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WTO E-Learning WTO E-Learning – Copyright © May 2012
Trade Remedies
and the WTO
Abstract
Binding tariffs, and applying them equally to all trading partners (most-favoured-nation treatment, or MFN) are
key to the smooth flow of trade in goods. The WTO agreements uphold the principles, but they also allow
derogations — in some circumstances.
Three of these issues are called "trade remedies" and cover:
Actions taken against dumping (selling a product in an export market below its "normal value")
If a company exports a product at a price lower than the price it normally charges on its own home market, it
is said to be "dumping" the product. Is this unfair competition? The applicable WTO agreement (the Agreement
on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, often called the "Anti-
dumping Agreement") does not pass judgement. Its focus is on how governments can or cannot react to
dumping — that is, it disciplines anti-dumping actions - where dumped imports are found, in an investigation
conducted by the government of the importing country, to be injuring domestic producers in that country.
Subsidies and "countervailing" measures to offset subsidies
The WTO Agreement on Subsidies and Countervailing Measures disciplines the use of subsidies, and regulates
the actions countries can take to counter the effects of subsidies. Under the agreement, a country can use the
WTO's dispute-settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse
effects. Or the country can launch its own investigation and ultimately apply a countervailing measure (most
often an extra duty) on subsidized imports that are found to be injuring domestic producers.
Emergency measures to limit imports temporarily, designed to "safeguard" domestic industries.
A WTO member may apply a temporary "safeguard" measure (e.g., an extra duty, or a quota, or other
measure, on imports of a product) where an increase in imports of the product is causing, or is threatening to
cause, serious injury to the industry.
Safeguard measures were always available under the GATT (Article XIX). However, they were infrequently
used, and some governments preferred to protect their industries through "grey area" measures ("voluntary"
export restraint arrangements on products such as cars, steel and semiconductors).
The WTO Safeguards Agreement broke new ground in establishing procedural and substantive rules, including
time limits, on the use of safeguards, and in prohibiting "grey area" measures.
The course will give participants an overview of WTO disciplines regarding trade remedies, covering:
the basic WTO disciplines related to anti-dumping, to subsidies and countervailing measures, and to
general safeguards;
the different procedures and investigations connected to anti-dumping, to subsidies and countervailing
measures, and to general safeguards.
List of Figures
MODULE 1 THE WORLD TRADE ORGANIZATION ............................................................ 11
Figure 1 WTO organization chart .............................................................................. 20
MODULE 2 INTRODUCTION TO WTO BASIC PRINCIPLES AND RULES .................................... 35
Figure 1: Tariff-quota .............................................................................................. 63
MODULE 3 ANTI-DUMPING ...................................................................................... 89
Figure 1 Products in an anti-dumping investigation .................................................... 97
Figure 2 Options for the determination of the normal value in an anti-dumping
investigation ............................................................................................ 107
Figure 3 Relationship of prices of dumped imports, and costs and prices of domestic
like products ............................................................................................ 120
Figure 4 Stages of an investigation ......................................................................... 126
Figure 5 Main elements of the pre-initiation stage of an anti-dumping investigation ...... 127
Figure 6 Two-part "standing" test required for the initiation of an anti-dumping
investigation ............................................................................................ 128
Figure 7 Main steps between the initiation of the anti-dumping investigation and the
preliminary determination ......................................................................... 129
Figure 8 Stages from provisional anti-dumping duties to the final determination ........... 140
MODULE 4 SUBSIDIES AND COUNTERVAILING MEASURES .............................................. 157
Figure 1 Main features of the two tracks of the SCM Agreement.................................. 163
Figure 2 What is a subsidy ..................................................................................... 164
Figure 3 How "specificity" works under the SCM Agreement ....................................... 169
MODULE 6 CONCLUSION ....................................................................................... 229
Figure 1 WTO Organizational Structure .................................................................... 233
List of Tables
MODULE 1 THE WORLD TRADE ORGANIZATION ............................................................ 11
Table 1 GATT Rounds of negotiations ...................................................................... 14
Table 2 Basic structure of the WTO Agreements ....................................................... 28
Table 3: WTO dispute settlement timeline ................................................................. 31
MODULE 3 ANTI-DUMPING ...................................................................................... 89
Table 1: Calculation of the weighted average export price .......................................... 106
Table 2: Calculation of the weighted average normal value ........................................ 109
Table 3: Submission of information requested by the investigation authority ................ 136
Table 4: Submission of information requested by the investigation authority ................ 136
Acronyms
ACP African, Caribbean and Pacific Countries. Group of countries with preferential trading relations
with the European Union (EU) under the former Lomé Treaty now replaced by the Cotonou
Agreement.
ALADI Latin American Integration Association.
AMS "Aggregate Measure of Support" - The AMS refers to an index that measures the monetary
value of the extent of government support to a sector. The AMS, as defined in the WTO
Agreement on Agriculture, includes both budgetary outlays as well as revenue transfers from
consumers to producers as a result of policies that distort market prices.
APEC Asia-Pacific Economic Cooperation. APEC was established in 1989 to further enhance
economic growth and prosperity for the region and to strengthen the Asia-Pacific community.
APEC has 21 members - Australia; Brunei Darussalam; Canada; Chile; People's Republic of
China; Hong Kong, China; Indonesia; Japan; Republic of Korea; Malaysia; Mexico;
New Zealand; Papua New Guinea; Peru; The Republic of the Philippines; The Russian
Federation; Singapore; Chinese Taipei; Thailand; United States of America; Viet Nam.
ASEAN Association of Southeast Asian Nations. The seven ASEAN members of the WTO — Brunei,
Indonesia, Malaysia, Myanmar, the Philippines, Singapore and Thailand — often speak in the
WTO as one group on general issues. The other ASEAN members are Laos and Vietnam.
ATC The WTO Agreement on Textiles and Clothing.
BSE Bovine Spongiform Encephalopathy, or "Mad Cow Disease".
CAP Common Agricultural Policy — The EU's comprehensive system of production targets and
marketing mechanisms designed to Manage agricultural trade within the EU and with the rest
of the world.
CBD Convention on Biological Diversity
CITES Convention on International Trade in Endangered Species of Wild Fauna and Flora. Concluded
in 1973 under the auspices of the International Union for the Conservation of Nature and
Natural Resources (IUCN). The Convention entered into force on 1 July 1975. CITES regulates
international trade in wild animals and plants.
CLMV Cambodia, Laos, Myanmar (Burma) and Vietnam.
CNUCED Conférence des Nations Unies sur le Commerce et le Développement.
COMECON Council for Mutual Economic Assistance. Established in January 1949, it was dissolved in
February 1991.
COMESA Common Market for Eastern and Southern Africa. The treaty establishing COMESA was signed
at Kampala on 5 November 1993. It is the successor to the Preferential Trade Area for
Eastern and Southern African States (PTA). Its members are Angola, Burundi, Comoros,
Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Lesotho,
Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda,
Zambia and Zimbabwe.
CTD The WTO Committee on Trade and Development.
CTE The WTO Committee on Trade and Environment.
CTG Council for Trade in Goods.
DSB The Dispute Settlement Body, i.e. the WTO General Council meeting to settle trade disputes.
DSU Dispute Settlement Understanding. The Uruguay Round Understanding on Rules and
Procedures Governing the Settlement of Disputes.
EAC East African Cooperation. A mechanism within the Common Market for Eastern and Southern
Africa established in 1996. It aims to promote faster trade and investment liberalization. Its
longer-term objectives are the establishment of a customs union and an East African
Federation. The three partners making up the EAC are Kenya, Tanzania and Uganda.
EC European Communities.
ECDC Economic Cooperation between Developing Countries. A mechanism operating mainly within
the United Nations system of developing countries through cooperative activities.
ECLAC Economic Commission for Latin America and the Caribbean. One of the United Nations
regional economic commissions. It was established in 1948 as the Economic Commission for
Latin America (ECLA) and given its current name in 1985.
ECOSOC United Nations Economic and Social Council. Does not make rules. Its annual high-level
sessions of WTO, IBRD and IMF heads are considered to be helpful in promoting coherence of
economic policy between countries.
ECOWAS Economic Community of West African States. Established in 1975. It consists of the members
of the West African Economic Community (Benin, Burkina Faso, Côte d'Ivoire, Mali,
Mauritania, Niger and Senegal), the members of the Mano River Union (Guinea, Liberia and
Sierra Leone), and Cape Verde, The Gambia, Ghana, Guinea-Bissau, Nigeria and Togo.
EDI Electronic Data Interchange. The transfer of data in a standardized electronic form between
companies through the use of networks such as the internet.
EFTA European Free Trade Association. Entered into force on 3 May 1960 through the Convention
of Stockholm. Founding members were Austria, Denmark, Norway, Portugal, Sweden,
Switzerland and the United Kingdom. Iceland joined in 1970. Finland became a full member
in 1986 after having been an associate member. Denmark and the United Kingdom left on
31 December 1972 to join the European Economic Community. They were followed by
Portugal in 1985 and Austria, Finland and Sweden on 1 January 1995. EFTA now comprises
Iceland, Liechtenstein, Norway and Switzerland.
ESCAP "The Economic and Social Commission for the Asia-Pacific. One of the United Nations regional
economic commissions. It was established in 1947 as the Economic Commission for Asia and
the Far East (ECAFE) and given its present name in 1974.
EU European Union, in the WTO officially called the European Communities.
FAO Food and Agricultural Organization.
FDI Foreign direct investment.
FTAA Free Trade Area of the Americas. Also called Western Hemisphere Free Trade Agreement.
G15 A group originally of fifteen developing countries acting as the main political organ for the
Non-Aligned Movement. It was established in 1990. Its members now are: Algeria, Argentina,
Brazil, Chile, Colombia, Egypt, India, Indonesia, Iran, Jamaica, Kenya, Malaysia, Mexico,
Nigeria, Peru, Senegal, Sri Lanka, Venezuela and Zimbabwe.
G24 Intergovernmental Group of Twenty-Four on International Monetary Affairs, established
in 1971. Members are divided into three regions. Region I (Africa) is represented by Algeria,
Côte d'Ivoire, Democratic Republic of Congo, Egypt, Ethiopia, Gabon, Ghana, Nigeria and
South Africa. Region II (Latin America and the Caribbean) is represented by Argentina, Brazil,
Colombia, Guatemala, Mexico, Peru, Trinidad and Tobago and Venezuela. Region III (Asia and
developing countries of Europe) is represented by India, Iran, Lebanon, Pakistan, Philippines,
Sri Lanka and Syrian Arab Republic.
G7 Group of seven leading industrial countries: Canada, France, Germany, Italy, Japan,
United Kingdom, United States.
G77 Group of developing countries set up in 1964 at the end of the first UNCTAD (originally 77,
but now more than 130 countries).
G8 G7 plus Russia.
GATS General Agreement on Trade in Services.
GATT General Agreement on Tariffs and Trade.
GATT 1947 General Agreement on Tariffs and Trade 1947.
GATT 1994 The new version of the General Agreement, incorporated into the WTO, which governs trade
in goods.
GATT PLUS An expression implying imposition or acceptance of international trade disciplines more
stringent than those prescribed by the GATT or extending the GATT rules to areas beyond
trade in goods. One of the most ambitious examples of "GATT plus" was the proposal by the
Atlantic Council of the United States that there should be a code of trade liberalization within
the GATT framework with stronger rules for the conduct of trade relations between
industrialized countries willing to accept them. According to its proponents, the benefits
would have been extended to all GATT members according to the most-favoured-nation
clause. The code would also have been open to new members willing to accept its obligations,
but only code members would have been able to initiate tariff negotiations with another code
member. The proposal did not find favour with GATT members as a whole.
GRULAC The Group of Latin American and Caribbean Countries which operates informally within
the WTO.
GSP Generalized System of Preferences. First proposed at UNCTAD II in 1968. Entered into force
in 1971. It gives developing countries a margin of preference in the tariff rates their goods
face in the markets of developed countries and in this way increases their competitiveness.
The massive tariff reductions since 1971 as a result of multilateral trade negotiations and
unilateral actions, as well as changes in productivity, have reduced the importance of the GSP
to many developing country exporters, but it remains an important plank in the trade policies
of many developing countries. UNCTAD is the main forum for a discussion of GSP issues.
GSTP Global System of Trade Preferences Among Developing Countries. It entered into force
in 1989. Its aim is to promote the development of economic cooperation among developing
countries through the exchange of tariff preferences. Least developed countries do not have
to offer reciprocal concessions. Non-tariff preferences may also be exchanged. Membership of
the GSTP is open to members of the Group of 77. Negotiations are conducted under UNCTAD
auspices. 44 countries participate in the GSTP.
ILO International Labour Organization. Established in 1919 as part of the Treaty of Versailles. It
became a United Nations specialized agency in 1946. Its objectives are to improve working
and living conditions through the adoption of international conventions and recommendations
setting minimum standards for wages, hours of work, conditions of employment, social
security, etc. It is located in Geneva.
IDB OR IADB Inter-American Development Bank. Established in 1959, the Inter-American Development
Bank (IDB) supports economic and social development and regional integration in Latin
America and the Caribbean. It does so mainly through lending to public institutions, but it
also funds some private projects, typically in infrastructure and capital markets development.
Members (46) include: Argentina, Austria, The Bahamas, Barbados, Belgium, Belize, Bolivia,
Brazil, Canada, Chile, Colombia, Costa Rica, Croatia, Denmark, Dominican Republic, Ecuador,
El Salvador, Finland, France, Germany, Guatemala, Guyana, Haiti, Honduras, Israel, Italy,
Jamaica, Japan, Mexico, Netherlands, Nicaragua, Norway, Panama, Paraguay, Peru, Portugal,
Slovenia, Spain, Suriname, Sweden, Switzerland, Trinidad and Tobago, United Kingdom,
United States, Uruguay and Venezuela. http://www.iadb.org
IEA International Energy Agency. An intergovernmental organization established in 1974 after the
first oil shock. It consists of OECD member countries.
ILO International Labour Organization.
IMO International Maritime Organization.
ISO International Organization for Standardization. A world-wide federation of national standards
bodies established in 1947 to promote the development of standardization and related
activities with a view to facilitating the international exchange of goods and services. Each
country is represented by one organization only. The ISO also promotes the development of
cooperation in intellectual, scientific, technological and economic activities. It is associated
with the WTO especially through work concerning the Agreement on Technical Barriers to
Trade which is aimed at ensuring that standards are not used as disguised barriers to trade.
ISO 14000 A series of environmental management standards prepared by the International Organization
for Standardization (ISO) covering six areas: environmental managing systems;
environmental auditing; environmental labelling; environmental performance evaluation; life
cycle assessment; terms and definitions. Most of the standards are intended as guidance
documents on environmental tools and systems to help companies and other organizations
integrate environmental considerations into their normal business processes. Only one of the
standards, ISO 14001 on environmental management systems, contains specifications for
certification or registration purposes.
ISO 9000 A series of quality systems standards developed by the International Organization for
Standardization (ISO). These are standards for evaluating the way a firm works. They should
not be confused with product standards. Quality systems standards enable firms to identify
the means of meeting consistently the requirements of its customers.
IPC International Patent Classification.
IPRS Intellectual Property Rights. Ownership of ideas, including literary and artistic works
(protected by copyright), inventions (protected by patents), signs for distinguishing goods of
an enterprise (protected by trademarks) and other elements of industrial property.
ITA Information Technology Agreement, or formally the Ministerial-Declaration on Trade in
Information Technology Products.
ITA II Negotiations aimed at expanding ITA's product coverage.
ITC International Trade Centre UNCTAD/WTO. Established in 1964 as the focal point in the United
Nations system for technical cooperation with developing countries in trade promotion. Its
work program now covers product and market development, development of trade support
services, trade information, human resource development, international purchasing and
supply management and trade promotion needs.
ITU International Telecommunication Union.
LAFTA Latin American Free Trade Association.
LAIA Latin American Integration Association.
LDCS Least Developed Countries.
LLDC Least developed of the Least Developed Countries.
MEA Multilateral Environmental Agreement.
MERCOSUL Mercado Comum do Sul. Southern Common Market. The name in Portuguese of Mercosur.
MERCOSUR Mercado Común del Sur (Southern Common Market). Currently a customs union covering
trade in goods except sugar and automobiles. It includes Argentina, Brazil, Paraguay and
Uruguay. Chile and Bolivia signed an association agreement on 1 October 1996 and
1 March 1997 respectively. Membership is open to ALADI members.
MFA Multi Fibre Arrangement (1974-94) under which countries whose markets are disrupted by
increased imports of textiles and clothing from another country were able to negotiate quota
restrictions.
MFN Most-favoured-nation treatment (GATT Article I, GATS Article II and TRIPS Article IV), the
principle of not discriminating between one's trading partners.
NAFTA The North American Free Trade Agreement (NAFTA) is a free trade agreement involving
Canada, Mexico, and the United States, implemented on 1 January 1994.
http://www.nafta-sec-alena.org
NEPAD New Partnership for Africa's Development.
NGBT Negotiating Group on Basic Telecommunications.
NGMTS Maritime transport services.
NGO Non-governmental Organization.
NTBS Non-tariff barriers, such as quotas, import licensing systems, sanitary regulations,
prohibitions, etc. Same as "non-tariff measures".
NTMS Non-tariff measures, such as quotas, import licensing systems, sanitary regulations,
prohibitions, etc. Same as "non-tariff barriers".
OAS Organization of American States.
OAU Organization of African Unity. Superseded in July 2001 by the African Union.
OECS Organization of Eastern Caribbean States. It superseded the East Caribbean Common Market.
OECS members are Antigua and Barbuda, Dominica, Grenada, Montserrat, St Kitts and Nevis,
St Lucia, St Vincent, and the Grenadines. The British Virgin Islands and Anguilla are associate
members.
OECD The Organization for Economic Cooperation and Development (OECD) groups 30 member
countries. Members (30) include: Australia, Austria, Belgium, Canada, Czech Republic,
Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan,
South Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal,
Slovakia, Spain, Sweden, Switzerland, Turkey, United Kingdom and the United States.
http://www.oecd.org
OPEC Organization of Petroleum Exporting Countries. Its current members are Algeria, Indonesia,
Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates and Venezuela.
P-5 Short for Pacific-5. It includes Australia, Chile, New Zealand, Singapore and the
United States.
PACER Pacific Agreement on Closer Economic Relations. An agreement adopted in August 2001 by
the Pacific Islands Forum which sets out the framework for the development of trade relations
between the Forum members. It is not a free-trade agreement, but it allows for the
establishment of free-trade areas. One of these is the Pacific Island Countries Trade
Agreement. PACER entered into force on 3 October 2002.
PAFTA Pacific Free Trade Area. An idea for a regional preferential trade arrangement that has been
around since the 1960s. Some say that the formation of APEC has made PAFTA redundant.
PICTA Pacific Island Countries Free Trade Agreement. Australia and New Zealand are eligible to join
if they wish. PICTA will enter into force after six countries have ratified it.
PIF Pacific Islands Forum. Its members are Australia, Cook Islands, Federated States of
Micronesia, Fiji, Kiribati, Nauru, New Zealand, Niue, Palau, Papua New guinea, Republic of the
Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu.
PSI Preshipment Inspection — the practice of employing specialized private companies to check
shipment details of goods ordered overseas — i.e. price, quantity, quality, and so forth.
QRS Quantitative restrictions — specific limits on the quantity or value of goods that can be
imported (or exported) during a specific period.
RBPS Restrictive Business Practices. Anti-competitive behaviour by private firms of the type dealt
with by national competition laws and policies. These can include collusion, abuse of
dominant position, refusals to deal, price discrimination, resale price maintenance, exclusive
dealing, vertical and horizontal arrangements, etc.
SACU Southern African Customs Union comprising Botswana, Lesotho, Namibia, South Africa and
Swaziland.
SELA Latin American Economic System.
SPS Sanitary and Phytosanitary measures or regulations — implemented by governments to
protect human, animal and plant life and health, and to help ensure that food is safe for
consumption.
TARIC Integrated Tariff of the European Community.
TBT The WTO Agreement on Technical Barriers to Trade.
TMB The Textiles Monitoring Body consists of a chairman plus 10 members and oversees the
implementation of ATC commitments.
TPRB, TPRM The Trade Policy Review Body is General Council operating under special procedures for
meetings to review trade policies and practices of individual WTO members under the Trade
Policy Review Mechanism.
TRIMS Trade-Related Investment Measures.
TRIPS Trade-Related Aspects of Intellectual Property Rights.
UNCTAD The United Nations Conference on Trade and Development.
UPOV International Union for the Protection of New Varieties of Plants (Union Internationale pour la
Protection des Obtentions Végétales). Concluded in 1961 in Paris and revised in 1978 in
Geneva. It provides for the grant of patents or special titles of protection to breeders of new
plant varieties. It is administered by the International Union for the Protection of New
Varieties of Plants (UPOV), rather than by WIPO.
VRA, VER, OMA Voluntary Restraint Arrangement, Voluntary Export Restraint, Orderly Marketing
Arrangement. Bilateral arrangements whereby an exporting country (government or industry)
agrees to reduce or restrict exports without the importing country having to make use of
quotas, tariffs or other import controls.
WCO World Customs Organization, a multilateral organization located in Brussels through which
participating countries seek to simplify and rationalize customs procedures.
WIPO World Intellectual Property Organization.
