2 Basic Principles – GATT 2.27 Rules on „Unfair“ Trade Practices

• Dumping and subsidies distort conditions of competition• Agreement on Anti-dumping Practices (AD)• Subsidies and Countervailing Measures Agreement (SCM) • Authorise countries to levy compensatory duties on imports of

products that are benefiting from unfair trade practices• Similar criteria in both agreements

2 Basic Principles – GATT 2.28 Dumping

• Art 6 GATT AD

• Non-governmental influence exerted on domestic industry • Introduction of goods into the domestic market of another

country at less than normal value• A product is to be considered dumped, if

– “the export price of the product exported from one country to another country is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country”. (Art. 2 para. 1 AD)

2 Basic Principles – GATT 2.29 Anti-Dumping Duty

• Dumping may be countered through the application of anti-dumping duties

• Investigation must determine that– dumped goods are exported by a WTO member– this threatens to cause/causes material injury to, or materially

retard the establishment of, an industry within the importing country– causal link between dumped imports and the alleged injury exists

• Authorities must carry out a thorough investigation• Imposition at the discretion of the authorities concerned

2 Basic Principles – GATT 2.30 Anti-Dumping Duty – Monetary Amount

• Anti-dumping duty may not exceed the difference between – a product´s normal value and – the price at which it was actually exported

• Normal value:– Price charged for the same or similar products exported to third

countries, or– Their cost of production plus a reasonable amount for

administrative and other costs and a profit margin

2 Basic Principles – GATT 2.31 Subsidies

• Art. 16 GATT SCM• Governmental influence exerted on domestic industry• Financial contribution made by a government or other public

body that confers a benefit on an enterprise or an industry• No subsidy: state trading (tolerated pursuant to Art 17 GATT)

2 Basic Principles – GATT 2.32 Categories of Subsidies

• Prohibited (“red”) subsidies presumed to be trade distorting:– depend upon export performance (a firm´s/industry´s success in

exporting its products) or

– are contingent upon the use of domestic instead of imported goods (domestic content/value added rules)

• Actionable (“yellow”) subsidies may be trade distorting if, e.g.,– it injures the domestic industry or

– causes/threatens to cause serious prejudice to the interests of another member state

• Non-actionable (“green”) subsidies are permissible, e.g.,– Aid to disadvantaged regions

– infrastructural aid, support given to research activities

2 Basic Principles – GATT 2.33 Countervailing Duty

• Subsidies can be countered with countervailing duties • Countervailing measure/duty: a duty specially levied to offset a

subsidy• Alternatively, affected country may seek a remedy from the

WTO DSB

2 Basic Principles – GATT 2.34 European Steel

1. Why did the ITA conclude that the EC steel mills were the “same legal person”?

2. Must the ITA apply the same legal person rule following a change of ownership?

2 Basic Principles – GATT 2.35 Safeguard Measures – Restricting „Fair“ Trade Practices• WTO members may, under certain conditions, temporarily

restrict imports• Defence not against unfair but against lawful imports brought

about by normal market development• When imported goods are neither dumped nor subsidised• (Temporary) protectionism sanctioned by the WTO: Agreement

on Safeguards (AoS) sets forth the rules for application of safeguard measures according to Art 19 GATT

• Rationale: Industries can adjust gradually to the increased competition resulting from, e.g.,

– Reductions in tariffs– Removal of other barriers

2 Basic Principles – GATT 2.36 Safeguard Measures – Definition and Consequences• Definition: Temporary emergency action regarding suddenly

increased imports of certain products whereas such imports cause or threaten to cause serious injury to the importing WTO-member´s competing domestic industry

• Possible measures– Non-tariff measures: quantitative import restrictions (quotas)– Tariff measures: duty increases (beyond the bound rates)

• Safeguard measures must, principally, be applied on a non- discriminatory (MFN-) basis

• Generally, compensation must be paid to those members whose trade is negatively affected

2 Basic Principles – GATT 2.37 Safeguard Measures – Criteria

• Surge in imports, i.e. increased quantity of imports – either an absolute increase– or an increase relative to domestic production

• Serious injury – in order to assess whether serious injury is present member states have to take into account all relevant factors

– (absolute or relative) amount of increase in imports– development of the market share of both imported and domestic

goods– with regard to the domestic industry: changes in the level of

production, capacity, sales, employment, profits, etc.

