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    Trade Remedies - What Business Needs to Know

     

     
     
    © International Trade Centre, International Trade Forum - Issue 3/2002

    Trade in steel products has been subject to trade remedies.

    While liberalization has opened up world trade to freer competition, there have recently been more national measures blocking market access on the grounds of unfair pricing by exporters. Products such as steel, iron and chemicals from developing countries and transition economies have been increasingly subject to such measures - known as "trade remedy actions". There is a system within WTO to stop governments from abusing these actions, but in any case the consequences are serious for an exporter or a country subjected to such measures. As this article points out, even being charged with dumping carries a heavy penalty in the effort required to set the record straight. So exporters should take care to avoid creating grounds for such actions.

    Trade remedies are exceptions to the WTO principles of free trade. The procedures are also unique in the WTO system in giving an active role to the business community. Governments seek trade remedies almost exclusively on the instigation of local business or because of business concerns.

    The WTO identifies three main types of import restraints as trade remedies:

    • Antidumping measures. The most commonly used are antidumping measures to counteract unfairly low prices. The WTO Agreement on Antidumping deems that goods are "dumped" when companies export them at prices lower than those at which they sell in their home market. Dumping is not illegal in itself; it becomes illegal as soon as it results in injury to local businesses in the importing country. Therefore, in order to initiate an antidumping investigation, local businesses must demonstrate evidence of dumping, injury to themselves and a causal link between the dumped prices and the injury to them. Generally, this takes the form of a written application to the relevant national authority (e.g., the Ministry of Trade). This authority will provide a notice of receipt of a "properly documented application" to the government of the exporting country. The national authority may, in "special circumstances", initiate an investigation without receiving an application from businesses. In any case, all interested parties receive a copy of a notice of initiation (which includes a copy of the application). The national authority also issues a notice and/or a report to the public.
    • Countervailing duties. Countervailing duties counteract subsidies by national authorities that unfairly enable their companies to export at a lower price.
    • Safeguard measures. These measures do not counteract an unfair practice, but allow countries to suspend import surges temporarily in order to grant local industries time to adjust to increased foreign competition on national markets.


    However, if a country is thought to be breaking the rules by imposing limits for unjustified reasons, other WTO members can - and do - challenge them through the WTO's dispute settlement system.

    Business concerns

    The business sector and legal experts in developing and transition economies report several difficulties in interpreting and applying trade remedy laws. To help national officials and business leaders in these countries to understand the workings of the trade remedies system, ITC's World Tr@de Net programme organized regional workshops in Asia and Eastern and Central Europe, focusing on national regulations and practices in the United States, the European Union (EU) and Canada, and their implications for business. Participants in these workshops cited these main business concerns:

    • Heavy procedural requirements. During antidumping investigations, the EU gives exporters only 37 days to complete its questionnaire, which participants do not think is sufficient time to complete it in detail. Also, accounting and yardsticks can differ significantly from their home countries. Participants requested more cooperation from EU representatives during their investigations.
    • Use of "sampling". When the EU investigates a group of companies, it may choose certain companies as a sample group for in-depth investigation. It uses findings from the sample as the basis to calculate whether or not the entire group has been dumping goods. Because this system lacks precision, exporters not included in the sample may consider that they are unduly penalized.
    • Simultaneous actions. Exporters from developing countries are sometimes subject to simultaneous antidumping actions and countervailing duties. Such practices are too burdensome for companies from developing countries. Participants suggested that developed countries should consider pursuing just one trade remedy action at a time against exporters from developing countries.
    • Rules not transparent. Certain national authorities have discretionary power in their operations. Participants called for more transparent rules regarding investigations.
    • Lack of expertise and resources. Participants stressed the lack of expertise and resources of developing countries, which cannot afford to hire foreign law firms specialized in WTO law. They also expressed the need to strengthen the relationship between business and government in order to better cope with trade remedy proceedings initiated by other national authorities.
    • "Non-market economies". A common concern among transition economies - that is, former centrally-planned economies - is that the Agreement on Antidumping does not offer sufficient guidance on how it should be interpreted. So the treatment of "non-market economies" varies greatly, depending on how importing countries interpret the agreement. As a result, an exporting country may be given a different status in different markets. If investigating authorities are unsure whether to consider a country a non-market economy, they may require exporters to fill in two questionnaires, one designed for market-economy countries and the other for non-market economy states. This represents a significant effort and financial cost. Also, being classified as a non-market economy leads to an almost automatic assumption of dumping against exporters.


    Recommendations

    Workshop participants reported practical difficulties encountered by exporters in preparing before, during and after a potential antidumping investigation. A number of suggestions to help overcome these difficulties are outlined below:

    Before a case is filed

    • Companies vulnerable to action should have a good knowledge of their export trends and profit levels as well as those of their competitors.
    • In a situation of loss or decline in profits, particularly in sensitive sectors such as steel or textiles, it may not be wise to try to compensate by increasing exports. A drop in profits that occurs simultaneously with an export boost can lead to an assumption of dumping. In such cases, companies should already have prepared coherent, verifiable arguments backed up with hard data to counter any charges.
    • With regard to the United States, exporters need to be attentive to danger signals such as deterioration of competing US producers' financial performance as well as increases in market share, since US law makes it easy for US companies to press for action against foreign competition if they have financial problems. Again, an exporter must be well prepared to respond to dumping charges.