Table of Contents
MODULE 0: COURSE GUIDE (not available)................................................................. 1
I. INTRODUCTION ............................................................................................................ 3
II. COURSE ORGANIZATION ............................................................................................... 4
II.A. OBJECTIVES .................................................................................................... 4
II.B. STRUCTURE AND DURATION OF THE COURSE ..................................................... 4
II.C. WHO IS WHO? ................................................................................................. 6
II.D. EVALUATION AND CERTIFICATE ......................................................................... 6
III. E-LEARNING WEBSITE .................................................................................................. 7
III.A. TRAINING MATERIALS ...................................................................................... 7
III.B. INTERACTIVE TOOLS ........................................................................................ 7
MODULE 1: THE WORLD TRADE ORGANIZATION ............................................................ 11
I. INTRODUCTION TO THE WTO....................................................................................... 13
I.A. WHAT IS THE WTO? ....................................................................................... 13
I.B. HISTORICAL BACKGROUND OF THE WTO .......................................................... 13
II. OBJECTIVES OF THE WTO ........................................................................................... 16
III. FUNCTIONS OF THE WTO ............................................................................................ 18
IV. ORGANIZATIONAL STRUCTURE OF THE WTO ................................................................. 20
IV.A. THE MINISTERIAL CONFERENCE ...................................................................... 21
IV.B. THE GENERAL COUNCIL .................................................................................. 21
IV.C. THE COUNCILS .............................................................................................. 21
IV.D. THE SUBSIDIARY BODIES ............................................................................... 22
IV.E. DECISION-MAKING AT THE WTO ...................................................................... 24
IV.F. ON-GOING NEGOTIATIONS: THE DOHA DEVELOPMENT AGENDA.......................... 25
V. THE WTO AGREEMENTS .............................................................................................. 27
VI. DISPUTE SETTLEMENT ................................................................................................ 30
VII. SUMMARY .................................................................................................................. 32
MODULE 2: INTRODUCTION TO WTO BASIC PRINCIPLES AND RULES ................................... 35
PART I: BASIC PRINCIPLES IN THE WTO
I. INTRODUCTION .......................................................................................................... 37
II. RULES ON TRADE IN GOODS ....................................................................................... 38
II.A. NON-DISCRIMINATION PRINCIPLE ................................................................... 38
II.B. THE MFN PRINCIPLE UNDER GATS .................................................................... 42
II.C. THE MFN PRINCIPLE UNDER TRIPS ................................................................... 42
III. NATIONAL TREATMENT (ARTICLE III)............................................................................ 44
III.A. THE NATIONAL TREATMENT PRINCIPLE IN RULES ON TRADE IN GOODS ............... 44
III.B. EXCEPTIONS.................................................................................................. 48
III.C. NATIONAL TREATMENT IN GATS ...................................................................... 49
III.D. NATIONAL TREATMENT IN TRIPS ...................................................................... 50
IV. SUMMARY PART I ....................................................................................................... 52
PART II: BASIC PRINCIPLES RELATED TO MARKET ACCESS
I. INTRODUCTION .......................................................................................................... 55
II. WHAT IS A TARIFF? .................................................................................................... 56
II.A. NEGOTIATIONS ON TARIFF REDUCTIONS .......................................................... 56
II.B. PRINCIPLES ON TARIFF NEGOTIATIONS ............................................................ 56
II.C. NATIONAL TARIFFS ........................................................................................ 57
II.D. SCHEDULE OF CONCESSION (ARTICLE II) ......................................................... 57
II.E. RENEGOTIATION OF CONCESSIONS/MODIFICATION OF SCHEDULES ................... 59
II.F. OTHER DUTIES & CHARGES ............................................................................. 59
III. NON-TARIFF BARRIERS ............................................................................................... 61
III.A. INTRODUCTION ............................................................................................. 61
III.B. QUANTITATIVE RESTRICTIONS ........................................................................ 61
III.C. GENERAL ELIMINATION OF QUANTITATIVE RESTRICTIONS (ARTICLE XI) .............. 61
III.D. TARIFF-QUOTA .............................................................................................. 62
IV. OTHER NON–TARIFF BARRIERS .................................................................................... 64
V. MARKET ACCESS FOR SERVICES .................................................................................. 65
VI. BARRIERS TO TRADE IN SERVICES ............................................................................... 66
VII. SUMMARY PART II ...................................................................................................... 67
PART III: EXCEPTIONS TO THE BASIC PRINCIPLES
I. INTRODUCTION .......................................................................................................... 69
II. GENERAL EXCEPTIONS ................................................................................................ 70
II.A. IN THE GATT ................................................................................................. 70
II.B. IN GATS ........................................................................................................ 72
II.C. IN TRIPS ....................................................................................................... 73
III. SECURITY EXCEPTIONS ............................................................................................... 77
III.A. IN BRIEF ....................................................................................................... 77
III.B. IN DETAIL ..................................................................................................... 77
IV. WAIVERS ................................................................................................................... 79
V. REGIONAL INTEGRATION ............................................................................................ 80
VI. S&D FOR DEVELOPING COUNTRIES .............................................................................. 81
VII. DEROGATIONS FOR TRADE-RELATED ECONOMIC PROBLEMS ........................................... 82
VIII. GATT ART. XII /GATS ARTICLE XII- BALANCE-OF-PAYMENTS (BOP) MEASURES ................. 83
IX. PRUDENTIAL MEASURES FOR FINANCIAL SERVICES (GATS, ANNEX ON FINANCIAL
SERVICES) ................................................................................................................ 84
X. SECTOR SPECIFIC SAFEGUARD MEASURES .................................................................... 85
X.A. AGRICULTURAL SPECIAL SAFEGUARD ............................................................... 85
X.B. SERVICES SAFEGUARD ................................................................................... 85
XI. TRADE REMEDIES ....................................................................................................... 86
MODULE 3: ANTI-DUMPING ...................................................................................... 89
I. WHAT IS DUMPING? ................................................................................................... 91
I.A. DUMPING AND THE GATT YEARS ...................................................................... 92
I.B. DUMPING AND ANTI-DUMPING IN THE WTO ...................................................... 93
I.C. ARTICLE VI OF GATT 1947 AND THE ANTI-DUMPING AGREEMENT ........................ 93
II. ANTI-DUMPING .......................................................................................................... 95
III. DETERMINATION OF DUMPING .................................................................................... 105
III.A. DETERMINATION OF THE EXPORT PRICE .......................................................... 105
III.B. DETERMINATION OF THE NORMAL VALUE ........................................................ 107
III.C. FAIR COMPARISON OF NORMAL VALUE AND EXPORT PRICE ............................... 110
III.D. CALCULATION OF THE DUMPING MARGIN ........................................................ 115
IV. DETERMINATION OF INJURY AND CAUSAL LINK ............................................................ 118
IV.A. LIKE PRODUCT .............................................................................................. 118
IV.B. DOMESTIC INDUSTRY .................................................................................... 119
IV.C. INJURY ........................................................................................................ 120
IV.D. DEMONSTRATION OF A CAUSAL LINK .............................................................. 124
V. PROCEDURAL REQUIREMENTS .................................................................................... 126
V.A. INTRODUCTION ............................................................................................ 126
V.B. THE PROCESS LEADING TO THE INITIATION OF AN ANTI-DUMPING
INVESTIGATION ............................................................................................ 128
V.C. CONDUCT OF THE INVESTIGATION: INITIATION TO THE STAGE OF
IMPOSITION OF PROVISIONAL ANTI-DUMPING DUTIES ........................................ 130
V.D. CONDUCT OF THE INVESTIGATION: FROM THE STAGE OF PROVISIONAL
ANTI-DUMPING DUTIES TO THE FINAL DETERMINATION .................................... 142
V.E. APPLICATION OF DEFINITIVE ANTI-DUMPING MEASURES .................................. 144
VI. ALL YOU WANTED TO KNOW ABOUT THE COMMITTEE ON ANTI-DUMPING PRACTICES ....... 151
VII. LAST BUT NOT LEAST: NOTIFICATION REQUIREMENTS .................................................. 153
VIII. SUMMARY ................................................................................................................. 154
MODULE 4: SUBSIDIES AND COUNTERVAILING MEASURES .............................................. 159
I. INTRODUCTION ......................................................................................................... 161
II. THE AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES ............................... 162
II.A. LEGAL CONTEXT ........................................................................................... 162
II.B. INTRODUCTION ............................................................................................ 164
II.C. COVERAGE OF THE SCM AGREEMENT .............................................................. 166
II.D. CATEGORIES OF SUBSIDIES UNDER THE SCM AGREEMENT ................................ 173
II.E. MEASURES AGAINST CERTAIN SUBSIDIES: COUNTERVAILING MEASURES ........... 179
II.F. TRANSITION RULES AND SPECIAL AND DIFFERENTIAL TREATMENT .................... 189
II.G. NOTIFICATIONS ............................................................................................ 191
II.H. DISPUTE SETTLEMENT ................................................................................... 200
II.I. THE SCM COMMITTEE .................................................................................... 200
II.J. THE PERMANENT GROUP OF EXPERTS.............................................................. 201
III. SUMMARY ................................................................................................................. 202
Table of Contents
MODULE 0: COURSE GUIDE (not available).................................................................. 1
I. INTRODUCTION ............................................................................................................ 3
II. COURSE ORGANIZATION ............................................................................................... 4
II.A. OBJECTIVES .................................................................................................... 4
II.B. STRUCTURE AND DURATION OF THE COURSE ..................................................... 4
II.C. WHO IS WHO? ................................................................................................. 6
II.D. EVALUATION AND CERTIFICATE ......................................................................... 6
III. E-LEARNING WEBSITE .................................................................................................. 7
III.A. TRAINING MATERIALS ...................................................................................... 7
III.B. INTERACTIVE TOOLS ........................................................................................ 7
IV. USER AGREEMENT ........................................................................................................ 9
MODULE 1: THE WORLD TRADE ORGANIZATION ............................................................ 11
I. INTRODUCTION TO THE WTO....................................................................................... 13
I.A. WHAT IS THE WTO? ....................................................................................... 13
I.B. HISTORICAL BACKGROUND OF THE WTO .......................................................... 13
II. OBJECTIVES OF THE WTO ........................................................................................... 16
III. FUNCTIONS OF THE WTO ............................................................................................ 18
IV. ORGANIZATIONAL STRUCTURE OF THE WTO ................................................................. 20
IV.A. THE MINISTERIAL CONFERENCE ...................................................................... 21
IV.B. THE GENERAL COUNCIL .................................................................................. 21
IV.C. THE COUNCILS .............................................................................................. 21
IV.D. THE SUBSIDIARY BODIES ............................................................................... 22
IV.E. DECISION-MAKING AT THE WTO ...................................................................... 24
IV.F. ON-GOING NEGOTIATIONS: THE DOHA DEVELOPMENT AGENDA.......................... 25
V. THE WTO AGREEMENTS .............................................................................................. 27
VI. DISPUTE SETTLEMENT ................................................................................................ 30
VII. SUMMARY .................................................................................................................. 32
MODULE 2: INTRODUCTION TO WTO BASIC PRINCIPLES AND RULES ................................... 35
PART I: BASIC PRINCIPLES IN THE WTO
I. INTRODUCTION .......................................................................................................... 37
II. RULES ON TRADE IN GOODS ....................................................................................... 38
II.A. NON-DISCRIMINATION PRINCIPLE ................................................................... 38
II.B. THE MFN PRINCIPLE UNDER GATS .................................................................... 42
II.C. THE MFN PRINCIPLE UNDER TRIPS ................................................................... 42
III. NATIONAL TREATMENT (ARTICLE III)............................................................................ 44
III.A. THE NATIONAL TREATMENT PRINCIPLE IN RULES ON TRADE IN GOODS ............... 44
11
The World Trade Organization ESTIMATED TIME: 2.5 hours
OBJECTIVES OF MODULE 1
Present a synopsis of the historical background of the WTO;
Present the objectives and some new key WTO principles;
Explain the function and organizational structure of the WTO; and
Present the negotiations launched in the Doha Development Agenda.
MODULE
1
13
I. INTRODUCTION TO THE WTO
This module explains what the WTO is, elucidating the objectives and function of the WTO. In addition, it
refers to various WTO agreements, as well as to GATT, Uruguay Round, and the Doha Development Agenda of
trade negotiations. These terms are explained throughout the course.
I.A. WHAT IS THE WTO?
IN BRIEF
WTO is the acronym of the World Trade Organization.
The WTO is the only global international organization dealing with the rules of international trade between
nations. At its heart are the many agreements, which were negotiated and signed by governments and
ratified in their parliaments.
IN DETAIL
The WTO came into being in 1995, and though legally distinct from the "GATT", they are interrelated. The WTO
was created after the culmination of long, intense negotiations, which took place under the auspices of the
"GATT" and are known as the "Uruguay Round" of negotiations.
"GATT" means General Agreement on Tariffs and Trade. Formally, the GATT (1947-1994) was not an
international organization but simply an international agreement, concluded in 1947. It contained rules and
obligations that governed the trade in goods for almost fifty years between the Member nations party to the
agreement (called "The Contracting Parties"). However, the Secretariat of the GATT took up many
responsibilities throughout the years, which lead to the GATT being called a de facto international organization.
So while the WTO is still young, the multilateral trading system that was originally set up under GATT is well
over 50 years old.
I.B. HISTORICAL BACKGROUND OF THE WTO
IN BRIEF
From 1948 to 1994, the General Agreement on Tariffs and Trade (GATT) provided the rules for much of
world trade. Although it appeared well established, for those 47 years it was a provisional agreement
serviced by only a de facto organization.
The GATT helped to establish a multilateral trading system that became progressively liberal through
successive rounds of trade negotiations. GATT Negotiations at the Uruguay Round ultimately led to the
creation of the World Trade Organization (WTO) in 1995.
14
Rounds of trade negotiations
Year Place/name Subjects covered Countries
1947 Geneva Tariffs 23
1949 Annecy Tariffs 13
1951 Torquay Tariffs 38
1956 Geneva Tariffs 26
1960-1961 Geneva, Dillon Round Tariffs 26
1964-1967 Geneva, Kennedy Round Tariffs and anti-dumping measures 62
1973-1979 Geneva, Tokyo Round Tariffs, non-tariff measures, "framework"
agreements
102
1986-1994 Geneva, Uruguay Round Tariffs, non-tariff measures, rules,
services, intellectual property, dispute
settlement, textiles, agriculture, creation of
WTO, etc.
123
Table 1: GATT Rounds of negotiations
IN DETAIL
The project to establish a multilateral trading system to negotiate lower customs duties and the reduction or
elimination of other trade barriers and to stimulate the expansion of world trade originated in the 1940s.
It was supposed to go ahead on two tracks:
the creation of the International Trade Organization (ITO); and
the launching of multilateral tariff negotiations that involved the drafting of binding legal provisions
relating to the tariffs under a "General Agreement on Tariffs and Trade" (GATT)
The GATT was drafted, but the ITO was never created. However, the Interim Commission for the International
Trade Organization (ICITO) was established and served as a de facto Secretariat to the GATT Contracting
Parties.
From 1947 to 1994, Contracting Parties organized eight rounds of negotiations. The major ones were:
The Kennedy Round (1964-1967):
substantial reduction of tariff barriers.
The Tokyo Round (1973-1979):
first negotiations on non-tariff barriers;
plurilateral codes; and
15
the enabling clause (the first major decision on differential treatment and non-reciprocity for
developing countries).
The Uruguay Round (1986-1994):
creation of the WTO;
transformation of Tokyo Round plurilateral codes into multilateral agreements;
strengthened dispute settlement system; and
incorporation of the new agreements on trade in services and trade-related aspects of intellectual
property rights which considerably broadened the scope of the multilateral trade system.
Participants in the Uruguay Round of Multilateral Trade Negotiations concluded the Round by adopting the
"Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations" (the Final Act). The
Final Act included the "Marrakesh Agreement Establishing the World Trade Organization" (the
WTO Agreement).
The WTO Agreement established a new organizational body, the World Trade Organization ("the WTO"), to
administer the Uruguay Round agreements.
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II. OBJECTIVES OF THE WTO
IN BRIEF
In the preamble to the Marrakesh Agreement establishing the WTO, the parties to the Agreement recognize
certain objectives they wish to attain through the multilateral trading system:
raise living standards;
ensure full employment;
ensure a large and steadily growing volume of real income and effective demand; and
expand the production of and trade in, goods and services, while allowing for the optimal use of the
world's resources in accordance with the objective of sustainable development.
The Agreement also recognizes the need for "positive efforts to ensure that developing countries, and
especially the least-developed among them, secure a share in the growth in international trade
commensurate with … their economic development".
IN DETAIL
The Preamble to the Marrakesh Agreement sets forth these objectives as follows:
The Parties to this Agreement,
Recognizing that their relations in the field of trade and economic endeavour should be conducted with a
view to raising standards of living, ensuring full employment and a large and steadily growing volume of real
income and effective demand, and expanding the production of and trade in goods and services, while
allowing for the optimal use of the world's resources in accordance with the objective of sustainable
development, seeking both to protect and preserve the environment and to enhance the means for doing so
in a manner consistent with their respective needs and concerns at different levels of economic development,
Recognizing further that there is need for positive efforts designed to ensure that developing countries, and
especially the least developed among them, secure a share in the growth in international trade
commensurate with the needs of their economic development. Being desirous of contributing to these
objectives by entering into reciprocal and mutually advantageous arrangements directed to the substantial
reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in
international trade relations...
The objectives of the WTO are not fundamentally different from the objectives contained in the preamble of the
GATT 1947. However, it is important to note the following two points:
Although the WTO's objectives do not mention trade liberalization or free-trade as such, "substantial reduction
of tariffs and other barriers to trade and the elimination of discriminatory treatment in international trade
relations" are identified as among the means to achieve these objectives.
A second means to achieve the noted objectives is the practice of Members of "entering into reciprocal and
mutually advantageous arrangements" as mentioned in the text of the GATT 1947.
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Accordingly, the WTO adds three new dimensions to the objectives in the preamble of the GATT 1947. They
include:
the expansion of "the production of and trade in goods and services" to take into consideration the
extension of the coverage of the WTO subject matters. That is, while the GATT covered trade in
goods, under the WTO, coverage was expanded to another subject area – trade in services (see the
GATS Agreement);
"the objective of sustainable development, seeking both to protect and preserve the environment
and to enhance the means for doing so …;"
the "development dimension" aiming at helping "…developing countries, and especially the least
developed among them, secure a share in the growth in international trade commensurate with the
needs of their economic development".
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III. FUNCTIONS OF THE WTO
IN BRIEF
The WTO fulfils its objective by:
administering trade agreements between its Members;
serving as a forum for trade negotiations;
settling trade disputes;
reviewing Members trade policies;
assisting developing countries in trade policy issues, through technical assistance and training
programmes; and
cooperating with other international organizations.
IN DETAIL
Article III of the WTO Agreement expounds the functions of the WTO. They include:
(1) "The WTO shall facilitate the implementation, administration and operation, and further the objectives
of this Agreement and of the Multilateral Trade Agreements, and shall also provide the framework for
the implementation, administration and operation of the Plurilateral Trade Agreements."
(2) "The WTO shall provide the forum for negotiations among its Members concerning their multilateral
trade relations in matters dealt with under the agreements in the Annexes to this Agreement …"
(3) "… The WTO may also provide a forum for further negotiations among its Members concerning their
multilateral trade relations, and a framework for the implementation of the results for such
negotiations, as may be decided by the Ministerial Conference."
The preceding three functions refer to the role of the WTO of providing a permanent institutional forum for
trade negotiations among its Members. These negotiations may be on subjects already covered under WTO
agreements or in respect of "new issues" to be disciplined by WTO agreements.
(4) "The WTO shall administer the Understanding on Rules and Procedures Governing the Settlement of
Disputes (DSU) in Annex 2 to this Agreement."
The fourth function refers to the role of the WTO as a forum for the settlement of disputes between its
Members in accordance with the disciplines and procedures elaborated in the Dispute Settlement
Understanding ("the DSU" in Annex 2 to the WTO Agreement). When Members are unable to reach a mutually
acceptable solution to a dispute arising under one of the agreements covered by the DSU, they may have
recourse to the Dispute Settlement Procedure.
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(5) "The WTO shall administer the Trade Policy Review Mechanism (TPRM) provided for in Annex 3 to this
Agreement."
The fifth function underscores the role of the WTO in the transparency mechanism designed by Members
during the Uruguay Round. The Trade Policy Review Mechanism (TPRM) was one of the few elements of the
WTO Agreement that formed part of the "Early Harvest" realized before the Uruguay Round ended.
"Early Harvest" is an expression used to describe the agreement by GATT contracting parties at the "Mid-Term
Review" Ministerial Meeting of the Uruguay Round negotiations, in Montreal in 1988, that certain results of the
negotiations, on which a clear consensus already existed, would enter into force immediately, although on a
provisional basis. That is, some of the fruits (of the negotiations) would be harvested early.
(6) "With a view to achieving greater coherence in global economic policy-making, the WTO shall
cooperate, as appropriate, with the International Monetary Fund and with the International Bank for
Reconstruction and Development and its affiliated agencies."
The final function underscores the interconnectedness and complementarity of the functions of the WTO with
those of the IMF and the World Bank in establishing global trade, financial and economic frameworks. This
coherence function is implemented through permanent inter-institutional contacts, mutual observerships and
similar arrangements, and co-operation on an ad hoc basis on particular issues. This quote also harks back to
the period in which the original GATT was negotiated (the Havana Conference) when it was envisaged that the
three so-called "Bretton Woods Institutions" (an International Trade Organization - which never came into
existence, the IMF, and the World Bank) would function as sister organizations under a single umbrella to
shape international economic relations in the post-war reconstruction period.
EXERCISES:
1. What is the main objective of the WTO?
2. What are the main functions of the WTO?
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IV. ORGANIZATIONAL STRUCTURE OF THE WTO
The WTO Agreement contains provisions that organize the work of the WTO. Members take their consensus-
based decisions through various bodies, which are open to all Members. In particular, WTO Members
established a working structure for the WTO to allow them to monitor the implementation of the dense network
of legal provisions and procedures that govern their trade transactions, and to further develop the WTO. This
"legal structure" is shown in the diagram below. (Note that the General Council also meets as the Trade Policy
Review Body and as the Dispute Settlement Body. The negotiations mandated by the Doha Declaration take
place in the Trade Negotiations Committee ("TNC") and its subsidiaries. This also includes the negotiations on
agriculture and services begun in early 2000. The TNC operates under the authority of the General Council.)
Figure 1: WTO organization chart
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IV.A. THE MINISTERIAL CONFERENCE
The Ministerial Conference is the highest authority in the WTO. Its sessions must take place at least once every
two years. The Ministerial Conference can take decisions on all matters under all multilateral trade agreements.
IV.B. THE GENERAL COUNCIL
The General Council constitutes the second tier in the WTO Structure. It comprises representatives from all
Member countries, usually Ambassadors/Permanent Representatives based in Geneva. It meets regularly
(approximately once a month) to adopt decisions, mostly on behalf of the Ministerial Conference when the
Conference is not in session, in which capacity it is empowered to act in respect of all WTO matters during the
periods between Ministerial Conferences.
The General Council also meets as:
The Trade Policy Review Body (TPRB), with a different Chairperson, to carry out trade policy reviews as
mandated by the Decision on the Trade Policy Review Mechanism.
The Dispute Settlement Body (DSB), with a different Chairperson to administer the rules in the Understanding
on Rules and Procedures Governing the Settlement of Disputes (DSU). The DSB has the authority to establish
panels, adopt Panel and Appellate Body Reports, oversee the implementation of rulings and recommendations,
and authorize the suspension of concessions and other obligations under the agreements for which disputes
can be settled by the DSU - the "covered agreements".
The DSB establishes Panels on an ad hoc basis, at the request of a Member (or Members) usually with the
following terms of reference:
...to "examine, in the light of the relevant provisions in the respective covered agreements, the matter
referred to the DSB by the complaining Member and to make such findings as will assist the DSB in making
the recommendations or in giving the rulings provided in that/those agreement(s)".
The DSB also appoints persons to serve on the Appellate Body. The Appellate Body makes recommendations to
the DSB. Where adopted by the DSB, Appellate Body Reports and the Panel Reports (as upheld, amended or
reversed by the Appellate Body) become binding on the disputing Members.
IV.C. THE COUNCILS
The Councils can be described as subsidiary bodies to the General Council. There are three Councils:
The Council for Trade in Goods (the Goods Council) oversees all the issues related to the Agreements
on trade in goods.
22
The Council for Trade in Services (the GATS Council) oversees all issues related to the GATS
Agreement.
The Council for Trade-Related Aspects of Intellectual Property Rights (the TRIPS Council) oversees
issues related to the TRIPS Agreement.
These Councils are composed of all WTO Members and have subsidiary bodies (see below).
Several other bodies, which focus on specific issues, report to the General Council. They are usually called
Committees, Working Groups or Working Parties; they are:
Committee on Trade and Development (CTD);
Committee on Trade and Environment (CTE);
Committee on Regional Trade Agreements (CRTA);
Committee on Balance-of-Payment Restrictions (BOP Committee); and
Committee on Budget, Finance and Administration.
Working Parties on Accession;
Working Group on Trade, Debt and Finance; and
Working Group on Trade and Technology Transfer.
The Trade Negotiations Committee ("TNC") also reports to the General Council. The TNC was set up by the
Doha Ministerial Declaration, which directed the TNC to establish subsidiary negotiating bodies to take up the
specific negotiating mandates that were agreed in a number of areas (rules, services, non-agricultural market
access, agriculture, etc.).
The subsidiary bodies include certain Negotiating Groups (e.g., the Negotiating Group on Rules), and some
Special Sessions of standing bodies (e.g., the Special Sessions of the Committee on Agriculture). The Special
Sessions (like the various Negotiating Groups) report to the TNC, and have different chairs from the regular
sessions of the standing bodies, which report to the Council for Trade in Goods.
IV.D. THE SUBSIDIARY BODIES
The three Councils (for Goods, Services and TRIPS) have subsidiary bodies.
The Goods Council has 11 committees working on specific subjects (such as agriculture, market access,
subsidies, and anti-dumping measures). These committees are composed of all Members.
The subsidiary bodies of the Services Council's deal with financial services, domestic regulations, GATS rules
and specific commitments. The Council does not have a permanently fixed number of subsidiary bodies. For
example, the Negotiating Group on Basic Telecommunications was dissolved in February 1997 when its work
ended.
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EXERCISES:
3. Please arrange the following WTO bodies in hierarchical order:
- General Council;
- Committee on Agriculture;
- Council for Trade in Goods;
- Ministerial Conference.
4. Please state the function of the following WTO bodies:
(a) General Council;
(b) Committee on Agriculture;
(c) Council for Trade in Goods;
(d) Ministerial Conference.
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IV.E. DECISION-MAKING AT THE WTO
CONSENSUS VERSUS...
The WTO is a Member-driven, consensus-based organization.
