Safeguards and exceptions
- 1. S Safeguards and Exceptions Chapter 9 The Political Economy of The World Trading System Presented by Hang Nguyen
- 2. Agenda S Re-negotiation of Concessions S Waivers S Emergency Protection (Safeguards) S Antidumping Actions S Measures to Countervail Subsidized Imports S Trade Restrictions for BOP Purposes S Infant Industry Protection S General Exceptions S Conclusion
- 4. Source: WTO, Global Antidumping Database
- 5. 9.1 Re-negotiation of Concessions Article XXVIII:1 S Re-negotiation: centres on the compensation S ‘open season’: conducted every 3 years following a binding S ‘special circumstances re-negotiations’: approved by GATT contracting parties S ‘reserved right re-negotiations’: occur anytime during 3 years S The contracting party: S The country – initial negotiating rights – INRs S The country – ‘principal supplying interest’ (negotiation rights)/‘substantial interest’ (consultation rights)
- 6. 9.1 Re-negotiation of Concessions The Uruguay Round Understanding on the Interpretation of Article XXVIII S Enhanced the opportunities of affected exporters to participate in tariff re-negotiations. S Before UR: over 30 GATT contracting parties utilized the re-negotiation option more than 200 times (1955-95 period) S After UR: implemented Harmonized System 24 re- negotiations (1995-2008)
- 7. 9.2 Waivers S Tariff re-negotiations are limited: they only pertain to instances in which a country wants to raise tariffs above previously bound levels. S Article XXV:5 GATT allows a member to request a waiver from one or more other obligations S The most famous waiver: US in 1955 (inconsistent with Section 22 of the Agricultural Adjustment Act). S Waivers under WTO are time bound: are reviewed annually to determine if the exceptional circumstances requiring the waiver continue to exist.
- 8. 9.3 Emergency Protection (Safeguards) Article XIX: permits governments to impose measures to protect domestic producers seriously injured by imports. Necessary conditions: S Unforeseen developments S Resulting from the effects of obligations incurred by a contracting party (e.g. tariff concessions made in a MTN) S Leading to increased imports S That cause or threaten serious injury to domestic producers
- 9. 9.3 Emergency Protection (Safeguards) S Affected exporting countries were protected by a requirement of compensation made Article XIX a substitute for Article XXVIII re-negotiation S By the time of UR: to constrain the use of AD and VERs and to reassert the dominance of Article XIX S Tighten the disciplines on the use of VERs and AD S Reduce the disincentives to use Articles XIX
- 10. 9.3.1 The Uruguay Round Agreement on Safeguards S Major achievement: prohibition of VERs and similar measures on the export or the import side S SG measures: investigation demonstrates “serious injury” considering factors S Protection is limited to what is necessary to prevent or remedy serious injury caused by imports causal link S Article XIX – ‘Emergency Action’: in ‘critical circumstances the Agreement on SG allows Members to put in place SG immediately on a provisional basis.
- 11. 9.3.2 The WTO experience with safeguards S SG measures: infrequently compared to other instruments i.e. antidumping S Key terms are not defined in the agreement. S ‘Unforeseen developments’ test to safeguard actions by Appellate Body (AB) S However, if SG conform to WTO rules, will be nondiscriminatory and thus affect all imports.
- 12. 9.3.3 Special Safeguards Cases S The 2001-2 US Steel Safeguards S QRs: starting in 1970s, AD and CVD actions in 80s-90s S 2001: imposing SG actions fail to show a ‘causal link’ termination of SG actions in Dec, 2013 S Special Safeguards (SSG) S WTO Agreements on Textiles and Clothing (ATC) S Agreement on Agriculture S China’s Protocol of Accession
- 13. 9.4 Antidumping Actions S AD mechanism in US: replace a system in which specific industries lobbied the US Congress for specific tariffs with one where industries seeking protection had to go through an administrative system. S Increasing controversial during 1980s S 1950: 37 cases S Since 1970s: over 4000 AD investigations initiated by WTO members S 1995-2007: 3200 investigations 2049 led to AD measures. S Main users: Australia, Canada, EU and US
- 15. 9.4.1 A brief summary of GATT disciplines S Dumping (GATT): offering a product for sale in export markets at a price below normal value. S Article VI: not prohibit dumping, but actions to offset dumping S Actions against dumping: only if material injury is shown S Injury determinations: S Positive evidence S An objective examination of the volume of the dumped imports S Their effect on prices in the domestic market S Impact on domestic producers of like products
- 16. 9.4.2 What’s wrong with dumping
- 17. 9.4.2 What’s wrong with dumping S Discourage domestic firms from engaging in the development of a competing product by establishing a large market share S Predation: a foreign firm could deliberately price products low enough to drive the existing domestic firms out of business and establish a monopoly. S AD is unlikely to encourage. S The predation has very little to do with AD: US cases S Antidumping Act of 1916: very rarely invoked. S The Tariff Act of 1930: usually invoked by import-competing industries
- 18. 9.4.3 What’s wrong with antidumping S AD is not about fair play. Its goal is to tilt the rules of the game in favour of import-competing industries. S AD is a useful safety valve that allows countries to implement and sustain more general trade liberalization positive relationship between deterioration in macroeconomic conditions and the use of AD. S AD constitute an obstacle to free trade in developing countries: ‘retaliation’ – tit-for-tat responses by targeted countries effect in restraining the use of AD by importing countries.
- 19. 9.4.3 What’s wrong with antidumping S AD is costly for affected firms, consumers and third countries S Impact on affected exporters is significant S Discretion of investigating authorities: dumping margins can be inflated S Injury criteria may be manipulated by firms S By initiating and winning an AD action, upstream suppliers may be able to manipulate the health of downstream firms to the advantage of both cascade along the chain of production.
- 20. 9.4.3 What’s wrong with antidumping S Negotiating price undertakings with exporters that are subject to AD investigations S Exporters prefer undertakings to the alternative of paying AD duties S Undertaking are more detrimental to the national welfare of countries using them than duties are: due to transaction costs.
- 21. Thank you for your attention!
Editor's Notes
- #4: During the first 20 years of GATT, re-negotiations and Article XIX were the major instruments used.
- #6: Principal supplying interest is determined with reference to the share in the export market Substantial supplying interest is determined in relation to a country’s total volume of exports
- #8: According to Hathaway, these provisions were largely written to fit the US agricultural programme. Despite this, the US soon found that it could not live with the provisions. In 1951, the US Congress stated that "no trade agreement could be applied in a manner inconsistent with this section" (Section 22 of the Agricultural Adjustment Act). Finally in 1955, the US insisted upon and received what is now known as the famous waiver, under the threat that it might otherwise be forced to leave the GATT4. This "temporary" waiver was in force for almost 40 years and was used to restrict imports of sugar, peanuts and dairy products until the UR. The waiver was an exception to exceptions. Whereas Article XI permitted all contracting parties to take trade restrictive actions so long as there were policies in place that "restrict" the production or marketing of the domestic product, this waiver allowed the US to apply import restrictions without regard to such rules. This waiver, which thus discriminated against countries other than the US, has been a major source of continuing resentment by others and was used as an argument that the US was not serious about trade liberalization. ...also reasons why agriculture was not part of GATT These two exceptions together were enough to keep agriculture "effectively" out of the GATT. They basically licensed countries to: subsidize their farmers to the extent they wished; provide border protection as desired; and export the surplus thus generated with export subsidies. It was not a coincidence that these were precisely the three areas addressed by the UR Agreement on Agriculture (AoA).