    When a case is filed

    • Since businesses do not have the legal status to bring cases to the WTO Dispute Settlement Body, they have to request their national authority to initiate proceedings, and it is by no means certain that requests will be successful. What is certain is that it will usually take some time to sort out. Therefore, in a dispute over trade remedies, it might be better to explore first the alternative solutions available under domestic laws.
    • Exporters who are under investigation should gather data very quickly. They should collect detailed information (particularly when dealing with US authorities). Businesses need to ensure they submit complete, correct and verifiable data. They must also be well prepared during every stage of the verification visit by trade remedy planners.
    • A country whose business is under investigation can request an extension of time to reply to the questionnaire. It can also require the full text of the written application for action, and thus build up a detailed rebuttal against charges.
    • Parties may request protection of confidential information, obtain access to non-confidential information submitted by other parties and make submissions based on that information.
    • Businesses are recommended to document verbal information they provide to authorities.
    • Exporters should be informed if authorities are to make on-the-spot investigations.
    • For investigations under EU law, exporters should identify their best option at an early stage: whether to be included in the sample used to determine the duty, and, as a result, be subject to an individual margin; or not to be included and therefore benefit from the average duty that is imposed.
    • Parties have the right to be informed of the essential facts that form the basis of any final decision in sufficient time to defend their interest. Businesses under investigation should use this right.
    • Intergovernmental negotiations can avert the need for action in WTO and expensive litigation, particularly if the case of the complaining party has weak points, which defending countries need to identify.


    Beyond antidumping

    • Even when an antidumping measure is imposed, this is not the end of the story. The exporting country can appeal to the WTO Dispute Settlement Body. But it should initiate the process immediately by requesting a consultation and deciding on panellists. To save time and resources, the exporting country should limit its attack to the weakest part of the decision rather than focusing on all its possible defects.


    ITC has just updated a guide on antidumping proceedings, containing more detailed information and action checklists. Antidumping Proceedings: Guidelines for Importers and Exporters, is available from the World Tr@de Net web site.




    Trade remedies - the facts

    In 2001, WTO member States reported they had initiated 348 antidumping actions, imposed 27 countervailing duties and taken 19 safeguard measures. For the first time, developing countries were in the majority in launching antidumping investigations.

    In the second half of 2001, China headed the list of countries whose exports were being investigated (25 cases), a drop from 32, while Brazil, Chinese Taipei, Thailand and the United States were next. India initiated the most investigations (51, up from 21 in the second semester of 2000). The United States was second (35, down from 38) and Argentina third (16, a decrease from 34). Investigations into products from the iron, steel and aluminum sector were most numerous (60), accounting for 33 of the 35 US investigations. Chemicals (41) and plastics (34) were next. India initiated 28 of its 51 investigations on chemical products. Plastics accounted for 12 of Turkey's 13 investigations.

    However, the 79 antidumping measures finally imposed against exports from 33 countries or customs territories represented a sharp drop from the 107 in the second semester of 2000. The United States imposed most of them (21), a significant increase from eight, while India was a close second (20). The European Union and Argentina each adopted 11 measures (down from 32 for the EU). Of the total, 21 measures were imposed against China, and six were imposed on Chinese Taipei.




    Trade remedies in major markets

    • United States. US companies have been among the most frequent users of trade remedy laws. In addition to antidumping measures, countervailing duties and safeguards, US trade remedies include legal action against imports that infringe intellectual property held by a US company (Section 337 of the Tariff Act of 1930) or market barriers limiting US exports to another country (Section 301 of the Trade Act of 1974).

      Antidumping measures and countervailing duties are the most frequently used remedies. In 2001, the United States initiated 79 antidumping cases (it has initiated 910 cases since 1980) and 18 countervailing duties investigations (340 cases since 1980). The frequency of investigations increases when the economy weakens. The number of countervailing duties cases has dropped over time because US companies have realized that antidumping measures are more effective. Foreign companies involved in the steel industry are the most frequent targets (about half of recent cases).

    • European Union. Even though antidumping actions are the most frequent trade remedy used in the European Union (27 cases in 2001), countervailing duties investigations have increased in recent years, showing a greater willingness to oppose government subsidies that are deemed to be trade distorting. In several cases, European institutions have undertaken simultaneous antidumping and countervailing duties investigations. As a result, proceedings are very burdensome for exporters, who have to provide, within very short time periods, detailed information with regard to the alleged dumping and subsidies.

      Also, EU trade remedy laws state that antidumping measures or countervailing duties must be in the "Community interest", giving EU institutions some discretion as to when they should be imposed. Before making a decision, the institutions take into consideration the interests of European consumers, competitors and upstream and downstream industries.



    For more information, see http://www.intracen.org/worldtradenet




    Jean-Sébastien Roure (roure@intracen.org) is ITC Associate Expert on Legal Aspects of International Trade. Prema de Sousa also contributed to this article.

    This article draws from ITC's Business Guides on trade remedies and conclusions from World Tr@de Net workshops.


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