Consensus is defined as a situation in which no Member, present at a meeting where a decision is taken,
formally objects to the proposed decision. The definition is contained in Footnote 1 to Article IX of the
WTO Agreement:
"The Body concerned shall be deemed to have decided by consensus on a matter submitted for its
consideration, if no Member present at the meeting when the decision is taken, formally objects to the
proposed decision."
Consensus allows all Members to ensure their interests are properly considered.
...VOTING
Where consensus is not possible, the WTO agreement permits voting — a vote being won by a tally of the
majority of votes cast, and based on the principle "one Member, one vote".
The WTO Agreement envisages voting whenever a decision cannot be arrived at by consensus. Nevertheless,
voting has rather been exercised in the following four specific kinds of situations:
a three-quarters majority of WTO Members in the Ministerial Conference or the General Council can
adopt an interpretation of any of the multilateral trade agreements;
the Ministerial Conference, by a three-quarters majority, can waive an obligation imposed on a Member
by a multilateral agreement;
all Members or a two-thirds majority (depending on the provision of the agreement) can take a decision
to amend provisions of the multilateral agreements;
a two-thirds majority in the Ministerial Conference or the General Council in between conferences, can
take a decision to admit a new Member.
FORMALS AND INFORMALS
Important breakthroughs occur infrequently in formal meetings of subsidiary bodies or of higher level Councils.
Rather, since decisions are generally made by consensus, without voting, informal consultations among
Members as well as informal meetings of the various bodies play a vital role in bringing the diverse
Membership to agreement, before an issue is submitted to a formal meeting for decision.
One tier below formal meetings are informal plenary meetings. Because no minutes are kept of informal
meetings, discussions in this format tend to be more open and exploratory than at formal meetings, where
delegations wish to state their positions for the record. Sometimes, particularly for complex issues,
25
Chairpersons also find it useful to convene smaller groups, often working with coalitions of Members, to try to
find compromise solutions that could be accepted by all Members.
These smaller group meetings of course have to be handled sensitively. The keys to this are transparency and
inclusiveness. That is, all Members need to be kept informed even if they are not in a particular consultation or
meeting, and all must have opportunities to provide input into the process.
Market access negotiations also involve small groups, but for a completely different reason. The outcome is a
multilateral package of individual countries' commitments, which are the result of numerous informal bilateral
bargaining sessions, and in the interest of individual countries, (examples are the tariff, and market access
negotiations on trade in services).
Informal consultations of subsidiary bodies (whether involving all Members or smaller groups) play a vital role
in facilitating consensus, but they do not appear in organizational charts because they are informal. Informal
consultations feed into formal meetings, and are necessary to develop the formal decisions that will be
submitted to Committees and Councils for action. Some informal, smaller group meetings are known as
"Green Room" meetings. This name originated from the informal name of the GATT Director-General's
conference room, which at the time was green. The Director-General often works in a Green Room format,
meeting with smaller, varying groups of delegations on particular issues, to try to make progress or generate
ideas that can then be taken to all Members for further consideration.
The frequent use of informal consultations and meetings, in varying configurations, does not mean that formal
meetings are unimportant or unnecessary. To the contrary, these meetings are where the binding decisions of
the Members are taken, and they are as well fora for exchanging views and putting delegations' statements of
views on the record.
IV.F. ON-GOING NEGOTIATIONS: THE DOHA DEVELOPMENT
AGENDA
At the Ministerial Conference in Doha, Qatar in November 2001, Members launched a round of negotiations,
adopting the Doha Development Agenda and its accompanying work programme.
The Doha Ministerial Declaration, which sets the negotiating mandate, required WTO Members to set up a
Trade Negotiations Committee (TNC). The TNC then established Negotiating Groups and other negotiating
mechanisms, and supervises the on-going negotiations, under the authority of the General Council.
Negotiations are taking place:
In new Negotiating Groups, on:
Market access;
WTO rules (anti-dumping, subsidies - including fisheries subsidies, regional trade
agreements); and
Trade Facilitation.
In existing bodies, on:
Agriculture: in Special Sessions of the Committee on Agriculture;
26
Services: in Special Sessions of the Services Council;
Geographical Indications (a multilateral registration system): in Special Sessions of the Council
for Trade-Related Aspects of Intellectual Property Rights (TRIPS). Other TRIPS issues are
addressed in regular TRIPS Council meetings;
Dispute Settlement Understanding: in Special Sessions of the Dispute Settlement Body;
Trade and Environment: in Special Sessions of the Trade and Environment Committee; and
Negotiations on outstanding implementation issues are being undertaken in relevant bodies
according to paragraph 12 of the Doha Ministerial Declaration. In particular, where the issues
are subject to a specific negotiating mandate, these issues are referred to the body charged with
that negotiation (outstanding implementation issues on anti-dumping, for example, were referred
to the Negotiating Group on Rules). Where there is no specific negotiating mandate in an area
where there are outstanding implementation issues, those issues are referred to the standing
body in that area (outstanding implementation issues on safeguards, for example, were referred
to the Committee on Safeguards).
In keeping with its title as the Doha Development Agenda, considerable emphasis is placed throughout the
negotiations on special and differential treatment for developing countries (S&D) as an integral part of the WTO
Agreements. In addition, pursuant to paragraph 44 of the Doha Ministerial Declaration, and to the Decision on
Implementation-Related Issues and Concerns, all S&D provisions are to be reviewed to make them more
precise, effective and operational. These reviews are carried out in special sessions of the Trade and
Development Committee.
27
V. THE WTO AGREEMENTS
You have seen reference made above to the WTO agreements. What are these agreements?
IN BRIEF
Most of the WTO agreements are the result of the 1986–94 Uruguay Round negotiations, signed at the
Marrakesh Ministerial Meeting in April 1994. There are about 60 Agreements and Decisions totalling
550 pages. It also included a major revision of the original GATT text. (Negotiations since then have
produced additional legal texts such as the Information Technology Agreement, Services and Accession
Protocols).
The Final Act signed in Marrakesh in 1994 is like a cover note. Everything else is attached to this. Foremost is
the Agreement Establishing the WTO ("the WTO Agreement"), which serves as an umbrella agreement.
Annexed to the Agreement Establishing the WTO are the agreements on Goods, Services and Intellectual
Property, Dispute Settlement, Trade Policy Review Mechanism and the Plurilateral Agreements. The Schedules
of Commitments also form part of the Uruguay Round agreements. These schedules contain the commitments
made by individual WTO members allowing specific foreign products or service-providers access to their
markets. In the print version these schedules comprise about 30,000 pages for all WTO Members.
The ensemble of these agreements are often called the "WTO's Trade Rules", or the "WTO Law".
In other words:
The agreements include individual countries' commitments to lower customs tariffs and other trade
barriers, to open services markets and keep them open, and to protect intellectual property rights.
The agreements set out procedures for settling disputes.
The agreements prescribe special treatment for developing countries.
The agreements require governments to make their trade policies transparent by notifying the WTO
about laws in force and measures adopted, and through regular reports by the secretariat on countries'
trade policies.
The basic structure of the WTO agreements: how the six main areas fit together — the umbrella WTO
Agreement, goods, services, intellectual property, disputes settlement, trade policy reviews and the plurilateral
agreements.
28
Umbrella Agreement establishing WTO
Goods (Annex 1 A) Services (Annex 1 B) Intellectual Property
(Annex 1 C)
Basic principles GATT GATS TRIPS
Additional details Other goods agreements
and annexes 1
Services annexes 2
Market access
commitments
Countries' schedules of
commitments
Countries' schedules of
commitments(and MFN
exemptions)
Dispute settlement DISPUTE SETTLEMENT ( Annex 2)
Transparency TRADE POLICY REVIEWS (Annex 3)
Plurilateral
commitments
Plurilateral Agreements (Annex 4)
Table 2: Basic structure of the WTO Agreements
TIP
If you click on the hyperlinks, you will be able to read a brief summary about the agreements.
For more information on the GATS, there is a self-training module on the WTO site at the following
address: http://www.wto.org/english/tratop_e/serv_e/cbt_course_e/signin_e.htm
For more information on the DSU, there is a self-training module available on the WTO site at the
following address: http://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/signin_e.htm
IN MORE DETAIL
Let us take a closer look at the structure of the WTO Agreement, with a view to better understanding how the
various subsidiary Agreements are integrated into the multilateral legal framework of the WTO.
The Marrakesh Agreement establishing the World Trade Organization (the WTO Agreement) includes provisions
on establishment, scope, functions and structure of the WTO. It defines WTO's relationship with other
organizations, its secretariat, budget and contributions, legal status, and decision-making and amendment
1 The agreements that disciplines the trade in Goods, which are contained in Annex 1A, are the: General Agreement on Tariffs and Trade (GATT 1994); Agreement on Agriculture (AoA); Agreement on the Application of Sanitary and Phytosanitary Measures (SPS); Agreement on Textiles and Clothing (ATC, terminated on the 1st January 2005); Agreement on Technical Barriers to Trade (TBT); Agreement on Trade Related Investment Measures (TRIMS); Agreement on Anti-dumping (AA); Agreement on Customs Valuation; Agreement on Preshipment Inspection; Agreement on Rules of Origin; Agreement on Import Licensing; Agreement on Subsidies and Countervailing Measures; Agreement on Safeguards.
2 The Agreement that disciplines the trade in Services, which is contained in Annex 1B, is the General Agreement on Trade in Services. This Agreement has several annexes on its own, which are the: Annex on Article II Exemptions; Annex on Movement of Natural Persons Supplying Services under the Agreement; Annex on Air Transport Services; Annex on Financial Services and Second Annex on Financial Services; Annex on Telecommunications and Annex on Negotiations on Basic Telecommunications; Annex on Negotiations on Maritime Transport Services.
29
procedures (including special voting procedures). Additionally, it presents information on the definition of
original Members, accession, non-application, acceptance, entry into force and deposit, denunciation and final
provisions.
The WTO Agreement has four Annexes - Annexes 1, 2, 3 and 4.
Annexes 1, 2, and 3 are termed "Multilateral Trade Agreements".
Annex 4 is termed "Plurilateral Trade Agreements".
Note
Multilateral Agreements are agreements signed by all Members and therefore binding all WTO Members.
Plurilateral Agreements bind only those Members party to the agreement.
The Multilateral Trade Agreements (Annex 1, 2, 3) are applicable to all Members and as such have to be
complied with simultaneously, without the possibility, for the Member, of choosing just this or that agreement
to be bound by. This is the "single undertaking" principle, which is further explained below.
WHAT IS THE SINGLE UNDERTAKING?
Agreements related to GATT 1947 were negotiated during negotiating rounds prior to the Uruguay Round. In
particular, some agreements on non-tariff barriers were negotiated during the Tokyo Round. However, these
agreements were not adopted by all GATT Contracting Parties; they applied only to those countries who agreed
to be bound by them. This is what was called "GATT à la carte".
In the Uruguay Round, a different approach was adopted - it was decided that the multilateral agreements
negotiated were to be accepted as a whole. The General Agreement on Tariffs and Trade, the Agreement on
Agriculture, the Agreement on Sanitary and Phytosanitary Measures, the Agreement on Subsidies and
Countervailing Measures, the Agreement on Trade-Related Aspects of Intellectual Property Rights, the General
Agreement on Trade in Services, as well as most of the other agreements negotiated during the Uruguay
Round, are part of this "single undertaking".
However, there are four plurilateral trade agreements (Uruguay Round Agreements) that bind only those
Members who negotiated and accepted to be bound by each agreement. These are the Agreement on Trade in
Civil Aircraft, the Agreement on Government Procurement, the International Dairy Agreement and the
International Bovine Meat Agreement. The latter two were terminated at the end of 1997.
30
VI. DISPUTE SETTLEMENT
The task of ensuring that all Members live up to their commitments, and that there is a common understanding
of the nature of those commitments, is a central part of the work of the WTO. It is two-fold and involves:
the broad multilateral review and transparency aspect; and
the aspect relating to individual disputes, arising out of diverging interpretations of WTO obligations by
particular Members.
Thus, the dispute settlement not only ensures security and predictability to the multilateral trading system, but
is also concerned with situations where a Member seeks a remedy for (a perceived) damage to its trade
interests caused by the actions/inaction of other Member/s.
To sum up, the system serves to preserve the Members' rights and obligations under the WTO Agreements.
In contrast to the old GATT dispute settlement arrangement, the new rules are more detailed and provide for
deadlines and approval procedures that speed up the dispute settlement process, thereby preventing undue
delays in the settlement of disputes.
Panels and the Appellate Body are in charge of adjudicating disputes between Members. Panels are composed
of three, and exceptionally five, experts selected on an ad hoc basis. The Appellate Body is a permanent group
of seven experts in trade issues and trade law, in charge of reviewing the legal aspects of the reports issued by
panels.
Reports by panels and the Appellate Body must be adopted by the Dispute Settlement Body. Perhaps the most
important difference between the GATT and WTO dispute settlement rules is the change introduced in the
decision-making procedures. Under the GATT, dispute settlement decisions depended on the consensus
agreement of Contracting Parties. If a party to a dispute was unwilling to have a panel established, or objected
to its membership or terms of reference, or did not accept the Panel's conclusions, it could "block" a consensus
being formed on any of those issues. In the absence of consensus, no action could be taken even where a
determination was made in a Contracting Party's favour.
In the DSU the consensus requirement is reversed and a panel report is adopted "unless there is a consensus
not to adopt it", i.e. all Members are against the adoption. This is called the negative consensus rule.
Furthermore, the DSB has the authority to:
establish panels;
adopt panel and Appellate Body reports;
maintain the surveillance of the implementation of rulings and recommendations made by the panels
and the Appellate Body; and
authorize the suspension of obligations under the covered agreements.
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HOW LONG TO SETTLE A DISPUTE?
These approximate periods for each stage of a dispute settlement procedure are target figures
— the agreement is flexible. In addition, the countries can settle their dispute themselves at
any stage. Totals are also approximate.
60 days Consultations, mediation, etc.
45 days Panel set up and panellists appointed
6 months Final panel report to parties
3 weeks Final panel report to WTO members
60 days Dispute Settlement Body adopts report (if no appeal)
Total = 1 year (without appeal)
60-90 days Appeals report
30 days Dispute Settlement Body adopts appeals report
Total = 1y 3m (with appeal)
Table 3: WTO dispute settlement timeline
Finally, in the DSU, the priority is to settle disputes through consultations. A majority of disputes so far (about
two-thirds) in the WTO have not proceeded beyond consultations, either because a satisfactory settlement was
found, or because the complainant decided not to pursue the matter further. This shows that consultations are
often an effective means of dispute resolution in the WTO and that Members are cautious about not misusing
the instruments of adjudication and enforcement in the dispute settlement system.
Another important set of principles, appropriately entitled "Strengthening of the Multilateral System", is set out
under Article 23 of the DSU. This prohibits unilateral actions by Members to redress what they see as violations
of obligations, or the nullification or impairment of benefits, under any of the WTO agreements. Members are
required to use the WTO dispute settlement procedures, which includes consultations throughout the whole
process, to settle grievances related to covered agreements.
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VII. SUMMARY
OBJECTIVES OF THE WTO
Improve the welfare of the peoples of the Member countries.
FUNCTIONS OF THE WTO
Facilitate the implementation, administration and operation, and furthering of the objectives of the
WTO Agreements (including the Plurilateral Agreements);
Serve as a forum for trade negotiations;
Administer the Dispute Settlement Understanding (DSU);
Administer the Trade Policy Review Mechanism (TPRM); and
Cooperate with the IMF and the IBRD (World Bank) to achieve coherence in global economic
policy/making.
STRUCTURE OF THE WTO
Ministerial Conference
|
General Council (also DSB and TPRB)
|
Councils for Goods, Services, Intellectual Property
|
Committees
|
Sub-Committees
33
PROPOSED ANSWERS:
1. What is the main objective of the WTO?
The objective of the WTO is to improve the welfare of the peoples of the Member countries (standard of
living, employment, income, etc.) by expanding the production of, and trade in, goods and services. The
expansion of the production and trade of goods and services is to be achieved through negotiations
leading to trade liberalization.
This objective should be attained in accordance with sustainable development and with due consideration
of the development needs of developing countries.
2. What are the main functions of the WTO?
The main functions of the WTO are to:
administer trade agreements;
serve as a forum for trade negotiations;
settle trade disputes;
review Member's trade policies;
assist developing countries with trade policy issues, through technical assistance and training
programmes; and
cooperate with other international organizations.
3. Please arrange the following WTO bodies in hierarchical order: General Council; Committee on
Agriculture; Council for Trade in Goods; Ministerial Conference.
(a) Ministerial Conference;
(b) General Council;
(c) Council for Trade in Goods;
(d) Committee on Agriculture.
4. Please state the function of the following WTO bodies: (a) General Council; (b) Committee on
Agriculture; (c) Council for Trade in Goods; (d) Ministerial Conference.
The Ministerial Conference is the highest authority of the WTO. It meets at least once every two years.
Below the Ministerial Conference in rank is the General Council. It takes all decisions on behalf of the
Ministerial Conference when the Ministerial Conference is not in session. The General Council meets
regularly (in principle, monthly), usually at the Geneva Headquarters. The General Council reports to the
Ministerial Conference.
Below the General Council is the Council for Trade in Goods (CTG). It oversees the implementation of the
multilateral agreements on trade in goods (Annex 1A of the Marrakesh Agreement), and it reports to the
General Council.
The Committee on Agriculture is one of several subsidiary bodies of the CTG. It is responsible for the
implementation of specific provisions and agreements, such as the Agreement on Agriculture.
All Members participate in the work of all WTO Bodies.
The WTO continues the GATT principle of taking decision by "consensus".
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5. What is the WTO Agreement?
The WTO Agreement is the 1994 Marrakesh Agreement Establishing the WTO. It has four Annexes.
Annex 1 includes the Multilateral Agreements on Trade. It is divided into three sections:
Annex 1A (the Multilateral Agreements on Trade in Goods);
Annex 1B (the General Agreement on Trade in Services); and
Annex 1C (the Agreement on Trade-Related Aspects of Intellectual Property Rights).
Annex 2 contains the Understanding on Rules and Procedures Governing the Settlement of Disputes
(DSU). It is dedicated to rules governing the dispute settlement system in the WTO.
Annex 3 is dedicated to rules governing the Trade Policy Review Mechanism (TPRM) in the WTO.
Annex 4 contains the Plurilateral Trade Agreements.
35
Introduction to WTO basic
principles and rules ESTIMATED TIME: 6 hours
OBJECTIVES OF MODULE 2
Explain the non-discrimination rules: Most Favoured Nation (MFN) Principle and
National Treatment (NT) Principle;
Explain the market-access rules;
Explain the exceptions to the basic principles; and
Introduce WTO rules on trade remedies and subsidies: Anti-dumping measures;
subsidies and countervailing measures; safeguard measures.
MODULE
2
37
PART I: BASIC PRINCIPLES IN THE WTO
I. INTRODUCTION
As you saw in Module 1, multilateral rules and principles were agreed back in 1947 to govern trade in goods
between GATT Contracting Parties. From 1947 to 1994, the GATT provided the forum for negotiating lower
customs duty rates and reducing or eliminating other trade barriers. The text of the GATT contained important
rules, particularly non-discrimination.
After the conclusion of the Uruguay Round and the entry into force of the WTO Agreement, the basic principles
formulated in the GATT remained fundamentally unchanged. Since 1995, the updated GATT (called "GATT
1994") has become the general agreement governing trade in goods. Under this umbrella this, other
agreements cover specific goods sectors such as agriculture, or specific issues such as technical barriers to
trade, or subsidies.
The WTO Agreement also incorporated new disciplines beyond trade in goods, for example the General
Agreement on Trade in Services (GATS) and the Agreement on Trade-Related aspects of Intellectual Property
Rights (TRIPS Agreement).
In this section, you will study the non-discrimination principles and their specific exceptions with reference to
the GATT, the GATS and the TRIPS Agreement.
38
II. RULES ON TRADE IN GOODS
II.A. NON-DISCRIMINATION PRINCIPLE
Non-discrimination is a fundamental principle of the multilateral trading system and is recognized in the
Preamble to the WTO Agreement as a key instrument to achieve the objectives of the WTO. In the Preamble,
WTO members express their desire to eliminate discriminatory treatment in international trade relations. Non -
discrimination in the WTO is embodied by two principles, the most favoured nation (MFN) treatment obligation
and the national treatment obligation.
The MFN principle applies to trade in goods, trade in services, and trade related aspects of intellectual
property. According to the Appellate Body in the EU - Tariff Preferences case (WT/DS246), the MFN obligation
is a cornerstone of the GATT and one of the pillars of the WTO trading system (paragraph 101).
II.A.1. THE MFN PRINCIPLE WITH REGARD TO THE TRADE IN GOODS
IN BRIEF
Pursuant to the WTO agreements, Members cannot normally discriminate among their trading partners. If a
Member grants to a country a special favour (such as a lower customs duty on one of its products) it must
grant the favour immediately and unconditionally to all WTO members.
IN DETAIL
Members of the WTO can be seen as members of a club. One of the fundamental rules of the club is that each
member will grant any other member the best possible treatment it grants to anyone else. Hence, each
member of the club is guaranteed to receive the best possible treatment from each of its fellow-members.
For example, let us assume that Rauritania's MFN duty (duty applicable to all WTO Members) for tomatoes is
10%. Medatia is a big tomato producer interested in increasing its exports of tomatoes to Rauritania.
During a WTO negotiating round, the Government of Medatia initiates tariff negotiations on tomatoes with
Rauritania. After long and difficult bilateral meetings, Rauritania agrees to give Medatia duty free access (0%
tariff) for tomatoes. Rauritania cannot limit this duty-free access to its market only to tomatoes from Medatia.
Rather, according to the MFN principle, Rauritania has to extend the 0% duty on tomatoes to all WTO
Members. This is because all WTO Members should enjoy the most favourable treatment on their tomatoes
that Rauritania grants to any country.
For trade in goods, the MFN principle requires each Member to extend to all other Members treatment no less
favourable than it accords to imports from any other country.
39
II.A.2. GATT ARTICLE I:1
GATT Article I:1 contains the specific rules for MFN treatment for goods.
GATT Article I:1 General Most-Favoured-Nation Treatment
1. With respect to customs duties and charges of any kind imposed on or in connection with importation
or exportation or imposed on the international transfer of payments for imports or exports, and with
respect to the method of levying such duties and charges, and with respect to all rules and
formalities in connection with importation and exportation, and with respect to all matters referred to
in paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any
Member to any product originating in or destined for any other country shall be accorded
immediately and unconditionally to the like product originating in or destined for the territories of all
other Members.
The general effect of Article I.1 is to create the obligation among WTO Members to give to one anothers' like
products the best existing market access opportunities, without discrimination in law or in fact.
A detailed reading of the provision reveals that the key elements of the MFN principle are:
1. Any advantage, favour or privilege covered in Article I.1.
2. Like product.
3. The immediate and unconditional grant to all Members of the advantage at issue in respect of the like
product concerned.
ANY ADVANTAGE COVERED IN ARTICLE I:1
The advantages that a WTO Member must grant to all members' like products without discrimination in fact or
in law are listed in the first part of Article I.1. They are advantages in respect of the following measures:
Customs duties;
Any duties and charges imposed on importation or exportation;
Any duties and charges imposed in connection with importation or exportation;
Any duties and charges imposed on the international transfer of payments for imports and exports;
The method of levying such duties and charges;
The rules and formalities in connection with importation and exportation;
Internal taxes or other internal charges (covered in Article III.2);
Laws, regulations and requirements affecting internal sale, offering for sale, purchase, transportation,
distribution or use of any product (covered in Article III.4).
The scope of the measures covered in Article I.1 in practice is wide enough to cover a very broad range of
measures in relation to exportation and importation as well as internal measures.
40
LIKE PRODUCTS
The MFN obligation applies to like products. The idea of "likeness" is very relative and is not defined in the
GATT, therefore WTO case law has developed four criteria that should be considered in deciding if products are
like (see for example, Japan – Taxes on Alcoholic Beverages - WT/DS8, 10 and 11; and Canada - Autos
WT/DS139 and 142). Such consideration should be assessed on a case by case basis but the said factors are
as follows:
1. physical characteristics of the products;
2. end use of the products;
3. consumer preferences;
4. the classification of the products in Members' tariff laws.