• Threat of serious injury must be probable

2 Basic Principles – GATT 2.38 Safeguard Actions for Economic Development Purposes• DCs can take safeguard measures to restrict imports in order to

promote development of new or infant industries• Temporary• Notification requirements• WTO approval necessary

2 Basic Principles – GATT 2.39 ‚Grey Area‘ Measures

• In principle, grey area measures not legitimate under the AoS• Prevalent types of grey area measures prevalent:

– Voluntary Export Restraints (VER)– Orderly Marketing Agreements (OMA)

• Exporting countries restrain their exports to agreed limits• Often not voluntary

2 Basic Principles – GATT 2.40 Argentina – Safeguard Measures on Imports of Footwear1. How was the domestic industry defined?

2. Why did the complaining countries (and regional trading unions) assert that this violated GATT?

3. Which GATT provision pertained to “unforeseen developments”?

4. On what did the court rely in interpreting the phrase “unforeseen developments”?

5. What must be seen with the increase of imports to permit a safeguard?

6. Why did Argentina lose?

2 Basic Principles – GATT 2.41 Transparency and Neutrality

• Art 10 GATT: – Obligation of prompt publication of trade-relevant facts

– Notification requirements

• Laws and regulations to be published before application• Norms to be applied uniformly and impartially• (Independent) judicial review of decisions• Regular review of member´s trade policies

tariffs non-tariff trade barriers

customs duties

• tariff bindings, Art 2• MFN, Art 1 (1)

uniformly appli-cable measures

discriminatory measures

domestic measuresBorder measures

TBT, SPS,

TRIMS, GPA

Art 16, 17

not coveredNT,Art 3

MFN, Art 1 (1),

Art 3 (2), (4)

prohibited, Art 11 (1)

Exceptions

Art 11 (2) (and Art 12) in conj. with Art 13 (ex-

ception: Art 14)

waiver, Art 25 (5) (plus Art 9 (3) WTO Agreement)

Art 20, 21

Art 24, enabling clause

Art 6, 16, 19 (in conj. with AD, SCM, AoS)

2 Basic Principles – GATT 2.42 Summary: System of the GATT

(MFNArt 1)

2 Basic Principles 2.43 Multilateral WTO Agreements (1)

• GATT 1947 and GATT 1994• Agreement on Agriculture (AoA)• Agreement on the Application of Sanitary and Phytosanitary Measures

(SPS)• Agreement on Textiles and Clothing (ATC)• Agreement on Technical Barriers to Trade (TBT)• Agreement on Implementation of Article VI – AD• Agreement on Implementation of Article VII – (Customs Valuation)• Agreement on Preshipment Inspection• Agreement on Rules of Origing• Agreement on Import Licensing Procedures• Agreement on Subsidies and Countervailing Measures (SCM)• Agreement on Safeguards (AoS)

2 Basic Principles2.44 Multilateral WTO Agreements (2)

• General Agreement on Trade in Services (GATS)• Agreement on Trade-Related Aspects of Intellectual Property Rights

(TRIPS)• Agreement on Trade-Related Investment Measures (TRIMS)• Understanding on Rules and Procedures Governing the Settlement of

Disputes (DSU)• Understanding on Commitments in Financial Services• Agreement on Government Procurement (and miscellaneous sectoral

trade agreements)• Understanding on Balance-of-Payments

2 Basic Principles2.45 EC Measures Concerning Meat and Meat Products

1. What issue was presented to the WTO dispute resolution panel?

2. What steps must the Dispute Resolution Panel take to determine whether the EC ban on five growth-promoting hormones violates the SPS Agreement?

3. What factors must be taken into account to determine whether a sanitary measure violates Article 3.1 of the SPS Agreement when no international standards exist?

2 Basic Principles – GATT 2.46 A Special Case: Trade in Textiles and Clothing

• From the outset trade in textiles and clothing was a contentious topic between the GATT´s signatories

• Ideal domain for developing economies– garment industry gets by with relatively little investment, know-how,

and skill – at least in the lower price segments– textiles very labour-intensive – wages are low in developing countries– developing countries often also producers of raw materials needed for

the production of textiles

2 Basic Principles – GATT 2.47 A Special Case: Trade in Textiles and Clothing

• Developed countries reluctant to liberalise their clothing and textiles sectors for fear of unemployment

• Approx. fifty years of protectionism phased out in 2005• QRs (quantitative restrictions) abolished:

