisions If injury exists, impose CVD’s to offset subsidy

advantage ITA and ITC decisions subject to judicial review in US Court

of International Trade if final or negative determinations Finding of material injury must be reviewed every 5 years

if antidumping order in effect NAFTA Arbitration Panel for dumping of Mexican or

Canadian goods

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Dumping and Subsidy Offset Act of 2000

Toughened CVD and Antidumping laws Applied to CVD’s and antidumping

duties assessed after Oct. 1, 2000 US Customs will now collect and

distribute duties to injured parties WTO held transfer payments was

subsidy, affirmed on appeal Aug. 2004 – WTO approves retaliatory

sanctions against US US repeals provisions in Feb. 2006 – but

repeal not effective until Oct. 1, 2007

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US-Countervailing Measures Concerning European Steel (WTO Appellate Body 2002)US-Countervailing Measures Concerning European Steel (WTO Appellate Body 2002)

Facts: Govt. support or ownership of European steel industry

US responded with countervailing duties Later, govts. privatized industry – new private firms

sell steel in US ITA imposed countervailing duties on steel imports

– held benefits from subsidies were “passed through” to new firms – used “same person” rule

EC – transfer was at arm’s length – fair market value – no govt. control

Issue: Did “same person” rule application violate GATT SCM Agt.?

Decision: Yes, “same person rule” impedes ITA from examining if benefit continues to exist after change in ownership

ITA must consider broad range of factors to determine if benefits “pass through”

ITA adopts new rule – rebuttable presumption

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Section 301 Actions Allows retaliation by USTR against

countries violating US rights under international trade agts

S. 301 actions initiated by petition to USTR Investigation of alleged violations Commerce Dept. – investigate if CVD or

subsidy – if so, negotiations If no resolution, USTR can impose measures Remedies include:

Suspend trade concessions Impose duties Import restrictions Compensatory benefits to US

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S. 337 of Tariff Act of 1930

Allows relief for unfair methods of competition in importation or sale of imported goods

Used to prevent infringement of IP rights – pirated or counterfeit goods

Investigation by ITC – petition by domestic producer or holder of IP rights

Remedy is exclusion of goods Cease and desist order – permanent

exclusion order Penalty for violation is $100K fine or 2X

domestic value of goods

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Web Sites http://www.wto.org http://www.usitc.gov http://www.doleta.gov http://www.ita.doc.gov http://www.european.cu.int/comm/

trade http://www.ia.ita.doc.gov