THE IMMEDIATE AND UNCONDITIONAL GRANT OF THE ADVANTAGE TO THE LIKE PRODUCTS
CONCERNED
Once a WTO Member has granted an advantage to imports from any country, it must immediately grant that
advantage to imports from all WTO Members. Furthermore, it cannot make the granting of that advantage to
imports from all WTO members conditional upon receiving something in return. This obligation applies equally
to exports, therefore advantages granted by a WTO Member to exports to any country must be granted
immediately and unconditionally to exports to all WTO Members.
PROVISIONS THAT ALLOW DEROGATION FROM MFN
EXCEPTIONS
The MFN principle, while a cornerstone of the multilateral trading system, is not a monolithic, absolute rule. In
fact, there are a number of provisions that allow certain departures from this principle, in specified
circumstances. These provisions will be covered in more detail below. These provisions include:
general exceptions;
specific exceptions for historical preferences (GATT Articles I:2-I:4)
frontier traffic (GATT Article XXIV:3);
security exceptions;
balance of payment exceptions;
waivers;
regional integration exceptions;
trade remedies.
SPECIFIC EXCEPTIONS RELATED TO THE MFN OBLIGATION CAN BE SUMMARIZED AS FOLLOWS:
Historical Preferences (GATT Article 1.2-4):
Frontier Traffic (GATT Article XXIV:3):
41
II.A.3. ILLUSTRATION
MFN Principle (for Goods)
Let us assume that Vanin, Medatia and Tristat are WTO Members and that Rauritania is not. The MFN principle
would prohibit Vanin's customs authorities from levying a customs duty of 10% for imported skateboards
originating in Medatia, while levying a lower customs duty of 5% for imported skateboards originating in
Tristat. The MFN principle requires that the WTO favourable treatment (5%) be granted automatically and
unconditionally to imported skateboards originating from all WTO members (in this case, Medatia). The
application of this principle would be the same if the "best treatment" had been initially granted to skateboards
originating in Rauritania, which is not a WTO Member.
One relevant issue is whether skateboards from Medatia are "like products" vis-à-vis skateboards from Tristat.
If they are not like products, then different treatment (customs duty) may be applied. However, assuming that
they are like products, there would be a violation of the MFN obligation by Vanin.
However, if one of the permitted departures from the MFN or general WTO obligations applies, Vanin's conduct
could be considered a permitted derogation and, assuming all applicable conditions were fulfilled, would be
consistent with its WTO obligations.
EXERCISES:
1. GATT Article I.1 says: "With respect to customs duties … any advantage … granted by any Member to any
product originating in or destined for any other COUNTRY shall be accorded immediately and
unconditionally."
Why did the drafters of Article I.1 of the GATT 1994 refer to "any other COUNTRY" and not "any other
MEMBER"?
42
II.B. THE MFN PRINCIPLE UNDER GATS
Under Article II of the GATS, WTO Members are held to extend immediately and unconditionally to services and
service suppliers of all other Members "treatment no less favourable than that accorded to like services and
service suppliers of any other country". Therefore, the best access conditions that have been conceded to one
country must be extended to all WTO Members. This amounts to a prohibition, in principle, of preferential
treatment among Members, or groups of Members, in individual sectors, or of reciprocity provisions which
confine access benefits to trading partners granting similar treatment.
The MFN obligation is applicable to any measure that affects trade in services in any sector falling under the
Agreement, whether specific commitments have been undertaken or not.
SPECIFIC EXEMPTIONS
Derogations are possible in the form of Article II-Exemptions. WTO members were allowed to seek
exemptions under the Annex on Article I Exemptions before the GATS entered into force. New
exemptions can only be granted to new members at the time of accession or, in the case of current
members, by way of a waiver under Article IX:3 of the WTO Agreement. All exemptions in principle
should not last longer than 10 years and are subject to periodic review in the Council for Trade in
Services;
Exemptions in maritime transport services are still possible (Annex on Negotiations on Maritime
Transport Services and doc. S/L/24).
Note that the GATS allows groups of Members to enter into economic integration agreements (Article V) and to
mutually recognize regulatory standards and certificates (Article VII), subject to certain conditions.
II.C. THE MFN PRINCIPLE UNDER TRIPS
The MFN Principle under the Agreement on Trade Related Aspects of Intellectual Property ("TRIPS Agreement")
is found in Article 4 of the TRIPS Agreement. It requires that "With regard to the protection of intellectual
property, any advantage, favour, privilege or immunity granted by a Member to the nationals of any other
country shall be accorded immediately and unconditionally to the nationals of all other Members...".
The wording of Article 4 of the TRIPS Agreement is similar to that of GATT Article I. However, unlike the GATT,
in which the subject of MFN treatment is goods, or GATS in which the subjects of MFN treatment is services or
service suppliers, in the context of the TRIPS Agreement, the subject of MFN treatment is "nationals". The
term national includes persons, natural or legal, who are domiciled or who have a real and effective industrial
or commercial establishment in that customs territory. The MFN principle under TRIPS applies to any
advantage conferred to the nationals of any other country, even if the benefited country is not a WTO Member.
Article 1.3 states that "when 'nationals' are referred to in this Agreement, they shall be deemed, in the case of
a separate customs territory Member of the WTO, to mean persons, natural or legal, who are domiciled or who
have a real and effective industrial or commercial establishment in that customs territory". The footnote
43
concerns only separate customs territories i.e., a minority of the Membership. For further information see the
text of Article 1.3 itself.
SPECIFIC EXEMPTIONS
There are some important exemptions specifically related to the MFN Principle in the TRIPS Agreement. These
are listed in Article 4 (a) - (d) of the TRIPS Agreement.
EXERCISES:
2. Most-favoured-nation treatment must be ensured for which types of services?
44
III. NATIONAL TREATMENT (ARTICLE III)
In this section, the National Treatment principle, which constitutes the second component of the non-
discrimination pillar of the multilateral trading system, will be discussed. (The first component is the MFN
principle, presented in the previous section.)
IN BRIEF
While the MFN principle seeks to ensure that a WTO Member does not discriminate between like products
originating in or destined for other WTO Members, the National Treatment principle addresses the treatment
to be applied to imported products once they are in a Member's territory. The National Treatment principle
prohibits a Member from favouring its domestic products over the imported products of other Member
countries.
The National Treatment principle for trade in goods is set forth in GATT Article III; for trade in services in
GATS Article XVII; and for trade-related aspects of intellectual property rights in Article 3 of the TRIPS
Agreement.
III.A. THE NATIONAL TREATMENT PRINCIPLE IN RULES ON
TRADE IN GOODS
According to the national treatment principle, each Member should treat imports into its territory no less
favourably than it treats like domestically produced goods.
The national treatment obligation for goods is provided in Article III of the GATT 1994. The relevant portions
of GATT Article III are paragraphs 1, 2 and 4 as well as the explanatory Ad Note to Article III.
GATT Article III: National Treatment on Internal Taxation and Regulation
1. Members recognize that internal taxes and other internal charges, and laws, regulations and
requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use
of products, and internal quantitative regulations requiring the mixture, processing or use of products
in specified amounts or proportions, should not be applied to imported or domestic products so as to
afford protection to domestic production.
2. The products of the territory of any Member imported in to the territory of any other Member shall not
be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of
those applied, directly or indirectly, to like domestic products. Moreover, no Member shall otherwise
apply internal taxes or other internal charges to imported or domestic products in a manner contrary
to the principles set forth in paragraph 1.
....
4. The products of the territory of any Member imported into the territory of any other Member shall be
accorded treatment no less favourable than that accorded to like products of national origin in respect
of all laws, regulations, transportation, and requirements affecting their internal sale, offering for sale,
45
purchase, transportation distribution or use. The provisions of this paragraph shall not prevent the
application of differential internal transportation charges which are based exclusively on the economic
operation of the means of transport and not on the nationality of the product.
III.A.1. ARTICLE III:1 - THE GENERAL OBLIGATION
Article III:1 lays out the general objective and scope of the national treatment obligation.
The stated objective is to ensure that internal measures are not applied to domestic and imported products so
as to afford protection to domestic production.
With regard to the scope of this provision, the national treatment obligation applies to internal measures as
opposed to border measures. Thus, before seeking to apply Article III, it is important to ensure that the
measure at issue is an internal measure and not a border measure, as the latter would fall under Articles II and
XI and not Article III. Distinguishing between an internal measure and border measure is assisted by the Ad
Note to Article III which provides the following:
III.A.2. AD NOTE: TO ARTICLE III
"Any internal tax or other internal charge, or any law, regulation or requirement of the kind referred to in
paragraph 1, which applies to an imported product and to the like domestic product and is collected or
enforced in the case of the imported product at the time or point of importation, is nevertheless to be regarded
as an internal tax or other internal charge, or a law, regulation or requirement of the kind referred to in
paragraph 1, and is accordingly subject to the provisions of Article III."
III.A.3. ARTICLE III:2 - INTERNAL TAXATION
Article III:2 applies the general non-discrimination principle set out in paragraph 1 to internal taxation. The
first sentence deals with the internal taxation of like products, while the second sentence (by cross reference
with the relevant Ad Note) deals with the internal taxation of directly competitive or substitutable products.
III.A.4. ARTICLE III:2 - FIRST SENTENCE
To establish an infringement of the first sentence (i.e., in respect of like products), one must show that two
elements are present:
(1) The imported and domestic products are like products;
(2) The imported products are taxed in excess of the domestic products.
46
(1) The imported and domestic products are like products
The determination of likeness for the purposes of the first sentence is to be made on a case by case basis but
the following four criteria should be used to assist in the determination:
1. The product's end uses;
2. Consumer tastes and habits;
3. The product's properties nature and quality;
4. Tariff classification.
(2) The imported products are taxed in excess of the domestic products
The taxes levied on imported products cannot be in excess of those levied on like domestic products. The
slightest (even de minimis) margin of excessive taxation on an imported product will constitute an
infringement.
III.A.5. ARTICLE III:2 - SECOND SENTENCE
If either of the elements in the first sentence of GATT Article III:2 cannot be established, there still may be an
infringement of the second sentence of that provision, which casts a wider net.
To establish an infringement of the GATT Article III:2, second sentence, one must show 3 elements:
(1) The imported and domestic products are directly competitive or substitutable;
(2) The domestic and imported products are not similarly taxed;
(3) The dissimilar taxation is applied to give protection to domestic production.
(1) The imported and domestic products are directly competitive or substitutable
The second sentence of Article III:2 applies to competitive or directly substitutable products. This is a much
broader concept than likeness in the first sentence because the first sentence applies only to products that are
perfectly substitutable whereas the second sentence is broad enough to include products that are imperfectly
substitutable.
(2) The domestic and imported products are not similarly taxed
In the first sentence, even the slightest difference in tax between imported and domestic products will lead to
inconsistency with the national treatment obligation. This is not the case with regard to the second sentence,
where the requirement is that the product must be "similarly taxed". Thus, in that text the difference in tax
must be more than de minimis to constitute an infringement of the national treatment obligation.
(3) The dissimilar taxation is applied to give protection to domestic production
47
If it is established that a dissimilar taxation is applied, it then also must be established that the dissimilarity
was applied so as to afford protection to domestic production. Here, intent is not sufficient. Rather, it is the
design, structure etc. of the measure as applied that must be examined.
III.A.6. ARTICLE III:4 - INTERNAL LAWS, REGULATIONS AND
REQUIREMENTS
As opposed to Article III:2, which deals with internal taxation, the national treatment obligation in Article III:4
is concerned with internal laws, regulations and requirements. There are three elements that must be shown
to establish an infringement of Article III:4. They are:
(1) The measure is a law, regulation or requirement covered in Article III:4;
(2) The imported and domestic products are like products;
(3) The imported products are afforded less favourable treatment.
(1) The measure is a law, regulation or requirement covered in Article III:4
Article III:4 relates to all laws, regulations, and requirements affecting the internal sale, offering for sale,
purchase, transportation, distribution or use of products.
(2) The imported and domestic products are like products
The scope of likeness in paragraph 4 is wider than in the first sentence of paragraph 2. This is because the
scope of the first sentence must be read in light of its interpretive relationship with the second sentence,
something that does not apply to Article III.4.
Determining if products are like for the purposes of Article III:4 should be made on a case by case basis,
employing the following 4 criteria:
1. The physical properties of the products.
2. The extent to which the products are capable of serving the same or similar uses.
3. The extent to which consumers perceive and treat the goods as substitutable.
4. The international classification of the goods for tariff purposes.
(3) The imported products are afforded less favourable treatment
The national treatment obligation requires that imported and domestic products be given equal treatment in
terms of competitive opportunities. Therefore, if a measure treats imported products less favourably than it
does like domestic products, the measure will be inconsistent with the national treatment obligation.
EXERCISES:
3. A Member prohibits advertisements of foreign watches. Is this compatible with the GATT 1994?
48
III.B. EXCEPTIONS
As with MFN, there are general and specific exceptions to the principle of national treatment. General
exceptions of a horizontal nature and protective measures which also constitute derogations from other rules
are examined in Part IV.
Specific exceptions related only to the National Treatment principle can be summarized as follows:
III.B.1. GOVERNMENT PROCUREMENT (GATT ARTICLE III:8A)
Advantages or preferences can be accorded to domestic products over imported ones if government agencies
purchase such products for government purposes and not for commercial resale or use in the production of
goods for commercial sale.
The Plurilateral Agreement on Government Procurement contains specific rules pertaining to the opening of the
procurement process by government entities to international competition. Because of its plurilateral nature,
the rights and obligations it contains only bind the members that have ratified it. The Plurilateral Agreement
on Government Procurement originated among some GATT Contracting Parties in the Tokyo Round, and further
developed in the Uruguay Round.
III.B.2. SUBSIDIES TO DOMESTIC PRODUCERS (GATT ARTICLE III:8B)
Governments can provide subsidies (including payments to domestic producers derived from the proceeds of
internal taxes or charges applied consistently with the provisions of Article III) exclusively to domestic
producers (i.e., not to foreign producers) without violating the national treatment principle. In other words,
the fact that a Member does not provide a subsidy to the (foreign) producers of imported goods, when it does
provide a subsidy to its domestic producers of the same or similar goods, does not violate the national
treatment principle.
III.B.3. CINEMATOGRAPH FILMS (GATT ARTICLE III:10 AND ARTICLE IV)
As an exception to the National Treatment principle, negotiators of the GATT retained the possibility of giving
preferences to products emanating from the national movie industry (exposed cinematograph films). National
preferences are governed by the provisions of GATT Article IV, and take the form of internal quantitative
regulations in "screen quotas".
This provision must now be read together with specific commitments taken by Members in the audio-visual
sector in the GATS Agreement.
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III.B.4. ILLUSTRATION
National Treatment (for Goods)
Let us assume that Vanin, Medatia and Tristat are WTO Members.
GATT Article III embodies the principle of National Treatment. It prohibits WTO members from discriminating
in favour of domestically produced goods. The result is that once the applicable border duties (e.g. tariffs)
have been paid, the importing Member cannot apply any further burdens on imports that are not applied to the
domestic like products.
Article III applies to two types of internal measures. Article III:2 applies to "internal taxes or other internal
charges", while Article III:4 applies to "all laws, regulations and requirements" affecting their internal sale,
offering for sale, purchase, transportation, distribution or use.
Therefore, Vanin would be prohibited from applying a sales tax of 5% on domestically produced skateboards,
while applying a sales tax of 10% on imported skateboards from Medatia or Tristat. Based on the assumption
that the domestic and imported skateboards are "like products", this sales tax would violate Article III:2
because the measure taxes imported products "in excess" of the applicable tax on domestic like products.
III.C. NATIONAL TREATMENT IN GATS
Article XVII of the GATS governs national treatment for services:
"1. In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out
therein, each Member shall accord to services and service suppliers of any other Member, in respect of
all measures affecting the supply of services, treatment no less favourable than that it accords to its
own like services and service suppliers. (10)
2. A Member may meet the requirement of paragraph 1 by according to services and service suppliers of
any other Member, either formally identical treatment or formally different treatment to that it accords
to its own like services and service suppliers.
3. Formally identical or formally different treatment shall be considered to be less favourable if it modifies
the conditions of competition in favour of services or service suppliers of the Member compared to like
services or service suppliers of any other Member."
National treatment under GATS Article XVII implies the absence of discriminatory measures that may modify
the conditions of competition in favour of domestic services and service suppliers as compared to foreign like
services and like service suppliers. Hence, WTO members are not to modify, in law or in fact, the conditions of
competition in favour of their own service industry.
National treatment (as well as market access) in the GATS is not a general obligation, but is granted only in
sectors that a Member lists in its national schedule of "specific commitments". To explain: each WTO Member
is required to have a schedule of specific commitments that identifies the services for which the Member
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guarantees market access (Article XVI) and national treatment (Article XVII), and any limitations that may be
attached thereto. That is, limitations may be attached to specific commitments in order to reserve the right to
apply measures inconsistent with full market access and/or national treatment.
Hence, the extension of national treatment in any sector may be made subject to conditions and qualifications.
Limitations may be listed to provide cover for inconsistent measures, such as discriminatory subsidies and tax
measures, residency requirements, etc. It is for the individual Member to ensure that all potentially relevant
measures are listed (examples of frequently scheduled national treatment restrictions are in Attachment 1 to
document S/L/92).
This means that the GATS allows each Member to adjust the conditions of market entry and participation to its
sector-specific objectives and constraints. Specific commitments on market access and national treatment
guarantee minimum levels of treatment, but do not prevent Members from being more open (or less
discriminatory) in practice.
Note
At a glance, it may be difficult to understand why the national treatment obligation under the GATS is more
limited in scope — confined to scheduled services and subject to possible limitations — than under the GATT,
where it applies across the board. The reason lies in the particular nature of services trade. Universal
national treatment for goods does not necessarily imply free trade. Imports of foreign goods can still be
controlled by tariffs which, in turn, may be bound in the country's tariff schedule. By contrast, given the
impossibility of operating tariff-type measures across intangible services transactions, regulatory distinctions
are the only way to control the supply of foreign services. In these conditions, the general extension of
national treatment in services would in practice be tantamount to guaranteeing completely free market
access.
III.D. NATIONAL TREATMENT IN TRIPS
National Treatment has long been a feature of intellectual property conventions. For trade-related aspects of
intellectual property rights (TRIPS), the national treatment principle prohibits treating foreign nationals less
favourably than nationals in the context of the implementation of national or international intellectual property
laws or regulations.
The obligation is found both in Article 3 of the TRIPS Agreement itself and in the provisions of the Paris
Convention, the Berne Convention, the Rome Convention and the Treaty on Intellectual Property in Respect of
Integrated Circuits (IPIC Treaty) which are incorporated by reference in the TRIPS Agreement. These
obligations are worded somewhat differently from Article 3 of TRIPS. Naturally, such national treatment
obligations are limited in scope to the intellectual property covered by the pertinent convention.
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SPECIFIC EXEMPTIONS
There are some exemptions specifically related to the national treatment principle in Article 3 of TRIPS. They
refer to exceptions which are provided in the:
(1) Paris Convention (1967) for the Protection of Industrial Property;
(2) Berne Convention (1971) for the Protection of Literary and Artistic Works;
(3) Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting
Organizations; and the
(4) Treaty on Intellectual Property in Respect of Integrated Circuits.
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IV. SUMMARY PART I
THE MAIN PRINCIPLES OF THE GATT
As you have seen there are two main principles of non-discrimination, the MFN and the national treatment
principles.
GATT ARTICLES CONTAINING THE PRINCIPLES
Most Favoured Nation – Article I
National Treatment – Article III
GATS ARTICLES CONTAINING THE PRINCIPLES
Most Favoured Nation – Article II:1
National Treatment – Article XVII
TRIPS AGREEMENT ARTICLES CONTAINING THE PRINCIPLES
Most Favoured Nation – Article 4
National Treatment – Article 3 of the TRIPS Agreement
EXCEPTIONS AND DEROGATIONS TO THESE BASIC OBLIGATIONS
Specific exceptions are included in the articles containing the principles
General Exceptions also are provided for, in separate provisions.
Under the GATT, the subject of MFN treatment is goods; under the GATS the subjects are services and
service providers; and in the TRIPS Agreement, the subject of MFN treatment is "nationals".
For goods, the MFN principle prohibits discrimination among imports on the basis of their origin or
destination.
The MFN Principle for services obliges WTO Members to "...accord immediately and unconditionally to
services and service providers of any other Member, treatment no less favourable than that it accords to like
services and service providers of any other country".
For intellectual property, pursuant to MFN, any advantage, favour, privilege or immunity granted by a
Member with regard to the protection of intellectual property, to the nationals of any other country shall be
accorded immediately and unconditionally to the nationals of all other Members.
As for national treatment, for goods this principle prohibits a Member from favouring its domestic products
over the imported products of other Members.
For services, the national treatment principle (as well as the provisions on market access) commits Members
to giving no less favourable treatment to foreign services and service suppliers than provided for in the
relevant columns of their respective schedule of commitments.
For intellectual property, each Member is to accord to the nationals of other Members treatment that is no
less favourable than that it accords to its own nationals with regard to the protection of intellectual property,
subject to the exceptions already provided in, respectively, the Paris Convention (1967), the Berne
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Convention (1971), the Rome Convention or the Treaty on Intellectual Property in Respect of Integrated
Circuits.
In addition to the specific exceptions that you have seen for the principles for goods, services and
intellectual property rights, there are other exceptions of a horizontal nature, which also constitute
derogations from other rules. These horizontal exceptions and protective measures include the general and
security exceptions provisions in the GATT, GATS and TRIPS Agreements.
54
PROPOSED ANSWERS:
1. GATT Article I.1 says: "With respect to customs duties … any advantage … granted by any
Member to any product originating in or destined for any other COUNTRY shall be accorded
immediately and unconditionally."
Why did the drafters of Article I.1 of the GATT 1994 refer to "any other COUNTRY" and not
"any other MEMBER"?
If GATT Article I.1 referred to any other MEMBER, this would mean that members need only ensure that
the best treatment, given to products originating in one of the members, be extended to the other
members.
This could therefore mean that a Member could grant an advantage to products originating in a country
which is not a WTO Member without having to extend this MFN treatment to the other WTO Members.
With the present text (using COUNTRY), the advantages given to products from one country must also be
extended to products from all WTO members. Consequently, WTO members get the best treatment
except for derogations permitted by the WTO Agreements.
2. Most-favoured-nation treatment must be ensured for which types of services?
For all services covered by GATS.
In the GATS, the MFN obligation (Article II) is applicable to any measure that affects trade in services in
any sector falling under the Agreement, whether or not specific commitments have been made.
Exemptions could have been sought at the time of the acceptance of the Agreement (for acceding
countries: date of accession), or, in the case of current Members, by way of a waiver under Article IX:3 of
the WTO Agreement. They are contained in country-specific lists, and their duration must not exceed ten
years in principle.
3. A Member prohibits advertisements of foreign watches. Is this compatible with the GATT
1994?
The ban on advertising constitutes a measure "affecting the internal sale" of imported "like products"
under GATT Article III.4.
This measure would be a violation of Article III.4 if foreign and domestic skateboards are "like products"
under Article III.4, because the prohibition on the advertising of foreign skateboards amounts to treating
imported goods less favourably than "like" domestic goods.
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PART II: BASIC PRINCIPLES RELATED TO MARKET ACCESS
I. INTRODUCTION
As you certainly imagine, there are many possible impediments to market access for goods, services and
intellectual property. The two main categories of barriers to market access for goods are (1) tariff and (2)
non-tariff barriers.
The reduction of tariff and non-tariff barriers to market access is, together with the elimination of
discrimination, a key instrument to achieve the objectives of the WTO.
The various WTO agreements have rules on market access.
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II. WHAT IS A TARIFF?
Tariffs, also called "customs duties", are the most common and widely used barrier to market access for goods.
A tariff is a financial charge in the form of a tax, imposed on merchandise imports. Tariffs can also be imposed
on exports.
Import tariffs give a price advantage to similarly produced local goods and raise revenue for governments, as
market access is conditional upon the payment of the custom duty. In addition, a tariff can be used to
promote a rational allocation of scarce foreign exchange.