– on a country-by-country and – product-by-product basis

2 Basic Principles – GATT 2.48 Fifty Years of Protectionism – 1950s until 1973

• 1950s: VERs• 1962 until 1973 – Trade in cotton textiles shaped by a special

regime on the basis of unilateral and bilateral provisions creating a system of

– import quotas– and VERs

2 Basic Principles – GATT 2.49 Fifty Years of Protectionism – 1974 until 1994

• 1974 until 1994 – Multifibre Arrangement (MFA):– More than 80 percent of global trade in textiles and garments covered– Cotton and other fibres– Framework for unilateral measures and bilateral agreements– Countries anticipating serious disturbances of their domestic textiles

industry due to an increase in imports were entitled to put into force import quota

– Discrimination of exports (=violation of the MFN) and QRs permitted, i.e. the MFA provided exceptions to the GATT (1947) principles

2 Basic Principles – GATT 2.50 Fifty Years of Protectionism – 1995 until 2004

• 1995 until 2004 – Agreement on Textiles and Clothing (ATC):– Result of the ‘Uruguay Round’– Transitory regime– Aim: Unrestrained application of the GATT-rules to the textiles and

clothing sectors after a transition period of ten years– Obligation to publish all relevant restrictions to the trade in textiles

(especially by the US, EC, Canada, Norway)– Special ‘safeguard measures’ provisions– Control, surveillance, and reporting by the TMB

2 Basic Principles – GATT 2.51 Fifty Years of Protectionism – 1995 until 2004

• Developing countries made their accession to the WTO, especially their consent to the GATS and the TRIPS, dependent on

– the opening of the US´ and the EU´s restricted markets and– the phasing out of the special regimes in the textiles and clothing

sectors

• Progressive step-by-step integration of the textile and clothing sectors by means of the ATC (Agreement on Textiles and Clothing) four-step liberalisation plan

2 Basic Principles – GATT 2.52 The ATC: Four Step Liberalisation Plan

• Liberalisation of a certain fraction of textile and clothing merchandise in the course of each step:

– Phase 1: 16% – 1995 seq.– Phase 2: 17% – 1998 seq.– Phase 3: 18% – 2002 seq.– Phase 4: 49% – 2005 seq.

• Parallel to the step-by-step liberalisation of the textile and clo-thing sectors the (remaining) quotas were progressively lifted

– Phase 1: 16%– Phase 2: 25%– Phase 3: 27%

2 Basic Principles – GATT 2.53 The ATC – Details

• Each phase had to cover fibres, yarns, fabric, and clothing• Selection left to the member states´ discretion• Determination base (basis for assessment) annexed to the ATC• Determination base broader than the list of products relevant

for the MFA• It was left to the member states´ discretion which concrete

goods they subjected to the GATT´s provisions• Consequently, developed countries subjected formerly

unrestricted goods to a ‘liberalisation’ in accordance with the ATC´s step-by-step integration plan

• Thus, the crucial period started 1 January 2005

2 Basic Principles – GATT 2.54 Market Access for Textiles and Garment

• Implementation of the GATT principles included the improvement of market access conditions by reducing and/or abolishing

– customs duties– licensing restrictions– administrative obstacles (e.g., excessive bureaucratic import

clearance procedures)– other unfair trade policies (e.g., local content or local value added

requirements)

2 Basic Principles – GATT 2.55 Post MFA/ATC – Immediate Results

• Distortions are reduced• Textiles and clothing industries are allocated where production

can be conducted more efficiently (e.g., India, China)• Beneficiaries of the phased-out MFA regime challenged by

global competition (see case study ‘Laos’)• Loss of ‘quota rents’ for exporters • Consumers enjoy lower prices, especially in the US, Canada,

EU, and Norway • Fewer incentives for false declaration of garments• Costs incurred by the monitoring and administration of quotas

will disappear

2 Basic Principles – GATT 2.56 Beyond the Phasing Out of Quotas

• Since 2005 – (almost) full integration of the textiles and clothing sectors into the GATT´s multilateral trading system

• Prevailing tariff rates shape the global textiles and clothing sectors ( RTAs, Enabling Clause)

• Due to its cross-border vertical specialisation the industry is very susceptible to tariff rates

• Preferential treatment will influence the global trading schemes• Geographical distances play an increasing role in a segment

rushed by an ever-shorter ‘time to market’• Safeguard actions• Anti-dumping duties