Tariffs can be specific, ad valorem, or mixed. A specific tariff is an amount based on the weight, volume or
quantity of product, for example, US$ 7 per kilo. An ad valorem tariff is levied as a percentage of value, for
example, a 7% duty on cars. So the duty on a car worth US$ 7,000 would be ₤490. A mixed or compound
tariff is made up of a specific and ad valorem tariff. For example, a mixed tariff might be 5% ad valorem plus
a fixed amount of US$100 per unit.
II.A. NEGOTIATIONS ON TARIFF REDUCTIONS
The WTO does not prohibit the use of tariffs; however, there is the recognition that tariffs often constitute
obstacles to trade. The GATT thus provides rules on tariff negotiations. Article XXVIIIbis of GATT 1947
contains the original mandate on tariff negotiations. A major component of the current negotiations under the
Doha Development Agenda is the reduction of tariffs on agricultural and non-agricultural goods.
One result of the Uruguay Round was Members' commitment to cut tariffs and to "bind" their customs duty
rates, making tariffs difficult to increase thereafter. Members made commitments on specific categories of
goods. In the Uruguay Round, there was a significant increase in the number of "bound" tariffs, or duty rates.
II.B. PRINCIPLES ON TARIFF NEGOTIATIONS
Tariff negotiations are based on (1) reciprocity and mutual advantage, and (2) the most favoured nation (MFN)
treatment obligation.
II.B.1. RECIPROCITY AND MUTUAL ADVANTAGE
Article XXVIIIbis of GATT 1994 provides for reciprocity and mutual advantage with regard to tariff negotiations.
According to this principle, where a Member requests another Member to reduce its tariffs on certain products,
the requesting Member must be prepared to reduce its own tariffs on products of export interest to the
Member to which the request is made.
However, reciprocity and mutual advantage do not apply fully to negotiations between developed and
developing Members. According to the Enabling Clause, developed Members shall not seek, and developing
Members shall not be required to make, concessions that are inconsistent with the latter's development,
financial and trade needs. Similarly, the Enabling Clause instructs developed Members to exercise the utmost
57
restraint in seeking concessions from least-developed country ("LDC") Members in return for commitments to
reduce or remove tariffs on their imports from LDCs.
II.B.2. MFN TREATMENT
According to the MFN treatment obligation set out in Article I:1 of the GATT 1994, any tariff reduction a
Member grants to any country, as a result of tariff negotiations with that country, must be granted to all WTO
Members immediately and unconditionally.
II.C. NATIONAL TARIFFS
The word "tariff" also has a second meaning, as a structured list of product descriptions and their
corresponding customs duties. Most national tariffs reflect the structure in the Harmonized Commodity
Description and Coding System - an international commodity classification system. This comes from the
International Convention on the Harmonized Commodity Description and Coding System which entered into
force on 1 January 1988 and to which most WTO Members are parties.
II.D. SCHEDULE OF CONCESSION (ARTICLE II)
The schedules of tariff concessions are legal instruments attached to the Marrakesh Agreement - through the
"Marrakesh Protocol" - and form an integral part of the legally binding commitments made by WTO members.
GATT Article II.1b - first sentence: Schedule of Concessions.
1.b) "The products described in Part I of the Schedule relating to any Member, which are the products of
territories of other Members, shall, on their importation into the territory to which the Schedule
relates, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt
from ordinary customs duties in excess of those set forth and provided therein …"
A Member's Schedule consists of a list of products for each of which the Member concerned has agreed to a
maximum applicable customs duty, which is that Member's "bound" tariff on that product. Each listed product
is identified by a code and its description is usually based on the Harmonized Commodity Description and
Coding System of Classification (HS). Thus, a Member's Schedule is the compilation of all of its tariff bindings,
each of which has been arrived at through negotiation with other interested Members. Members are not
obliged to bind tariffs on all imports of goods. However, after more than 50 years of GATT and WTO, and
numerous rounds of tariff cutting negotiations, many tariff levels are now bound.
A thorough reading of a Member's Schedule - including footnotes and head notes – is necessary for a precise
understanding of what has been agreed by that Member. Specific limitations or particular conditions may be
agreed during the negotiations and inscribed as part of, or as limitations to, commitments in the schedule.
58
Each WTO Member has a Schedule, except for members that are part of a customs union. Customs unions
sometimes have a single schedule for all members of the union. GATT Article II regulates the schedules of
tariff concessions on goods. (See the Online Library for an example of a schedule).
WHAT IS A "BOUND TARIFF"?
A "bound tariff" is a tariff which the importing Member has undertaken, via a legal commitment, not to raise
above a specified (bound) level. As noted above, these legal commitments (tariff bindings) are set forth in
each Member's Schedule. The bound level of the tariff is the maximum level of customs duty that that Member
can levy on its imports of the product in question. Economic operators thus are legally guaranteed, via the
tariff bindings, that the ordinary customs duty which will be levied on their products entering the territory of a
Member will not be higher than the bound level indicated in the importing Member's Schedule.
Each Member negotiates its tariff bindings with other, interested Members. These tariff binding negotiations
are referred to as "market access negotiations". Because they concern particular products, market access
negotiations generally are conducted only among interested Members, often bilaterally. In those negotiations,
bound levels may be determined on the basis of "targets", or on percentage tariff cuts, or other formulas.
Acceding countries also have to negotiate their Schedules in the market access negotiations phase of their
accession processes. Although agreement on tariff bindings frequently is reached via bilateral negotiations, of
course the agreed, bound rates are applicable to all WTO Members via the MFN obligation.
Members are not obligated to collect tariffs exactly at the bound level, as this represents the maximum duty
that can be applied. In fact, many Members apply tariffs on certain products at levels below their bound rates.
Such lower "applied" tariffs of course must be implemented on an MFN basis, i.e., the same applied tariff must
apply to the imports of a given product from all Members. That said, an importing Member can raise its tariff
on a product (on an MFN basis) from a lower applied rate up to its bound rate when it wishes, without
formalities and without having to compensate the affected trading partners.
EXERCISES:
1. What is a tariff?
2. List three purposes of tariffs/customs duties?
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II.E. RENEGOTIATION OF CONCESSIONS/MODIFICATION OF
SCHEDULES
Once a Member has bound a tariff, it has made a legal commitment not to charge more than that level of duty
on the imported good in question. Sometimes, however, a Member may need to change its tariff to a level
above the bound rate. This is foreseen in the GATT, which contains provisions on renegotiation of concessions.
These provisions are found in GATT Article XXVIII, GATT Article XXVIIIbis, GATT 1994 Understanding on the
interpretation of Article XXVIII, and the Note Ad Article XXVIII. It is important to note that renegotiating a
tariff concession is not without cost. To the contrary, the Member renegotiating its tariff must compensate the
affected exporting Members.
If a Member wishes to withdraw a negotiated commitment and impose a higher customs duty than the bound
rate in its Schedule, two alternatives are available under GATT Article XXVIII:
1. the level of the tariff concession can be TEMPORARILY "waived" - where the Member has, under
exceptional circumstances, received specific authorization from all the other Members;
2. the level of the tariff concession can be PERMANENTLY changed (decreased or increased).
As noted, in either case the affected exporting Members must be compensated.
II.F. OTHER DUTIES & CHARGES
Article II of GATT states that imported products "shall … be exempt from ordinary customs duties in excess of"
the amounts set forth in the importing Members' Schedules, i.e., its bound tariff rates. .Members can,
however, also apply "other duties and charges (ODCs)" to imported products, in addition to the ordinary
customs duties. While this means, in effect, that the total charge levied on an imported product may exceed
the bound level of ordinary customs duties, the ability to apply ODCs is not unlimited. To the contrary, for a
Member to be able to apply an ODC, it MUST register the ODC in its Schedule, and the ODC actually applied
must not exceed the level indicated in the Schedule. Other duties and charges are governed by GATT
Article II:1 b - second sentence.
The Understanding on the Interpretation of GATT Article II.1.b, clarifies the types of duties and charges that
can be collected in addition to the "ordinary customs duties".
Examples of these ODCs are:
Import surcharge, i.e. a duty imposed on an imported product in addition to the ordinary customs
duties;
Security deposit to be made on the importation of goods;
Statistical tax imposed to finance the collection of statistical information; and
Customs fee charged for processing the goods.
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EXERCISES:
3. In Tristat's Schedule of Tariff Concessions, the bound duty for pocket watches set is 15%. Can Tristat
apply a tariff different from the 15% listed in its Schedule?
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III. NON-TARIFF BARRIERS
III.A. INTRODUCTION
Non-tariff barriers also restrict the market access of goods. Non-tariff barriers include quantitative restrictions
(such as quotas) and other barriers (for example, lack of transparency in trade regulation, unfair and arbitrary
application of trade regulations, customs formalities, technical barriers to trade and government procurement
practices).
III.B. QUANTITATIVE RESTRICTIONS
What is a quantitative restriction (QR)? Can Members apply QRs?
There is no explicit definition of the term "quantitative restriction" in the WTO. An implicit definition is
provided by GATT Article XI:1, which proscribes any prohibition or restriction other than duties, taxes or other
charges, whether made effective through quotas, import or export licences or other measures.
A 1996 Decision of the Council for Trade in Goods (G/L/59, Annex) provides an illustrative list of quantitative
restrictions. This list includes: prohibition, prohibition except under defined conditions, global quota, global
quota allocated by country, bilateral quota (i.e. anything less than a global quota), automatic licensing, non -
automatic licensing, quantitative restriction made effective through state-trading operations, mixing regulation,
minimum price triggering a quantitative restriction, and "voluntary" export restraints.
III.C. GENERAL ELIMINATION OF QUANTITATIVE
RESTRICTIONS (ARTICLE XI)
Quantitative restrictions prohibit entirely, or limit the quantity of, imports or exports. Pursuant to Article XI:1
of GATT, Members should not maintain quantitative restrictions. This means that only import duties (and
ODCs) should be used to regulate goods at the border. The "General Elimination of Quantitative Restrictions"
(QRs) is contained in GATT Article XI, and applies equally to imports and exports. State trading enterprises
(Article XVII) are also prohibited from imposing quantitative restrictions.
III.C.1. SPECIFIC EXCEPTIONS
The drafters of the GATT decided that in certain specific circumstances, in particular to prevent or deal with
critical situations, it should be possible to depart from the prohibition on quantitative restrictions. Thus,
Article XI provides for such specific exceptional use of quantitative restrictions. The exceptions are to:
1. Prevent critical shortage of foodstuffs or other essential products (GATT Article XI:2a);
2. Remove temporary surpluses of a domestic like product for which the imported product is a direct
substitute (GATT Article XI:2(c)(ii);
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3. Uphold import restrictions on agricultural and fisheries products (GATT Article XI:2c).
The exception contained in GATT Article XI:2(c) created a quasi-general derogation for agricultural policies and
measures relating to fishery products and constituted the essential provision which led to the "special
treatment" for agriculture before the Uruguay Round. This "agricultural exception" ended when the WTO
Agreement on Agriculture entered into force: the WTO Agreement on Agriculture superseded GATT
Article XI:2(c). In particular, Article 4 of the Agreement on Agriculture requires, among other things, that
quotas be transformed into tariffs (a process called "tariffication").
Consequently, the exception under Article XI:2(c) of GATT 1994 remains available only in respect of fishery
products.
III.C.2. NON-DISCRIMINATORY ADMINISTRATION OF QRS
Furthermore, we must also note GATT Article XIII: Non-discriminatory Administration of Quantitative
Restrictions which applies where, exceptionally, a quantitative restriction is permitted.
1. No prohibitions or restrictions shall be applied by any Member on the importation of any product of the
territory of any other Member or on the exportation of any product destined for the territory of any
other Member, unless the importation of the like product of all third countries or the exportation of the
like product to all third countries is similarly prohibited or restricted.
In other words, where authorized by the GATT, quantitative restrictions must be imposed on a non-
discriminatory basis, i.e., so as not to favour any country over another. The Member is expected to impose
them across the board.
2. In applying import restrictions to any product, Members shall aim at a distribution of trade in such
product approaching as closely as possible the shares which the various Members might be expected
to obtain in the absence of such restrictions.
Furthermore, quotas are to be allocated among exporting Members in a manner aimed at ensuring that when
imposed, quantitative restrictions do not distort the prevailing trade patterns. In other words, quotas should
be applied equally to goods from all origins and their allocations should correspond as closely as possible to the
expected market shares that would have existed in the absence of quotas. Nevertheless, agreements between
the importing Member and its principal suppliers are possible.
III.D. TARIFF-QUOTA
There is an important distinction between quotas, which are generally prohibited, and tariff-rate quotas
(TRQs), which are not. TRQs set predetermined quantities of goods that can be imported at a "preferential"
rate of customs duty (the "in -quota tariff rate"). Once the in-quota amount of a TRQ has been filled, the
product can continue to be imported without limitation, but at a higher tariff rate (the "out-of-quota tariff
63
rate"). The "out-of-quota tariff rate" is generally the MFN rate. Thus, under a tariff-rate quota, specific
quantities of goods may be imported at different tariff levels. Because it does not restrict the total quantity of
imports, a TRQ does not run afoul of the prohibition on quantitative restrictions.
The allocation of the TRQ should follow the disciplines in GATT Article XIII (Non -discriminatory Administration
of Quantitative Restrictions) which provides that TRQs should be applied similarly to products from all origins,
but that allocations also should correspond as closely as possible to the expected import shares that would
have existed in the absence of TRQs. Agreements with principal suppliers also are possible.
The following diagram shows how a tariff-rate quota might look:
Figure 1: Tariff-Quota
Imports entering under the tariff-rate quota (up to 1,000 tons) are generally charged 10%. Imports entering
outside the tariff-rate quota are charged 80% (the MFN rate). After the Uruguay Round, the in-quota amount
(in this example, the 1,000 tons) should be based on actual imports in the base period or an agreed "minimum
access" formula.
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IV. OTHER NON–TARIFF BARRIERS
In addition to customs duties and other charges, as well as quantitative restrictions, trade in goods also can be
impeded by other non-tariff barriers that restrict market access.
Lack of transparency, unfair and arbitrary application of trade measures, customs formalities and procedures,
and other measures or actions such as pre-shipment inspection, marks of origin, and measures relating to
transit shipments, and certain forms of inaction (failure to inform about applicable trade laws, regulations,
procedures and practices in a timely and accurate manner) may constitute a barrier to trade.
The main non-tariff barriers in the multilateral trade system are:
Technical Regulations and Standards: The Agreement on Technical Barriers to Trade (TBT Agreement),
Sanitary and Phytosanitary Measures: The Agreement on Sanitary and Phytosanitary Measures (or the
"SPS Agreement"),
Lack of Transparency, unfair and arbitrary Application of Trade Measures: GATT Article X:3(a)
Customs Formalities and Procedures: Article VIII:1(c) AND Article VIII:3
Pre-shipment Inspection: The Pre-shipment Inspection Agreement (PSI), Marks of Origin, Measures
Relating to Transit Shipments
Rules of Origin: The Agreement on Rules of Origin
Import Licensing Procedures: The Agreement on Import Licensing Procedures
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V. MARKET ACCESS FOR SERVICES
In the case of trade in services, GATS Article XX contains a similar concept on market access to the GATT
schedules for goods, with some variations.
As with national treatment, market access for services is not a general obligation but a series of commitments
made in national schedules. Thus, in the case of market access, each party "shall accord services and service
providers of other Members treatment no less favourable than that provided for under the terms, limitations
and conditions agreed and specified in its schedule". Commitments are undertaken with respect to each of the
four different modes of service supply: (1) from the territory of one Member into the territory of any other
Member; (2) in the territory of one Member to the service consumer of any other Member; (3) by a service
supplier of one Member, through commercial presence in the territory of any other Member; and (4) by a
service supplier of one Member, through presence of natural persons of a Member in the territory of any other
Member. Members also may assume additional commitments in their Schedules, for example regarding the
implementation of specified standards or regulatory principles. Market access commitments for services are
achieved via negotiations. The purpose of the commitments is similar to tariff concessions under GATT and
aims to ensure stability and predictability of trading conditions. However, commitments are not a straitjacket.
They may be renegotiated against compensation of affected trading partners (Article XXI); and there are
special provisions that allow for flexible responses, despite existing commitments, in specified circumstances.
Therefore, commitments do not necessarily have to be complied with from the date of entry into force of a
schedule in every case. Rather, a Member may specify in the relevant part of its schedule a timeframe for
implementation of a particular commitment. Such "pre commitments" are as legally valid as any other
commitment.
Concerning the nature of the market access commitments in respect of services, the provisions of GATS
Article XVI cover six types of restrictions that must not be maintained by a Member in sectors where it has
undertaken commitments, unless its schedule specifies otherwise. These are:
1. Limitations on the number of service suppliers;
2. Limitations on the total value of service transactions or assets;
3. Limitations on the number of operations or quantity of output;
4. Limitations on the number of natural persons supplying a service;
5. Restrictions on the type of legal entity or joint venture through which a service is provided;
6. Limitations on the maximum participation of foreign capital.
The intention of the market-access provision in the GATS is to progressively eliminate, through successive
rounds of negotiations, the six types of measures mentioned above. These measures, except for (5) and (6),
are not necessarily discriminatory, i.e. they may affect national as well as foreign services or service suppliers.
In addition to establishing the basis for negotiations and the development of national schedules, aimed at
progressive liberalization, Part IV of GATS also permits Members, after a period of three years, to withdraw or
modify commitments made in their schedules. Where a Member modifies or withdraws a commitment it must
enter into negotiations with affected Members to try to agree on compensatory adjustments. Where
agreement cannot be reached, compensation is to be decided by arbitration.
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VI. BARRIERS TO TRADE IN SERVICES
Since domestic regulations, not border measures, influence services trade, the GATS contains provisions
mandating that such measures of general application should be administered in a reasonable, objective and
impartial manner. Also, there is a requirement that parties establish the means for prompt reviews of
administrative decisions relating to the supply of services.
The GATS also contains transparency requirements, among them the publication of all relevant laws and
regulations. Furthermore, the provisions to facilitate the increased participation of developing countries in
world services trade envisage negotiated commitments on access to technology, improvements in access to
distribution channels and information networks and the liberalization of market access in sectors and modes of
supply of export interest. The GATS contains obligations with respect to recognition requirements (educational
background, for instance) for the purpose of securing authorizations, licenses or certification in the services
area.
The GATS encourages recognition requirements achieved through harmonization and internationally-agreed
criteria. Further provisions state that parties are required to ensure that monopolies and exclusive service
providers do not abuse their positions. Restrictive business practices should be subject to consultations
between parties with a view to their elimination.
While parties are normally obliged not to restrict international transfers and payments for current transactions
relating to commitments under the Agreement, there are provisions allowing limited restrictions in the event of
balance of payments difficulties. However, where such restrictions are imposed they must meet certain
conditions; including that they be non-discriminatory, that they avoid unnecessary commercial damage to
other Members, and that they be temporary.
EXERCISES:
4. List the six types of restrictions that Members shall not maintain or adopt in sectors where market-access
commitments are undertaken, unless otherwise specified in its Schedule as per GATS Article XVI?
5. Why are domestic regulations important to market access for services?
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VII. SUMMARY PART II
Tariffs are the most common and widely used barrier to market access for goods. A tariff is a financial
charge in the form of a tax, imposed on merchandise imports.
Bound tariff rates are listed in Members' Schedules of Tariff Concessions. WTO members are obliged to
adhere to the bound tariff rates in their Schedules. However, WTO members can modify the concessions in
the Schedules of Tariff Concessions by using the renegotiation procedures outlined in GATT Article XXVIII for
trade in goods. Obligations on the bound tariff level can be found in GATT Article II, XXVIII, XXVIIIbis and
the Understanding on Article XXVIII.
Non-tariff barriers also restrict market access. WTO rules prohibit the introduction or maintenance of
quantitative restrictions. The rules on quantitative restrictions are governed by Articles XI and XIII. The
only restrictions on free trade that the WTO permits are duties, taxes or other charges, and safeguards or
emergency actions in limited circumstances.
They are also rules for other non-tariff barriers. For example, on SPS measures, or TBT measures.
For trade in services, each WTO member is required to have a Schedule of Specific Commitments that
identifies the services for which the Member guarantees market access, national treatment, and any
limitations that may be attached.
GATS Article XVI (Market Access) and XVII (national treatment) commit Members to giving no less
favourable treatment to foreign services and service suppliers than provided for in the relevant columns of
their Schedule. Commitments thus guarantee minimum levels of treatment, but do not prevent Members
from being more open (or less discriminatory) in practice. Members may also modify pursuant to the
provision in Article XXI of the GATS Agreement.
There are many rules that allow derogations from these basic obligations on market access. In this Part,
you studied the specific exceptions; you will see the general exceptions in Part III.
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PROPOSED ANSWERS:
1. What is a tariff?
A tariff is a financial charge in the form of a tax, imposed on merchandise imports. Tariffs can also be
imposed on exports.
The word "tariff" also refers to a structured list (the Harmonized Commodity Description) of products
description and their corresponding customs duties.
2. List three purposes of tariffs/customs duties?
(1) To give a price advantage to similarly produced local goods
(2) To raise revenue for governments
(3) To promote a rational allocation of scarce foreign resource.
3. In Tristat's Schedule of Tariff Concessions, the bound duty for pocket watches set is 15%. Can
Tristat apply a tariff different from the 15% listed in its Schedule?
Yes. Tristat can apply a tariff different than the one listed in its Schedule of Tariff Concessions in two
circumstances.
(1) Tristat may have an applied tariff lower than the bound tariff in its Schedule. However, if Tristat
offers a lower rate to Vanin for example, it must apply this rate to all Members.
(2) Tristat may charge a higher tariff that the bound rate in its Schedule to any non-Member, such as
Rauritania, since WTO obligations do not extend to non-Members.
4. List the six types of restrictions that Members shall not maintain or adopt in sectors where
market-access commitments are undertaken, unless otherwise specified in its Schedule as per
GATS Article XVI?
Limitations on:
the number of service suppliers;
the total value of service transactions or assets;
the number of operations or quantity of output;
the number of natural persons supplying a service;
the type of legal entity or joint venture through which a service is provided;
any foreign capital limitations relating to maximum levels of foreign participation are to be
progressively eliminated.
5. Why are domestic regulations important to market access for services?
In contrast to goods, which are mostly imported in their physical form, services cannot always be easily
subjected to border measures. Hence, domestic regulations have a significant influence on trade in
services.
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PART III: EXCEPTIONS TO THE BASIC PRINCIPLES
I. INTRODUCTION
This section illustrates the circumstances under which a WTO Member can invoke the general, security and
balance of payments exceptions, under the GATT, the GATS and the TRIPs Agreement.
As we have seen above, as a general matter, WTO members are obliged not to discriminate (MFN and national
treatment) among themselves or between imported and domestic products; they are obliged to follow certain
rules on market access (for example, they cannot withdraw "liberalization commitments/concessions" that they
have made without following pre-determined rules and paying compensation); and they are prohibited from
using quantitative restrictions.
Nevertheless, in certain circumstances, WTO Members are permitted to derogate from these obligations,
provided that they comply with certain requirements. The category of exceptions discussed in this Part is
horizontal in nature, i.e. these exceptions allow a Member to derogate from any of its GATT, GATS or TRIPS
obligations.
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II. GENERAL EXCEPTIONS
II.A. IN THE GATT
Article XX (General Exceptions) of GATT 1994 recognizes that governments may need to apply and enforce
measures (in respect of trade in goods) for a range of purposes including the protection of public morals; the
protection of human, animal or plant life and health; and the protection of national treasures. GATT 1994 does
not prevent governments from adopting and enforcing such measures.
Any measure adopted under the general exceptions provisions, however, must not constitute a means of
arbitrary or unjustifiable discrimination, nor should it be a disguised restriction on international trade.
GATT Article XX: General Exceptions
Subject to the requirement that such measures are not applied in a manner which would constitute a means
of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a
disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the
adoption or enforcement by any Member of measures:
(a) necessary to protect public morals;
(b) necessary to protect human, animal or plant life or health;
(c) relating to the importations or exportations of gold or silver;
(d) necessary to secure compliance with laws or regulations which are not inconsistent with the
provisions of this Agreement, including those relating to customs enforcement, the enforcement of
monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents,
trademarks and copyrights, and the prevention of deceptive practices;
(e) relating to the products of prison labour;
(f) imposed for the protection of national treasures or artistic, historic or archaeological value;
(g) relating to the conservation of exhaustible natural resources if such measures are made effective in
conjunction with restrictions on domestic production or consumption;
(h) undertaken in pursuance of obligations under any intergovernmental commodity agreement which
conforms to criteria submitted to Members and not disapproved by them or which is itself so
submitted and not so disapproved;
(i) involving restrictions on exports of domestic materials necessary to ensure essential quantities of
such materials to a domestic processing industry during periods when the domestic price of such
materials is held below the world price as part of a governmental stabilization plan; Provided that
such restrictions shall not operate to increase the exports of or the protection afforded to such
domestic industry, and shall not depart from the provisions of this Agreement relating to non-
discrimination;
(j) essential to the acquisition or distribution of products in general or local short supply; Provided that
any such measures shall be consistent with the principle that all Members are entitled to an equitable
share of the international supply of such products, and that any such measures, which are
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inconsistent with the other provisions of the Agreement shall be discontinued as soon as the
conditions giving rise to them have ceased to exist. The Members shall review the need for this sub
paragraph no later than 30 June 1960.
Thus, for the purposes it enumerates, GATT Article XX permits Members to take certain measures that
otherwise would be prohibited by GATT provisions. Any Member taking such a measure must, however,
respect the conditions stipulated in Article XX.
1) The first condition is that the contemplated measure must be for one of the 10 purposes listed in sub
paragraphs (a) - (j) of Article XX. For example, sub-paragraphs (a), (b), and (d) respectively require that the
measures in question must be "necessary" to protect public morals; to protect human, animal or plant life or
health; or to secure compliance with certain laws or regulations.
Thus, for measures covered by those three categories to be consistent with Article XX, an explicit "necessity"
test must be satisfied. The determination of whether a measure (or its discriminatory or restrictive nature)
may be considered "necessary" involves a weighing and balancing of factors, such as:
The importance of the common interests or values protected by the measure;
The efficacy of the measure in achieving the intended policies;
The impact of the measure on imports especially vis-à-vis its like domestic products.
Specific cases of WTO Members invoking Article XX include reference to paragraph (a) (public morals) to justify
import bans on religious grounds. Frequent references also are made to the exceptions governing measures
for protection of the environment, in paragraphs (b) and (g).
Over the years, WTO jurisprudence has established that Members have the right to determine the level of
health or environmental protection they deem appropriate. This principle is reiterated in the TBT and SPS
agreements for the measures covered by those agreements. Furthermore, there is no requirement in
Article XX of the GATT 1994 to quantify the risk to human life or health. A risk may be evaluated in either
quantitative or qualitative terms.
2) The second condition refers to the opening paragraph of Article XX (commonly referred to as the
"chapeau of Article XX"). Measures covered under the General Exceptions must not be applied in a manner
that would constitute a means of arbitrary or unjustifiable discrimination between countries where the same
conditions prevail, or a disguised restriction on international trade.
Consequently, before certain measures can used to derogate from GATT rules, they must meet the
requirements of the chapeau i.e. they have to be "applied" in a manner that does not create "arbitrary or
unjustifiable discrimination". The chapeau of Article XX of GATT aims to prevent the use of derogation
measures to unjustifiably impede the market access rights of other WTO Members.
The combined effect of the chapeau and the enumerated provisions of Article XX are to set out a two-level test
that a proposed measure must pass before it is deemed consistent with Article XX, and therefore can qualify as
an exception to the obligations in the GATT:
The first test is whether the policy fulfils the criteria in Article XX (a) (j);
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The second test is whether, when it fulfils those criteria, it satisfies the "Chapeau test". That is, if the
measure is being applied "arbitrarily", "unjustifiably", or as a "disguised restriction on trade".
These provisions attempt to strike a "balance" between the market access rights of WTO Members and the
need to ensure that other Members' rights to invoke these exceptions are not rendered illusory. While
Members have a prima facie right to maintain measures necessary to enforce health policies for example,
criteria have been developed to ensure that Members demonstrate their good faith and not apply measures in
a discriminatory manner or as a disguised restriction on trade.
II.B. IN GATS
Article XIV of the GATS permits Members to maintain restrictions on services and service suppliers, in
derogation from their commitments and obligations under the GATS, if such measures satisfy one of the policy
purposes in sub-paragraphs (a) - (e). Furthermore, Article XIV GATS recognizes that members need to
maintain a balance between trade measures and other legitimate policies and interests, such as the protection
of the health of its citizens.
Thus, GATS Article XIV on trade in services is very similar to GATT Article XX on trade in goods. Certain
measures, which would otherwise be prohibited by other provisions of the GATS, can still be taken provided
two conditions are met:
1) The first condition is that the measure taken must fall into one of the five categories in sub-paragraphs
(a) to (e). For example, sub-paragraphs (a), (b) and (c) indicate that the measure in question must, in similar
terms to GATT Article XX, be "necessary" either to protect public morals, or to maintain public order (a specific
definition of this latter term is in the accompanying footnote); to protect human, animal or plant life or health;
or to secure compliance with certain laws or regulations.
For these three categories, as in GATT, a "necessity" test must be passed.
The measures referred to in sub-paragraphs (d) and (e) are specific to trade in services. Paragraph (d)
mandates that Members can take measures that otherwise would be inconsistent with the National Treatment
Principle (GATS Article XVII), if those measure facilitate the collection of direct taxes. Such differential
treatment, which appears to be less favourable for foreign services or foreign service providers than for
national ones, is authorized only where its purpose is to ensure that the imposition of direct taxes is "equitable
and effective". According to paragraph (e), measures that do not conform with the MFN Principle (GATS
Article II) can still be taken if their purpose is to put into effect agreements to avoid double-taxation, for
example.
2) As with GATT Article XX governing trade in goods, the second condition is that the measure must
satisfy the chapeau of Article XIV. Measures covered by the GATS General Exceptions provisions must not be
"applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between
countries where like conditions prevails, or a disguised restriction on trade in services…".
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II.C. IN TRIPS
There are no general exceptions as such under the TRIPS Agreement. Rather, certain exceptions are provided
for in respect of copyrights and related rights (Article 13), trademarks (Article 17), and patents (Arts. 27.2,
27.3, 30 and 31). For copyrights and trademarks, the exceptions are worded in general terms, and require
that the interests of the right holder be taken into account. The exceptions relating to patents are more
extensive, and refer explicitly to some of the same bases as the general exceptions in the GATT and the GATS
(namely, protection of human, animal or plant life or health, and of public order or morality, as well as
environmental considerations).
ILLUSTRATION
Let us assume that Alba and Vanin are WTO Members and that Alba imposed market access restrictions on
imports.
Alba has a prima facie right to impose market access restrictions on imports provided the criteria in GATT
Article XX are satisfied. If Vanin challenges these measures, Alba may need to justify them. Assuming that
Alba's measures violate a GATT market access provision (Article I, II, III or XI), Alba would need to
demonstrate that its measure is justified by one or more of the general exceptions in Article XX.
In order to demonstrate this, it is necessary for Alba to demonstrate, firstly that the measures fall within one of
the exceptions in Article XX sub-paragraphs (a) – (j). If it is able to show that the measures are, for example,
"necessary" to protect human health or the environment, then the measures are provisionally justified. The
"necessity test" will often call for an examination of whether any other measure reasonably available to Alba
would provide the same level of (or better) protection for the environment or human health but with less trade
distortion (i.e., whether a less trade restrictive alternative measure is available and practicable).
Secondly, Alba must fulfil the requirements in the introductory paragraph/chapeau of Article XX. Alba will need
to show that the measure is not applied in an arbitrary manner, does not result in "arbitrary or unjustifiable
discrimination between countries where the same conditions exist", and is not a disguised restriction on
international trade. For instance, if the measure is applied in an inflexible and rigid manner, without taking
into account the specific conditions of the exporting Members, this could constitute arbitrary or unjustifiable
discrimination. The measure must function to protect health or the environment, and so forth, and it should
not discriminate between "like products".
If Alba fails to satisfy any of the requirements of Article XX (sub-paragraphs or chapeau), it cannot invoke the
"General Exception" contained in Article XX to justify inconsistencies with other GATT provisions. In such
circumstances, the Dispute Settlement Body will require Alba to eliminate the measure because it would violate
GATT Articles I, II, III or XI and would not be "covered" by the general exception provisions. Now let us
examine how general exceptions are interpreted in the WTO dispute settlement procedure by studying a
famous case. This case involved a measure that was applied to imports of shrimp and shrimp products, and
the protection of sea turtles. The US - Shrimp case illustrates the interaction between trade -related measures
and non-trade -related concerns within the multilateral trading system.
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Note
While the case study below is based on prior WTO Panel and Appellate Body rulings, its main purpose is
not to describe and review all the arguments and conclusions in the case. Rather it focuses on the issues
and principles addressed in the course, and aims to provide you with an outline of elements that you may
consider when reflecting on those issues and principles.
CASE STUDY 1
US – Shrimp
(United States – Import Prohibition of Certain Shrimp and Shrimp Products) (DS58)
Parties Agreements Timeline of the Dispute
Complainants India, Malaysia,
Pakistan, Thailand
GATT Arts. XI and XX
Establishment of Panel 25 February 1997
Circulation of Panel Report 15 May 1998
Respondent United States Circulation of AB Report 12 October 1998
Adoption 10 January 2001 6 November 1998
1. Measure and product at issue
Measure at issue: US import prohibition of shrimp and shrimp products from non-certified countries
(i.e. countries that had not used a certain net in catching shrimp).
Products at issue: Shrimp and shrimp products from the complainant countries.
2. Summary of key panel/AB findings
GATT Article XI (quantitative restrictions): The Panel found that the US prohibition, based on
Section 609, on imported shrimp and shrimp products violated GATT Article XI. The United States
apparently conceded this violation of Article XI because it did not put forward any defending arguments
in this regard.
GATT Article XX (exceptions): The Appellate Body held that although the US import ban was related to
the conservation of exhaustible natural resources and, thus, covered by Article XX(g) exception, it
could not be justified under Article XX because the ban constituted "arbitrary and unjustifiable"
discrimination under the chapeau of Article XX. In reaching this conclusion, the Appellate Body
reasoned, inter alia, that in its application the measure was "unjustifiably" discriminatory because of its
intended and actual coercive effect on the specific policy decisions made by foreign governments that
were Members of the WTO, also the measure constituted "arbitrary" discrimination because of the
rigidity and inflexibility in its application, and the lack of transparency and procedural fairness in the
administration of trade regulations.
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While ultimately reaching the same finding on Article XX as the Panel, the Appellate Body, however,
reversed the Panel's legal interpretation of Article XX with respect to the proper sequence of steps in
analysing Article XX. The proper sequence of steps is to first assess whether a measure can be
provisionally justified as one of the categories under paragraphs (a) - (j), and, then, to further appraise
the same measure under the Article XX chapeau.
CASE STUDY 2
US – Shrimp (Article 21.5) 3
(United States – Import Prohibition of Certain Shrimp and Shrimp Products) (DS58)
Parties Agreements Timeline of the Dispute
Complainants Malaysia GATT Arts. XI and XX
Referred to the Original
Panel 23 October 2000
Circulation of Panel Report 15 June 2001
Respondent United States Circulation of AB Report 22 October 2001
Adoption 10 January 2001 21 November 2001
1. Measure taken to comply with the DSB's recommendations
Revised Guidelines for the Implementation of Section 609, under which certain countries were exempt
from the import prohibition on shrimp pursuant to the criteria provided therein.4
2. Summary of key panel/AB findings
GATT Article XI (quantitative restrictions): The Panel concluded that, as with the measure at issue in
the original proceedings, the US import prohibition on shrimp and shrimp products under Section 609
was inconsistent with Article XI:1.
GATT Article XX(g) (exceptions): The Appellate Body upheld the Panel's finding that Section 609, as
implemented by the revised guidelines and as applied by the United States, was justified under
Article XX(g), as (i) it related to the conservation of exhaustible natural resources as set out in
Article XX(g) and (ii) it now met the conditions of the chapeau of Article XX when applied in a manner
that no longer constituted a means of arbitrary discrimination as a result of (i) the serious, good faith
efforts made by the United States to negotiate an international agreement and (ii) the new measure
allowing "sufficient flexibility" by requiring that other Members' programmes simply be "comparable in
effectiveness" to the US programme, as opposed to the previous standard that they be "essentially
the same".
3 Recourse to Article 21.5 of the DSU by Malaysia.
4 The Appellate Body noted that the measure at issue in this dispute consists of three elements: (1) Section 609; (2) the Revised Guidelines for the Implementation of Section 609; and (3) the application of both Section 609 and the Revised Guidelines in the practice of the United States.
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In this regard, the Appellate Body rejected Malaysia's contention and agreed with the Panel that the
United States had only an obligation to make best efforts to negotiate an international agreement
regarding the protection of sea turtles, not an obligation to actually conclude such an agreement,
because all that was required of the United States to avoid "arbitrary or unjustifiable discrimination"
under the chapeau was to provide all exporting countries "similar opportunities to negotiate" an
international agreement.
The Appellate Body noted that "so long as such comparable efforts are made, it is more likely that
'arbitrary or unjustifiable discrimination' will be avoided between countries where an importing
Member concludes an agreement with one group of countries, but fails to do so with another group of
countries".
If you wish to, you can have a look at the detailed arguments and reasoning developed by the Parties and by
Appellate Body as well as the conclusions of the Appellate Body Report in document WT/DS58/AB/R
(paragraph 120-150 and 187) in the Online Library. Other documents related to the case such as the Panel
report are also available in the Library.
EXERCISES:
1. Can Vanin maintain an environmental measure banning the imports from some, but not all WTO
Members?
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III. SECURITY EXCEPTIONS
III.A. IN BRIEF
A WTO Member is allowed to take any action which it considers necessary for the protection of its essential
security interests or in pursuance of its obligations under the United Nations Charter for the maintenance of
international peace and security. Members are not required to furnish information the disclosure of which
would be contrary to their essential security interests.
III.B. IN DETAIL
III.B.1. IN THE GATT
For trade in goods, GATT Article XXI governs the use of the "Security Exceptions".
GATT Article XXI: Security Exceptions
Nothing in this Agreement shall be construed:
(a) to require any Member to furnish any information the disclosure of which it considers contrary to its
essential security interests; or
(b) to prevent any Member from taking any action which it considers necessary for the protection of its
essential security interests
(i) relating to fissionable materials or the materials from which they are derived;
(ii) relating to the traffic in arms, ammunition and implements of war and to such traffic in other
goods and materials as is carried on directly or indirectly for the purpose of supplying a military
establishment;
(iii) taken in time of war or other emergency in international relations; or
(c) to prevent any Member from taking any action in pursuance of its obligations under the United Nations
Charter for the maintenance of international peace and security.
Thus, GATT Article XXI allows certain security measures, which would otherwise be prohibited by GATT
provisions, to be taken in two specific circumstances:
1) Sub-paragraph (a) protects a Member from having to disclose information where it considers that disclosure
would be contrary to its essential security interests. Sub-paragraph (b) prescribes the conditions under which
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a Member may take action that it determines to be "necessary for the protection of its essential security
interests" relating to:
trade in fissionable materials;
traffic in arms, ammunition and other war-related trade; or
measures taken in war or emergency in international relations
Thus, sub-paragraph (b)(iii) refers to measures taken not only in time of war, but also to measures taken in
time of "other emergency in international relations". The term "emergency in international relations" is not
defined in Article XXI.
2) Second, Members are allowed to implement measures in pursuance of their obligations under the United
Nations Charter (for the maintenance of international peace and security). This is a reference to economic
sanctions.
Article XXI does not contain an obligation for Members to notify measures taken pursuant to the Security
Exception. However, a Decision adopted by the GATT Contracting Parties in 1982 states that "subject to the
exception in Article XXI(a) [disclosure], Contracting Parties (now WTO Members) should be informed to the
fullest extent possible of trade measures taken under Article XXI".
III.B.2. IN GATS
For trade in services, GATS Article XIVbis governs the use of the "Security Exception". The wording of GATS
Article XIV bis is almost identical to the security exception for trade in goods (GATT Article XXI) and the
concepts are the same in both. However, unlike in GATT Article XXI, there is a notification obligation in the
security exception for trade in services (see paragraph 2). It is relevant to note that in the 1982 Decision
(relating to GATT Article XXI) the wording used is "should", while in paragraph 2 of GATS Article XIVbis, the
wording used is "shall", which implies an obligation.
III.B.3. IN TRIPS
For trade-related intellectual property rights, Article 73 of the TRIPS Agreement governs the use of the
"Security Exception". The wording of Article 73 of the TRIPS Agreement is identical to the provision governing
trade in goods (GATT Article XXI) and the application of the concept is the same as for trade in goods and
trade in services. There is no explicit obligation in Article 73 of the TRIPS Agreement to notify measures taken
pursuant to the Security Exception.
EXERCISES:
2. What is a security exception?
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IV. WAIVERS
A WTO Member may be authorized by the WTO Ministerial Conference (or the General Council operating in its
stead) in "exceptional circumstances" to derogate for a specific time and under certain conditions, from any
provision contained in the WTO Agreements. Such derogations are called "waivers". In other words, a waiver
is a permission granted by WTO Members to a particular WTO Member not to comply with its agreed
commitments.
Waivers are governed by Article IX of the Marrakesh Agreement (Establishing the WTO) and are applicable to
trade in goods, trade in services and trade-related aspects of intellectual property rights.
When a waiver is approved, the decision needs to specify the exceptional circumstances justifying it, as well as
the terms and conditions that govern it, and a termination date. Where a waiver is for longer than one year, it
must be reviewed annually by the Ministerial Conference (or General Council), to determine whether the
exceptional circumstances justifying it are still present, and whether the Member receiving the waiver is
complying with the terms and conditions. The Ministerial Conference (or General Council) can, on the basis of
an annual review, extend, modify or terminate a waiver.
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V. REGIONAL INTEGRATION
When a WTO Member enters into a RTA through which it grants more favourable conditions to its trade with
other parties to that arrangement than to other WTO members' trade, it departs from the guiding principle of
non-discrimination defined in Article I of GATT, Article II of GATS, and elsewhere.
WTO members are however permitted to enter into RTAs under specific conditions which are spelled out in
three sets of rules:
1. Paragraphs 4 to 10 of Article XXIV of GATT (as clarified in the Understanding on the Interpretation of
Article XXIV of the GATT 1994) provide for the formation and operation of customs unions and free
trade areas covering trade in goods;
2. the Enabling Clause (the 1979 Decision on Differential and More Favourable Treatment, Reciprocity
and Fuller Participation of Developing Countries);
3. Article V of GATS governs the conclusion of RTAs in the area of trade in services, for both developed
and developing countries.
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VI. S&D FOR DEVELOPING COUNTRIES
Part IV of the GATT includes provisions on the concept of non -reciprocity in trade negotiations between
developed and developing Members, i.e. when developed Members grant trade concessions to developing
Members they should not expect the developing countries to make matching offers in return.
The Enabling Clause is an exception to the MFN obligation that allows developed Members to offer more
favourable tariff treatment to imports from developing and least -developed countries without the obligation to
extend that favourable treatment to other WTO Members. It creates a permanent derogation from one of the
key principles contained in GATT Article I, and is a concrete contribution to S&D treatment for developing
countries.
The WTO agreements include numerous provisions giving developing and least-developed countries special
rights or extra leniency — "special and differential treatment". Among these are provisions that allow
developed countries to treat developing countries more favourably than other WTO Members. Both GATT and
GATS allow developing countries some preferential treatment.
Other measures concerning developing countries in the WTO agreements include:
extra time for developing Members to fulfil their commitments (in many of the WTO agreements);
provisions designed to increase developing Members' trading opportunities through greater market
access (e.g. in services, technical barriers to trade);
provisions requiring WTO members to safeguard the interests of developing Members when adopting
some domestic or international measures (e.g. in anti-dumping, safeguards, technical barriers to
trade);
provisions for various means of helping developing Members (e.g. to deal with commitments on animal
and plant health standards, technical standards, and in strengthening their domestic
telecommunications sectors).
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VII. DEROGATIONS FOR TRADE-RELATED ECONOMIC
PROBLEMS
In addition to the various derogations from obligations that are permitted to WTO Members under certain non-
trade-related circumstances (to protect health and safety, for environmental reasons, for national security,
etc.), the multilateral trading system also recognizes that trade itself can cause or exacerbate problems of an
economic nature. A number of general and sector-specific provisions allow Members to take certain actions to
address these sorts of problems, which actions would be contrary to GATT/WTO principles and obligations in
the absence of these provisions.
These "economic" derogations include: Balance of Payments measures (in respect of goods and services);
"prudential" measures for financial services, to protect the stability of financial systems; and trade remedies:
anti-dumping, countervailing, safeguard measures - introduced in the following section and presented in detail
in Modules 3, 4 and 5). Regarding safeguard measures, it is important to note that, in addition to the general
safeguards for goods provided for in the GATT and the Agreement on Safeguards, there are sector-specific
safeguard clauses in the GATS (for services) and in the Agreement on Agriculture (for agricultural products).
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VIII. GATT ART. XII /GATS ARTICLE XII-
BALANCE-OF-PAYMENTS (BOP) MEASURES
IN BRIEF
Under the provisions of Article XII, XVIII:B and the "Understanding on the Balance-of-Payments Provisions of
the GATT 1994", a Member may apply import restrictions for balance-of-payments (BOP) reasons.
The basic condition for invoking Article XII is to "safeguard the [Member's] external financial position and its
balance-of-payments".
Article XVIII:B mentions the need to "safeguard the [Member's] external financial position and ensure a level
of reserves adequate for the implementation of its programme of economic development".
Both Articles refer to the need to "restore equilibrium on a sound and lasting basis". They require Members
to progressively relax the restrictions as conditions improve and eliminate them when conditions no longer
justify such maintenance.
The Understanding on the Balance-of-Payments Provisions of the GATT 1994 contains provisions on
transparency, on the implementation of measures, on procedures and institutional arrangements including
the creation of a Committee on Balance of Payments, and on consultations.
It should be noted that although the basic provisions on BOP measures are contained in GATT 1994, to which
the Understanding on BOPs is annexed, the GATS also contains provisions allowing trade in services
to be restricted in the event of serious BOP and external financial difficulties. Where such
measures are taken, the Member in question must notify it to the General Council, and consult with the BOP
Committee.
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VIII.A.
IX. PRUDENTIAL MEASURES FOR FINANCIAL
SERVICES (GATS, ANNEX ON FINANCIAL
SERVICES)
The GATS Annex on Financial Services establishes that the GATS shall not prevent Members from taking
prudential measures, for the protection of investors, depositors and others, or to ensure the integrity and
stability of the financial system. The Annex cautions, however, that such measures shall not be used to avoid
the Member's commitments or obligations under the GATS. The Annex does not specify any particular forms of
prudential measures.
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X. SECTOR SPECIFIC SAFEGUARD MEASURES
As noted, in the WTO system, there are two sector-specific safeguard mechanisms, in the Agreement on
Agriculture and in the GATS. These mechanisms allow for particular kinds of derogations where the effects of
the trade liberalizing measures forming the basis of these Agreements cause particular kinds of economic
problems to the Member undertaking the liberalization. We will look at these mechanisms in turn.
X.A. AGRICULTURAL SPECIAL SAFEGUARD
IN BRIEF
What is so special in these Special Safeguards?
As discussed in the section on quantitative restrictions, under the Agreement on Agriculture, Members that
had maintained quantitative restrictions and other sorts of protective measures on agricultural products
generally were required to convert these restrictions into tariffs (referred to as "tarrification"). For tarrified
products, Members have the right to invoke the special safeguard provisions of the Agreement on Agriculture
(Article 5), provided that a reservation to this effect ("SSG") appears beside the products concerned in the
relevant Member's schedule. The idea is that in converting trade protection from a QR or similar measure to
a tariff, there could be rapid increases in import volumes or declines in import prices, either of which could
harm the domestic producers of the products in question. Thus, the special safeguard provisions allow the
imposition of an additional tariff where certain criteria are met.
In particular, the criteria involve either a specified surge in imports (volume trigger) or, on a shipment by
shipment basis, a fall of the import price below a specified reference price (price trigger). Where either of
these conditions is fulfilled, the importing Member has the right to apply, for a limited period and up to a
specified maximum level, an additional duty on the imports in question.
X.B. SERVICES SAFEGUARD
The GATS also has a safeguard provision, Article X, "Emergency Safeguard Measures". This provision calls for
negotiations to develop a safeguard mechanism based on the non-discrimination principle. These negotiations
are still on-going. The provision also allowed Members, during the first three years after entry into force of the
WTO Agreement, to modify or withdraw any concession that had been in effect for at least one year, on the
basis of a demonstration that the Member could not wait for the lapse of the initial three-year period before
Members generally were allowed to modify or withdraw concessions.
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XI. TRADE REMEDIES
The final types of measures allowing for derogations from basic GATT/WTO principles for economic reasons,
that is, economic problems engendered by the very trade that the multilateral trading system encourages, are
trade remedies, of which there are three types: anti-dumping measures, countervailing measures, and
safeguard measures. While these measures have certain common characteristics, they also have important
differences, as reflected in the Agreements setting forth the rules on their use.
In essence, all of these measures take the form of border measures (special duties in addition to the ordinary
customs duties, or in some cases undertakings, or in the case of safeguards, duties, quantitative restrictions
and possibly other forms). Trade remedies can only be applied on the basis of a fact-based investigation
establishing that the requisite conditions for application of the particular measure in question are met. In
particular, these conditions are that the imports in question have certain characteristics and that they have
caused certain kinds of economic damage.
Starting with anti-dumping and countervailing measures, these are aimed at imports of a particular product
from a particular exporting country, which imports have been found to be dumped (anti-dumping) or
subsidized (countervailing measures), and to be causing or threatening to cause material injury to the
domestic industry in the importing Member that produces the like product. Where dumping or subsidization,
injury, and causation are found, the importing Member can apply to those imports an additional duty up to the
amount of dumping or subsidization that has been found. Given their country-specific focus, application of
such measures would run counter to the MFN principle if there were no specific provisions allowing them.
It should be borne in mind that dumping is an action by private firms and as such is not regulated by the WTO.
Rather, what is regulated is anti-dumping action by WTO Member governments. Anti-dumping measures are
disciplined by GATT Article VI and the Anti-dumping Agreement. Dumping takes place when a product of one
firm is introduced into the commerce of another country at less than the normal value of the product.
Investigations have to be conducted to determine the margin of dumping and thus the maximum allowable
level of the anti-dumping duty.
Subsidies of course are government measures, and the WTO thus regulates, via the Agreement on Subsidies
and Countervailing Measures ("SCM Agreement") (underpinned by GATT Articles VI and XVI), both the
provision of subsidies by Member governments, and those governments' use of countervailing measures in
respect of subsidized imports into their own territories. Subsidies on goods in general are governed by the
SCM Agreement, while the Agreement on Agriculture contains detailed rules on subsidies to agricultural
products. Nonetheless, agricultural subsidies remain covered by and countervailable under the SCM
Agreement.
Finally, the Agreement on Safeguards, along with Article XIX of GATT 1994, regulates the use of safeguard
measures. In brief, a safeguard measure is the temporary suspension of a multilateral concession (tariff cut,
etc.). A safeguard measure can only be applied where total imports of a given product have increased to such
an extent and under such conditions as to cause or threaten to cause serious injury. Because it involves
suspending a multilateral (i.e., MFN-based) concession, a safeguard measure in principle must be applied to
total imports of the product, from all sources (i.e., on an MFN basis). If it were not specifically allowed, a
safeguard measure would run counter to the WTO obligations not to withdraw or suspend bindings and other
negotiated multilateral concessions. A safeguard measure can take an unspecified variety of forms. The most
commonly used forms are tariff increases above the bound rate, quantitative restrictions, and tariff rate
quotas.
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TIP - Statistics on anti-dumping, subsidies and countervailing measures, and safeguard
measures
The WTO website provides with statistics on anti-dumping, subsidies and countervailing measures, and
safeguard measures by reporting Member and by exporting country.
- Statistics on anti-dumping: http://www.wto.org/english/tratop_e/adp_e/adp_e.htm
- Statistics on subsidies and countervailing measures:
http://www.wto.org/english/tratop_e/scm_e/scm_e.htm
- Statistics on safeguard measures: http://www.wto.org/english/tratop_e/safeg_e/safeg_e.htm
The statistics appear at the end of each webpage.
PROPOSED ANSWERS:
1. Can Vanin maintain an environmental measure banning the imports from some, but not all
WTO Members?
Vanin can, if the measure does not violate GATT Article I and/or XIII (MFN for quotas). Additionally in
some circumstances and pursuant to Article XX a Member is able to maintain measures that otherwise
violate provisions of the GATT.
However, the Member would first need to show that the goal of the measure is recognized by one of the
exceptions listed in sub-paragraphs (a) - (j) of Article XX.
Provided the measure fulfils the criteria in sub-paragraphs (a) - (j) the Member would need to show, in
addition, that the measure is applied in such a way that it does not violate the requirements of the
opening paragraph/chapeau to Article XX. Namely, that the measure is not applied to cause arbitrary or
unjustified discrimination between Members where the same conditions exist and is not applied to
constitute a disguised restriction on trade.
2. What is a security exception?
A security exception allows a WTO Member to take any action which it considers necessary for the
protection of its essential security interests or in pursuance of its obligations under the United Nations
Charter for the maintenance of international peace and security.
When Members utilize the exception they are not required to furnish any information, the disclosure of
which would be contrary to their essential security interests.
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Anti-dumping ESTIMATED TIME: 10 hours
OBJECTIVES OF MODULE 3
Understand the basic WTO disciplines related to anti-dumping; and
Get acquainted with the different anti-dumping procedures and investigations.
MODULE
3
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IN BRIEF
GATT and WTO rules do not prohibit "dumping" as such. Rather, they set forth the rules that Members must
respect when taking action against dumped imports. For such action to be permissible, Members must
determine the existence and amount of dumping, and must establish that dumped imports are causing
material injury or threat to, or material retardation of the establishment of, the importing Member's domestic
industry producing the product that is "like" the dumped imported product.
I. WHAT IS DUMPING?
If a company exports a product at a price lower than the price it normally charges in its own home market, it is
said to be "dumping" the product. Is this unfair competition? Opinions differ, but many governments take
action against dumping in order to defend their domestic industries. The Agreement on Implementation of
Article VI of the GATT 1994 (from now on "the AD Agreement") does not pass judgment on dumping. Rather,
its focus is on the actions that governments can (and cannot) take in response to dumping in their markets.
"Dumping" is defined in both Article VI of the GATT 1994, and in the AD Agreement, as the sale of an imported
product in the importing market at less than its "normal value ". As indicated above, most commonly this is
where the price of the imported good is less than the price at which the exporter sells that good in its own
home market. In this sense, dumping is a situation of international price discrimination.
Dumping is NOT the sale of an imported product for less than the price charged for the same product produced
domestically. This is price undercutting, which is a factor to be examined in the context of injury analysis, but
which is not relevant to whether or not there is dumping.
IN BRIEF
In the simplest of cases, the existence of dumping is identified by comparing prices in two markets. In this
case, dumping would exist where: Price of imported good < Home market price in exporting market
IN DETAIL
However, the situation is rarely, if ever, that simple, and in most cases it is necessary to undertake a series of
complex analytical steps in order to determine the appropriate price in the market of the exporting country
(known as the "normal value") and the appropriate price in the market of the importing country (known as the
"export price") so as to be able to undertake an appropriate comparison.
The calculations can get complicated for a variety of reasons. For instance, imagine a situation where the
product subject to investigation is not sold at all in the market of the exporting country. Why could that be?
One reason could be that there is no domestic market for that product. Imagine that there is production of ski
boots in a tropical country whose citizens rarely if ever travel abroad to snowy countries. There likely would be
no domestic sales of ski boots in the producing country (i.e., 100 per cent of the production would be
exported), and hence there would be no home market price to which the export price could be compared in
order to determine whether the exported ski boots were dumped. That is, the usual price comparison
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calculation could not be performed. The question becomes how, in such a situation, an investigating authority
could determine the normal value of the ski boots? This and related questions are addressed later on in the
section on normal value.
I.A. DUMPING AND THE GATT YEARS
FROM ARTICLE VI OF THE GATT 1947...
Under Article VI of GATT 1947, certain disciplines were established for situations where dumping was causing
injury to a domestic industry in the importing market. Article VI allowed an "anti-dumping duty" to be imposed
at the border upon importation to offset or prevent the dumping. The level of the duty could be equal to, but
not higher than, the margin of dumping.
As tariff rates were lowered over time following the original GATT Agreement, anti-dumping duties were
increasingly imposed, and the inadequacy of Article VI to govern their imposition became ever more apparent.
Article VI requires a determination of injury caused by dumping, but does not contain any guidance as to how
that determination is to be made. It addresses the methodology for establishing the existence of dumping, but
only in general terms.
...TO THE AGREEMENT ON ANTI-DUMPING PRACTICES
Consequently, Contracting Parties to GATT 1947 negotiated successively more detailed Codes relating to anti-
dumping. The first such Code, the Agreement on Anti-dumping Practices, entered into force 1967 as a result of
the Kennedy Round. However, the United States never signed this "Kennedy Round Code", which as a result
had little practical significance.
The anti-dumping Agreement that resulted from the Tokyo Round negotiations (the "Tokyo Round Code"),
which entered into force in 1980, represented a quantum leap forward. Substantively, it provided far more
guidance about the determination of dumping and of injury than did Article VI, including explicitly requiring
that such determinations be made on the basis of an investigation conducted by the authorities of the
importing country. Equally important, it set out in substantial detail certain procedural and due process
requirements that had to be fulfilled in the conduct of such investigations. Nevertheless, the Code still
represented only a general framework for countries to follow in conducting investigations and imposing duties.
It was also marked by ambiguities on numerous controversial points, and was limited by the fact that only the
27 Parties to the Code were bound by its requirements.
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I.B. DUMPING AND ANTI-DUMPING IN THE WTO
IN DETAIL
Unlike the Kennedy Round and Tokyo Round Codes, the WTO Anti-dumping Agreement is a multilateral (as
opposed to a plurilateral) agreement. . The AD Agreement therefore must be accepted as part of the "single
undertaking" by all current Members and by any country joining the WTO. That is, the AD Agreement applies
to all Members.
In the following pages, we will review the following elements:
The legal documents underpinning anti-dumping actions in WTO;
How to establish whether imported goods are being dumped;
How to establish whether the dumped imports are causing or threatening to cause injury to the
domestic industry;
How to determine the level of anti-dumping duties;
The procedures to be followed in initiating and conducting investigations, including the collection of
information;
The procedures for review and termination of anti-dumping duties;
Judicial review;
Dispute settlement;
The Committee on Anti-Dumping Practices; and
Notification requirements.
Before you dive - hopefully without drowning - into specific provisions of the AD Agreement, please remember
that you can contact your tutor anytime in case you have a question or need a clarification on the above.
I.C. ARTICLE VI OF GATT 1947 AND THE ANTI-DUMPING
AGREEMENT
WHO'S WHO?
Article VI of GATT allows countries to take action against dumping.
The AD Agreement clarifies and expands on Article VI, and the two operate together.
Under these provisions, countries are allowed to act in a way that would normally break the GATT principles of
binding a tariff and not discriminating among trading partners (which we have seen in the previous module).
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Typically, anti-dumping action means charging an extra import duty on a particular product imported from a
particular exporter in order to bring the price of the imported product up to its "normal value" by offsetting the
margin of dumping. As we will see below, anti-dumping measures also may take the form of price
undertakings.
Important note
The AD Agreement is rather long and complex. Essentially, it represents an effort to balance potentially
conflicting interests: on the one hand, the interest of importing countries in imposing anti-dumping
measures to prevent or remedy injury to their domestic industries caused by dumped imports; and on the
other hand, the interest of exporters (and importers and consumers) for whom anti-dumping measures and
procedures should not themselves become obstacles to fair trade.
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II. ANTI-DUMPING
IN BRIEF
Article VI of GATT and the AD Agreement explicitly authorize a Member to impose specific anti-dumping
measures on imports from a particular source, in addition to ordinary customs tariffs, when the importing
Member demonstrates through a properly-conducted investigation that dumping is causing or is threatening
to cause material injury to a domestic industry or would materially retard the establishment of a domestic
industry.
A product is to be considered as being dumped when it is introduced into the commerce of another country
at less than its "normal value", normally the comparable price at which the product is sold in the domestic
market of the exporting country, or if there is no such price, a comparable price for sale of the like product
to a third country market, or the cost of production of the product plus a reasonable amount for selling costs
and profit.
Under Article VI of GATT 1994, and the AD Agreement, WTO Members can impose anti-dumping measures if
they determine:
(a) that dumping is occurring;
(b) that the domestic industry producing the like product in the importing country is suffering material
injury or threat thereof, or that the establishment of a domestic industry is being materially
retarded; and
(c) that there is a causal link between the two.
In addition to substantive rules governing the determinations of dumping, injury, and causal link, the AD
Agreement sets forth detailed procedural rules for the initiation and conduct of investigations, the imposition
of measures, and the duration and review of measures.
IN DETAIL
The text Article VI of the GATT reads in relevant portion:
Anti-dumping and Countervailing Duties
1. Members recognize that dumping, by which products of one country are introduced into the commerce of
another country at less than the normal value of the products, is to be condemned if it causes or threatens
material injury to an established industry in the territory of a Member or materially retards the establishment
of a domestic industry…[A] product is to be considered as being introduced into the commerce of an
importing country at less than its normal value [i.e., as being dumped], if the price of the product exported
from one country to another
(a) is less than the comparable price, in the ordinary course of trade, for the like product when
destined for consumption in the exporting country; or
(b) in the absence of such domestic price, is less than either
(i) the highest comparable price for the like product for export to any third country in the ordinary
course of trade, or
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(ii) the cost of production of the product in the country of origin plus a reasonable addition for
selling cost and profit.
2. In order to offset or prevent dumping, a Member may levy on any dumped product an anti-dumping duty
not greater in amount than the margin of dumping in respect of such product. For the purposes of this
Article, the margin of dumping is the price difference determined in accordance with the provisions of
paragraph 1.
...
6.(a) No Member shall levy an anti-dumping […] duty on the importation of any product of the territory of
another Member unless it determines that the effect of the dumping […] is such as to cause or threaten
material injury to an established domestic industry, or is such as to retard materially the establishment of a
domestic industry.
Further, the AD Agreement states:
Article 1 (Principles)
An anti-dumping measure shall be applied only under the circumstances provided for in Article VI of
GATT 1994 and pursuant to investigations initiated and conducted in accordance with the provisions of this
Agreement. The following provisions govern the application of Article VI of GATT 1994 in so far as action is
taken under anti-dumping legislation or regulations.
The AD Agreement also contains detailed provisions elaborating on all of the above elements contained in
Article VI of GATT 1994.
EXERCISES:
1. What is dumping? What are the possible bases for determining normal value?
2. What must a Member do to have the right to apply an anti-dumping measure?
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II.A.1. ILLUSTRATION 1
Let's assume that Member A and Member B are Members of the WTO. Vegi Company is a producer of
vegetables in Member B. Because of the excessive production of tomatoes in the world during the current year
and the increased availability of high quality tomatoes on the international market, Vegi is unable to sell its
production of tomatoes for the year, and is facing great losses if it does not find a market for its production.
Vegi decides to sell its tomatoes in Member A by offering them at a price ($1.00 per kg) that is below the
prevailing market price for tomatoes of similar quality in Member A. Meanwhile, the selling price in Member B
for the same tomatoes is $2.00. The tomato producers in Member A experience a slump in their domestic sales
of tomatoes, and request the government of Member A to impose anti-dumping duties on tomatoes imported
from Member B.
The government of Member A could potentially apply an anti-dumping duty on tomatoes up to $1.00/kg.,
representing the margin of dumping, i.e. the difference between the selling price of tomatoes in Member B and
the export price to Member A. To be able to do so, however, Member A first needs to conduct an investigation,
and it only could proceed with an anti-dumping duty if in that investigation it determined that: 1) Vegi was
exporting its tomatoes to Member A at a price below the price at which Vegi is selling the same tomatoes in its
home market (in Member B); 2) the domestic tomato producers in Member A are suffering injury; and 3) there
is a causal link between the injury suffered by the domestic industry and the dumped imports.
The Products in an Anti-dumping Investigation
The three different products in and AD investigation
Before moving on to discuss calculation issues, we have to examine the issue of the product/s in an
anti-dumping investigation.
Conceptually, in an anti-dumping investigation, we can distinguish three different "products": (1) the product
under consideration (or the exported product); (2) the product that is "like" the exported product, sold in the
exporter's home market; and (3) the product that is like the exported product, produced by the domestic
industry of the importing country. The conceptual relationships of these products are shown below:
Figure 1: Products in an anti-dumping investigation
Product under Consideration (Investigated exported product)
LIKE PRODUCT produced by domestic industry in importing
country
LIKE PRODUCT in domestic market of
exporter, or in 3rd country export market
Dumping analysis Injury and causation analysis
For determining
NV
For injury
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At the top of the diagram, we find the "product under consideration". Depending on the jurisdiction, it is also
known inter alia as "subject merchandise", "subject goods", "investigated goods", "investigated product", etc.
This is the product exported at allegedly dumped prices and hence the product that is alleged to be causing
injury to the domestic industry.
Why is the "product under consideration" relevant in an anti-dumping investigation?
First, because this is the product for which we need to know the export price – one of the two elements
in a dumping determination - as we will see below when we discuss how to determine the export price;
Second, when conducting the injury analysis, the AD Agreement requires an investigating authority to
consider among other things the trends in dumped imports of the "product under consideration", as we
will see below when we address issues pertaining to the injury determination.
More generally, the "product under consideration" is the product covered by the investigation, as identified in
the notice of initiation. As such, this product is the focus of and point of reference for all aspects of the
investigation. Starting with the application, and the product it alleges to be dumped, the investigation will
examine normal values for the product that is "like" that product, to determine the margin of dumping, and will
examine the performance of the industry in the importing country producing the "like" product, to determine
injury and causation. Ultimately, any anti-dumping measures will apply only to the "product under
consideration". $In other words, the "product under consideration" determines the scope of the investigation
and of any eventual anti-dumping measures.
Because the scope of the eventual anti-dumping measure depends on the definition of the product under
consideration, this determination is generally subject to a lot of discussion during the course of an
investigation. For example, the domestic industry in the importing country - as a complainant – may be
interested in a broad definition of "product under consideration", as this would mean wider coverage of any
anti-dumping measure that might be applied. On the other side, exporters, importers and consumers may
seek as narrow a definition as possible of the "product under consideration", to constrain the scope of
application of an eventual anti-dumping measure.
II.A.2. CASE STUDY 1
We'll examine an actual (review) investigation conducted by the EC on imports of colour televisions (CTVs)
from China, Korea, Malaysia and Thailand. This review concerned a (previously-imposed) anti-dumping
measure in force on these products. During the course of the review investigation, questions as to the
inclusion or exclusion of certain variants of the product were addressed. (The public notice concerning this
review investigation is Regulation (EC) No 1531/2002. The text below is excerpted from that public notice.)
a) Product description
The product concerned was CTVs with a diagonal screen size of more than 15,5 cm, whether or not combined
in the same housing with a radio broadcast receiver and/or clock. The product was classifiable within CN
codes ex 8528 12 52, 8528 12 54, 8528 12 56, 8528 12 58, ex 8528 12 62 and 8528 12 66.
In a previous review of this anti-dumping measure, Regulation (EC) No 710/95 excluded from the definition
of the product concerned D2MAC sets and high definition televisions (HDTVs) since these products, which
introduced qualitative technical changes, were at that time still in the development stage and were not
available to the public except in very limited circumstances. Subsequent Regulation (EC) No 2584/98, which
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amended the anti-dumping duty regulation resulting from that previous review, confirmed that these
products should not be included in the scope of the product definition at that time, since the investigation
had not brought to light any new factual evidence that would justify their inclusion. I In the review
investigation examined in this case study, again no new evidence justifying the inclusion of these products
was submitted, and it therefore was concluded that D2MAC sets and high definition televisions were not
covered by the investigation.
b) Arguments of the parties during the review investigation
One importer requested the exclusion from the scope of the investigation of so-called internet CTVs, which
integrate an internet modem and computer operating system that allow access to the internet via the TV
screen, and which are controlled by a remote control unit that includes a full keyboard. In an internet CTV,
all the necessary modem circuitry is integrated into the body of the television set, instead of having a
separate set-top box.
The importer argued that the exclusion was warranted in view of the differences in basic physical and
technical characteristics between standard CTVs and internet CTVs, and in view of the different consumer
perceptions of these two products.
The differences in the basic physical characteristics of internet CTVs consisted of the additional internet
components in the CTV, which represented around 60% of the total costs of the internet CTV, and the
keyboard that is integrated into the remote control.
Regarding the basic technical characteristics, the importer argued that the internet CTV sends and receives
data not via broadcasting technology but via the telephone system using the modem. Furthermore, it
employs technology which is different from the basic technology in CTVs; it incorporates a system for secure
access to the internet, secure socket layer (SSL), a browser technology for the display of internet graphics on
standard resolution CTVs, and a modem that translates digital into analogue signals, which can travel over a
standard phone line.
The importer alleged that the different consumer perception of an internet-CTV compared to a standard CTV
was proven by the fact that internet-CTVs were sold at retail level at more than twice the price of a standard
CTV. Furthermore, it was argued that the integrated internet circuit imparts a distinct additional quality to an
internet-CTV. In support of its position, the importer cited a case on video cassette recorders from Japan and
Korea (VCRs) in which it was concluded that where a VCR and a CTV are combined in a single housing, this
combination has to be regarded as a distinct product.
The applicant claimed that such exclusion was not warranted. It disagreed that internet CTVs had different
basic physical and technical characteristics, and argued that the internet component was comparable to the
teletext in a CTV. The applicant argued that internet should be considered as a more modern form of teletext
and therefore an additional feature of CTVs, rather than a new product lacking the basic characteristics of
CTVs. In its view, since CTVs with teletext were covered by the investigation, internet CTVs also should be.
The applicant also questioned the importer's arguments concerning consumer perceptions, arguing that
internet CTVs had been launched only recently. The applicant further argued that the high percentage of
costs represented by the internet element was due to the recent introduction of internet CTVs. In support of
this argument, the applicant submitted evidence showing that at the time of the introduction of the teletext
facility in CTVs, the cost of teletext was substantially higher than they were at the time of the review
investigation examined in this case study.
Finally, the applicant contested the relevance of the example of the combined VCR/CTV, arguing that in such
a combination the VCR has an independent function, whereas in an internet CTV, the internet function does
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not work without the CTV, but instead is an addition to it.
c) Findings of the investigation
The investigation revealed that an internet CTV was a product that combines in a single housing two
technologies producing two sufficiently distinct end uses: (1) sending and receiving electronic mail and
accessing the world wide web; and (2) viewing television programmes. Given the addition of the internet
function, the CTV part of the unit did not necessarily determine the character of the entire product. To the
contrary, it was the internet function that predominated over the CTV. Indeed, this combination contained a
specific element that imparted an additional function to the internet CTV compared with a standard CTV,
allowing the former to be considered as different for the purpose of the review investigation.
The above conclusions were reached on the basis of the information gathered in the course of the
investigation and relating to the period of investigation. Given the early stage of development of the internet
CTV, and the fact that the product was only available to the public in small quantities, it could not be
excluded that the conclusions reached regarding product scope would need to be revisited in light of further
developments of the product in the future. Thus, in the event of a future new review of the measures in
place, the situation of these products would have to be re-examined, on the basis of the information
gathered in that future review, to determine whether such exclusion would still be justified.
Furthermore, despite differences in screen sizes, sound systems, broadcast systems, screen types and
formats, and picture frequency, it was found that all CTVs shared the same basic physical and technical
characteristics and the same use, and that therefore they formed a single product.
Like product
In the course of the investigations, it was established that CTVs originating in or exported from the countries
concerned and destined for the Community, shared the same basic physical and technical characteristics and
end-uses as CTVs manufactured and sold by the Community industry on the Community market. It was also
found that there were no differences between the CTVs produced and sold in the countries concerned,
including Turkey which was used as an analogue country, and those exported to the Community, which were
both identical to the CTVs manufactured and sold by the Community industry on the Community market.
These products are therefore alike within the meaning of Article 1(4) of the basic Regulation.
LIKE PRODUCTS IN AD INVESTIGATION
"Like product in the domestic market of the exporter..."
In examining whether dumping is taking place, the investigating authority will have to determine the "like
product in the domestic market of the exporter". This will be the product sold in the domestic market of the
exporting country.
Why is the "like product in the domestic market of the exporter" relevant in an anti-
dumping investigation?
The like product in the domestic market of the exporter is important because its price normally will form the
basis of the normal value to be used in the dumping calculation. That is, the first choice for determining the
"normal value" of the investigated product is the price at which the "like product" is sold in the domestic
market of the exporting country.
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Are not the "product under consideration" and the "like product in the domestic
market of the exporter" identical?
In case of commodities (e.g., fertilizers, minerals, raw agricultural products), the "like product in the domestic
market of the exporter" will most likely be identical to the "product under consideration". That is, for these
goods, generally there will not be important product differentiation as between the domestic and export
markets. In other cases (e.g., involving consumer goods), the investigating authority will most often be faced
with products in the two markets that are not identical. This might be due to, for instance, differences in
consumer taste or technical requirements.
An example?
For instance, colour televisions sold in the US are different from those sold in Europe, inter alia because of
differences in voltage (110V in the US, 220V in Europe). Thus, normally a colour TV made for the US market
will not work in Europe. This applies to all other electronic goods.
What happens if the "product under consideration" and the "like product in the domestic market of the
exporter" are not identical? Can we still compare the price of the "product under consideration" to the price at
which the "like product" is sold in the domestic market of the exporting country?
The AD Agreement states that "like product" must be interpreted to mean a product which is identical, i.e. alike
in all respects to the product under consideration, or in the absence of such a product, another product which,
although not alike in all respects, has characteristics closely resembling those of the product under
consideration. Continuing the above example, the question would be whether otherwise identical 110V and
220V television sets meet the standard of having "closely resembling characteristics".
What characteristics should be examined in order to determine whether the product
sold in the domestic market of the exporting Member "closely resemble[es] those of
the product under consideration"?
The AD Agreement is silent on this issue. However, investigating authorities worldwide tend to consider at least
the following factors:
Physical characteristics of the product;
Raw materials used;
Manufacturing process;
Tariff classification;
Consumer preference and end-use;
Quality.
Thus, in the case of the colour TVs mentioned above:
An investigating authority would have to look at the physical characteristics of the TVs sold in the US and in
Europe.
It would then probably see that some technical components are different because of the voltage and other
physical differences.
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It would then examine the inputs used in the production of both TVs. These would include, for both types of
TVs, colour picture tubes, transistors, etc. It would also examine the manufacturing process.
It would then examine what both types of TVs are used for. It would finally assess aspects relating to
consumer preferences and perhaps quality differences between the two types of colour TVs.
Ultimately, based on the outcome of the analysis of each of the above factors, the investigating authority
would need to arrive at a conclusion on whether the two kinds of colour TVs are, or are not, "like" in the sense
of the AD Agreement.
What if the product sold in the domestic market of the exporting country is neither identical to, nor has
characteristics closely resembling those of, the product under consideration? Then, the price at which that
product is sold in the domestic market of the exporting country cannot be used as the basis for the normal
value.
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II.A.3. CASE STUDY 2
The following analysis was taken from the same determination examined in Case Study 1, of the EC
investigation targeting imports of colour TVs from China, the Republic of Korea, Malaysia and Thailand.
Like product
In the course of the investigations, it was established that CTVs originating in or exported from the countries
concerned and destined for the Community, shared the same basic physical and technical characteristics and
end-uses as CTVs manufactured and sold by the Community industry on the Community market. It was also
found that there were no differences between the CTVs produced and sold in the countries concerned,
including Turkey which was used as an analogue country, and those exported to the Community, which were
both identical to the CTVs manufactured and sold by the Community industry on the Community market.
These products are therefore alike within the meaning of Article 1(4) of the basic Regulation.
The third product is the "like product in the importing country". This is the product manufactured and sold by
the domestic industry in its domestic market and plays a central role in an injury determination.
Why is the "like product in the importing country" relevant in an anti-dumping
investigation?
The "like product in the importing country" is relevant because the AD Agreement requires that an
investigating authority determine the impact of the dumped imports on the state of the domestic producers of
the like product in the importing country. The Agreement further requires that the investigating authority
evaluate the state of that industry by examining a number of factors such as the development of sales of the
like product manufactured by the domestic industry. The injury determination cannot therefore be carried out
unless an investigating authority determines whether the domestic industry produces a product "like" the
"product under consideration".
Here again, the same definition of "like product" applies. That is, "product under consideration" and the
product in the importing country are like where they are identical or where the latter has "characteristics
closely resembling those of the product under consideration". The factors to be examined are those we have
seen above.
What if the product manufactured and sold by the domestic industry in the
importing country is neither identical nor it has characteristics closely resembling
those of the product under consideration?
Based on the AD Agreement, in this case there is no domestic industry producing the like product, and hence
no basis for an anti-dumping investigation or the imposition of anti-dumping measures. That said, if an
industry to produce the like product in the importing market is in the process of establishment, but has not yet
come on stream, there is a possibility to carry out an investigation, and impose a measure, on the basis of
"material retardation of the establishment of an industry."
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II.A.4. ILLUSTRATION 2
Let's explain this with an example:
For instance, suppose that the companies in the importing country being injured produce radios and they
complain that due to cheap imports of colour TVs, consumption of radios has fallen, causing them to be
materially injured.
Can the domestic industry of radios request the initiation of an anti-dumping
investigation on colour televisions?
No, because radios are neither identical to the product imported - i.e. the product under consideration, the
colour TV - nor do they have characteristics closely resembling those of colour TVs. Hence, in this case the
domestic producers of radios could not request the initiation of an investigation against colour TVs. Nor could
any injury determination be supported based on injury suffered by producers of radios due to imports of colour
TVs.
If, however, investors are actively engaged in trying to establish a new industry to produce colour televisions in
the importing country, an investigation potentially could be conducted to determine whether "establishment" of
the industry were being "materially retarded", and in case of an affirmative outcome, a measure could be
applied. There are, however, no guidelines in the AD Agreement for how to analyse allegations of material
retardation.
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III. DETERMINATION OF DUMPING
IN BRIEF
Dumping is established by comparing the "normal value" and the "export price".
Generally, the normal value is the price at which the like product is sold for consumption in the market of the
exporting country.
The export price is the price at which the exporter sells the product to the importing country.
The AD Agreement states that a product is to be considered as being dumped where the export price of the
product exported from one country to another is less than the normal value of that product, which normally is
the comparable price, in the ordinary course of trade, for the like product when destined for consumption in
the exporting country.
Any dumping calculation will include the following four steps:
The observed or constructed export price;
The observed or constructed normal value;
The adjusted normal value and the adjusted export price (reflecting adjustments to ensure
comparability); and
The margin of dumping.
These steps will be examined in the following sections.
III.A. DETERMINATION OF THE EXPORT PRICE
Although the term "export price" is not defined in the AD Agreement, the export price will normally be the price
charged by the exporter for the product when exported to the importing Member.
III.A.1. EXCEPTIONS
The AD Agreement recognizes that in certain circumstances, the price from the exporter to the importer, or to
a third party, may not be reliable. One such circumstance is where there is no export price. This could occur,
for example, where the product is sold on consignment (i.e., the selling price is not fixed until the product is
actually sold to a purchaser in the importing country), or transferred to a related entity for further processing
before sale in the importing country. Another situation where the price charged by the exporter may not be a
reliable indicator of the export price to be used in the dumping calculation is where the exporter sells the
product to a related importer. This happens very often where large companies, such as Sony, Samsung,
General Electric, etc. are involved in investigations. Another circumstance that can lead to price unreliability is
a "compensatory arrangement" between the exporter and the importer or a third party, such as where the
exporter gives discounts, refunds or rebates, after the export transaction has taken place.
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In such cases, the AD Agreement provides for an alternative method of determining the export price to be used
in the dumping calculation, namely a "constructed export price". Such a price is to be calculated on the basis
of the price at which the imported products are first resold to an independent buyer in the importing country.
If the imported product is not resold to an independent buyer, or is not resold as imported, the authorities may
determine a reasonable basis on which to construct the export price.
III.A.2. EXAMPLE: AN INVESTIGATION OF PARACETAMOL - EXPORT PRICE
We will explain each of the steps in the calculation with the help of an example. Member A initiated an
investigation concerning imports of paracetamol from Member B. The sole producer of paracetamol in
Member B is "Paracetamol PLC". This company provided a response to the questionnaire it received from the
investigating authority in Member A. The investigating authority will have to calculate the margin of dumping.
The first step will be to calculate the export price. As a general rule, the margin of dumping is to be calculated
by comparing weighted average export price to the weighted average normal value. Thus, the first step is to
calculate these weighted averages. This process is shown in the table below for the export price:
Number of Sale Date Gross Price
CIF (USD/Kg)
Quantity (Kg) Price times
quantity
1 15.01.2011 8 10 80
2 15.02.2011 7 10 70
3 15.03.2011 6 10 60
4 15.04.2011 6 10 60
5 15.05.2011 8 10 80
6 15.06.2011 7 10 70
7 15.07.2011 8 10 80
8 15.08.2011 6 10 60
9 15.09.2011 6 10 60
10 15.10.2011 8 10 80
11 15.11.2011 9 10 90
12 15.12.2011 9 10 90
Total 120 880
Weighted Average Export Price (PxQ)÷Q 7.33
Table 1: Calculation of the weighted average export price
The investigating authority does not have any indication that the export prices for the 12 transactions reported
in the above table might be affected by an association or compensatory arrangement between Paracetamol PLC
and the importer. The investigating authority will therefore determine the export price on the basis of the price
paid by the importer. In this simple example, the weighted average export price (WAEP) will be 7.33 USD/kg.
The next step is to calculate the normal value. We now turn to that issue.
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III.B. DETERMINATION OF THE NORMAL VALUE
III.B.1. GENERAL RULE
The AD Agreement recognizes three possible options to determine normal value:
Figure 2: Options for the determination of the normal value in an anti-dumping investigation
The first, preferred, basis in the AD Agreement for determining normal value is, as discussed above, the price
at which the exporter sells the like product "when destined for consumption in the exporting country", i.e. in
the exporter's domestic market.
When normal value cannot be determined on that basis, two alternatives are available: the price charged by
the exporter in another country (known as third country market price); or a constructed value obtained by
adding to the cost of production of the like product in the country of origin a reasonable amount for selling,
general and administrative expenses and for profits. (This is referred to as constructed normal value).
III.B.2. ILLUSTRATION 3
Let's suppose that the Gambia initiates an anti-dumping investigation regarding imports of wheat flour from
the United States. How will the investigating authority in the Gambia obtain information on the prices at which
the US exporters sell wheat flour in the US domestic market? The Gambian investigating authority will be
asking the US wheat flour exporters to provide that information. The investigating authority also may request
information on the prices of US exports of wheat flour to third country markets, as well as on the cost of
production, selling costs and profits for US production of wheat flour. In this way, the investigating authority
would have all of the information necessary to determine normal value on any of the bases provided for in the
AD Agreement.
Normal value will be based on sales prices of the like product in the domestic market unless any of the
following situations arise:
There are no sales of the like product in the domestic market of the exporting country - recall the case
of ski boots in Malaysia!
There are sales in the home market but in low volume - normally where home market sales represent
less than 5% of the volume of export sales to the importing Member. This situation arises frequently in
Preferred basis: Domestic prices in the exporting country
Exception: Constructed value in the
exporting country
Exception: Export price to a third
country Note: No hierarchy between these two
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countries with small domestic markets. (The AD Agreement, however, encourages the use of a lower
ratio where the evidence demonstrates that such lower ratio nevertheless would allow for a proper
comparison.)
There is a "particular market situation" that justifies not using the prices of sales of the like product in
the domestic market The AD Agreement, however, does not define what might constitute such a
"particular market situation".
Sales in the home market are not "in the ordinary course of trade" - again, this term is not defined by
the AD Agreement. The following situations might lead to findings of sales not being in the ordinary
course of trade:
There are sales between related parties. Similar to the situation that may arise when calculating the
export price, there are many instances where the exporter sells in its domestic market through related
parties. In such instances, a question may arise whether the price charged to the related purchaser is
reliable. If not, that price might be rejected as the basis on which to calculate normal value.
There are sales below cost: Under certain circumstances, the AD Agreement allows sales below cost to
be treated as not being in the ordinary course of trade, and thus disregarded, i.e. not included, in the
normal value calculation normal value.
There are liquidation sales: An example would be sales of clothing at the end of a season at very low
prices.
There are sales to employees
Where, because of the occurrence of any of the above situations, normal value cannot be determined on the
basis of domestic sales prices, an investigating authority will have to proceed with any of the alternative
methods explained below.
III.B.3. EXCEPTIONS
Third country market price. The AD Agreement contains few rules on how to calculate normal value on the
basis of export prices to a third market, other than that the third country should be "appropriate", and that the
export price to that country should be "representative". Members determining normal value on this basis have
developed understandings about these terms. Thus, for instance they generally test the volume of exports to a
given third country against the volume of exports to the importing Member, i.e. the Member conducting the
investigation. If the volume sold to the third country is very low in comparison to the volume of exports to the
importing Member, they may not select the sales to that third country as a basis for the determination of
normal value. (This test, which although not provided for in the AD Agreement is applied by numerous
Members, is similar to the so-called "home market sufficiency test" provided for in the AD Agreement, whereby
home market sales shall be considered to be of sufficient quantity for the establishment of normal value if they
are at least five per cent of the sales of the product to the importing Member.)
Constructed normal value (CNV). As far as constructed normal value is concerned, as noted this is not a
price charged by the exporter but rather is a value calculated by the investigating authority in the importing
Member, exclusively for the purpose of its anti-dumping investigation. The AD Agreement tells us that to obtain
the CNV, an investigating authority must sum up the cost of production, and reasonable amounts for selling,
general and administrative costs and for profits. The AD Agreement contains rules on how costs should be
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calculated. It also establishes a set of rules for the calculation of the selling, general and administrative costs
as well as of profits.
III.B.4. OUR INVESTIGATION OF PARACETAMOL - NORMAL VALUE
In our investigation, the next step will be to determine the price at which Paracetamol PLC sold paracetamol in
its domestic market. For that purpose, the investigating authority of Member A asked Paracetamol PLC to
provide information on its selling prices of paracetamol in Member B (i.e., on its home market prices). The
information received from Paracetamol PLC is set forth in the table below. Again, the weighted average needs
to be calculated, and this process is as follows:
Number of
Sale
Date Gross Price
CIF
(USD/Kg)
Quantity
(Kg)
Price times
Quantity
1 01.01.2011 5 20 100
2 01.02.2011 6 20 120
3 01.03.2011 6 20 120
4 01.04.2011 7 20 140
5 01.05.2011 7 20 140
6 01.06.2011 8 20 160
7 01.07.2011 5 20 100
8 01.08.2011 5 20 100
9 01.09.2011 6 20 120
10 01.10.2011 6 20 120
11 01.11.2011 6 20 120
12 01.12.2011 5 20 100
Total 240 1440
Weighted Average Normal Value (P*Q)÷Q 6
Table 2: Calculation of the weighted average normal value
As we see in the above table, Paracetamol PLC made 12 sales in its domestic market, each of 20 kg. Thus, in
total it sold 240 kg. of paracetamol in the domestic market. As we have seen in the earlier section, the
amount exported to Member A was 120 Kg. The volume sold in the domestic market therefore is twice the
volume exported, i.e., far more than the 5 per cent threshold below which home market sales could be
considered to be insufficient as a basis for determining the normal value. Therefore, sales in the domestic
market cannot be disregarded on account of low volume.
In addition, let us assume that there is no "particular market situation", or any reason to believe that any of
the domestic market sales transactions was not in the ordinary course of trade. Hence, the normal value in this
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particular case will be based on the prices at which Paracetamol PLC sold the like product in its domestic
market. The weighted average normal value (WANV) therefore will be 6 USD/kg.
We now have calculated the weighted average (observed) export price (USD 7.33) and the weighted average
(observed) normal value (USD 6.00. Assuming that no adjustments are required to either of these values, the
result of comparing them would be that there is no dumping (because the export price is higher than rather
than lower than the normal value. It may be, however, that one or both of these values needs to be adjusted
to ensure that they are fully comparable before the dumping margin can be calculated. This process is
discussed in the next section.
III.C. FAIR COMPARISON OF NORMAL VALUE AND EXPORT
PRICE
IN BRIEF
In general terms, the AD Agreement requires that the comparison of the export price and the normal value
be "fair". More specifically, the AD Agreement requires that the comparison between export price and
normal value must be made at the same level of trade, normally at the ex-factory level, and in respect of
sales made at as nearly as possible the same time.
Furthermore, based on the results of numerous WTO disputes, we know as well that using "zeroing" in
dumping calculations violates inter alia the "fair comparison" rule. ("Zeroing" is assigning a value of zero to
any individual negative margins of dumping - i.e., where the export price is above, rather than below, the
normal value - in calculating the weighted average margin of dumping for the investigated product.)
IN DETAIL
Why does the AD Agreement require that a comparison be made at the same level of
trade, and normally at the ex-factory level?
Concerning level of trade, this is because differences in levels of trade (trader, wholesaler, distributor, retailer,
end user, etc.) may affect prices. In particular, a producer typically will vary its prices based on level of trade
because the producer's selling costs will vary from one level of trade to another. For example, a producer
selling directly to end-users generally would need to make many small sales (incurring selling costs on each
one) to reach a given total sales volume, while a producer selling to a trader or wholesaler would need to make
fewer, larger sales to reach that same sales volume, and thus would economise on the total cost of selling that
volume.
Similarly, the requirement normally to compare the export price and the normal value at ex-factory level is
aimed at avoiding the distorting effect that factors such as transport, insurance, etc. may have on the
comparison of the export price and the normal value.
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III.C.1. ILLUSTRATION 4
Let's look at an example: Suppose that a producer sells urea in its home market at USD 150/ton. The same
company exports urea at USD 120/ton to Member A. If we compare these two figures we find that the export
price (USD120/ton) is lower than the normal value (USD 150/ton), yielding an apparent dumping margin of
USD 30/ton.
However, let's suppose that the domestic buyer has asked the producer to deliver the product to the buyer's
warehouse, and that the cost of transporting a ton of urea from the factory to the warehouse is USD 50/ton.
This is therefore the amount that the producer of urea will have to pay to a transport company to bring the
urea from the factory to the warehouse. Thus, what the producer/exporter earns for a ton of urea sold in the
domestic market is not USD 150/ton, but USD 100/ton.
Let's further suppose that the importer of the good in Member A also has requested that the producer/exporter
deliver the urea to the importer's warehouse, and that the cost of transport is USD 20/ton. Again, we deduct
the cost of transport and we find that the producer earns USD100 for a ton of urea exported to Member A.
In this example, when we deduct the cost of transport from the selling prices in both markets, we find that the
export price is equal to the normal value. What does this mean? It simply means that, when we adjust the
prices on both sides of the dumping calculation to remove cost elements such as transport, in order to arrive at
the "real" prices as required by the AD Agreement, the apparent margin of dumping disappears. That is, there
is no dumping.
Adjusting - in the circumstances contemplated by the AD Agreement – is not optional for the investigating
authority; it is the authority's obligation. The obligation exists even if it might be difficult, in a particular case,
to make the required adjustments.
What sorts of factors require an adjustment? Those affecting price comparability. The AD Agreement names a
few: conditions and terms of sale (this includes transport, insurance, credit, guarantees/warranties, packaging,
etc.); taxation; levels of trade; quantities; and physical characteristics. But the AD Agreement also requires
that any other differences that are also demonstrated to affect price comparability must be adjusted. And it
further requires the authorities to indicate to the parties what information is necessary to ensure a fair
comparison (i.e. what information is needed to make a given adjustment.)
The above example where an adjustment was needed involved differences in transport costs. Another
commonly-needed adjustment is for differences in credit costs. A producer may sell "at sight" in its domestic
market, while on its export sales it may give 30 days credit. In this case, the investigating authority could
adjust the export price by deducting from it the cost relating to the credit provided by the exporter. In this
example, no adjustment would be made to the normal value because "at sight" implies no cost to the producer.
As another example, imagine that the product is auto CD players. For the export market these units are
equipped with an anti-theft device. By contrast, auto CD players sold in the domestic market do not have such
a device due to the low rate of theft in that country. The products are therefore different in terms of physical
characteristics. An investigating authority could only compare the export price with the normal value after
having adjusted for the difference (i.e., the anti-theft device) between the units produced for the two markets.
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Finally, the AD Agreement states that authorities must indicate to the parties in question what information is
necessary to ensure a fair comparison and must not impose an unreasonable burden of proof on those parties.
III.C.2. OUR INVESTIGATION OF PARACETAMOL - ADJUSTMENTS
We have calculated the weighted average (observed) normal value and weighted average (observed) export
price in earlier sections. As noted above, if we compare these weighted averages - normal value of USD 6/kg
and export price of USD 7.33/kg - no dumping will be apparent. The export price is higher, not lower, than the
normal value.
Now, let us change the example. In particular, now let's suppose that in its questionnaire response, the
exporter has stated the following:
"Domestic sales:
In the domestic market we give our clients 90 days to pay. The interest rate that banks charge us for short-
term borrowing is 10% per year (0.028% per day). We also deliver the paracetamol to the warehouse of our
clients. The cost of transport is 0.38 USD/kg.
Export sales:
On our export sales, we give our clients 180 days to pay. The interest rate that banks charge us for short-term
borrowing is 10% per year. We export on a CIF (cost plus insurance and freight) basis. The total cost of
transport and insurance amounts to 2.50 USD/kg."
Based on this information, the investigating authority will need to make appropriate adjustments to both the
normal value and the export price to take account of the credit, transport and insurance costs that are
embedded in the prices charged in the home market and export market. We'll start with normal value.
IN DETAIL
Adjustments to normal value and export price
Based on the information in the exporter's questionnaire response, two adjustments to the normal value are
needed. The first relates to the credit costs. The producer has incurred certain credit expenses given that it
allows its domestic customers 90 days to pay their bills. How much should we deduct from the weighted
average price calculated above (USD 6/kg)? Different investigating authorities calculate credit costs in different
ways.
One possibility is by applying the following formula:
Where:
"v" is the value of the sale
"i" is the interest rate
"d" is the number of days given to pay
"365" is the number of days in a year
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The calculation thus would be:
((USD 6/kg) * 0.1 (10% interest rate) * 90 (days given to pay))/365 = USD 0.15/kg
Furthermore, an adjustment for the domestic transport and insurance cost is warranted. The amount is
provided by the exporter in its questionnaire response: USD 0.38/kg.
Having calculated the two adjustments, the final step is to obtain the adjusted normal value, by deducting the
credit, transport and insurance costs from the USD 6 weighted average price per kg of each transaction. This
gives us a weighted average adjusted home market price of:
USD 6.00/kg - USD 0.15 - USD 0.38 = USD 5.47
Thus, the adjusted weighted average home market price, that is, the weighted average normal value, is
USD 5.47.
The next step will be to calculate the weighted average export price.
The explanation given above for the calculation of the adjustments for credit, transport and insurance costs
also applies here. With regard to the credit costs, since the length of credit terms given on export sales is
different from that given on sales in the domestic market, we will have to compute the amount again.
The formula will be:
(USD 7.33/kg) * 0.1 (10% annual interest rate) * 180 days to pay) / 365 = USD 0.36/kg
Transport and insurance costs are taken from the questionnaire response of the exporter. They are much
higher than those charged in the domestic market because, for exports, the product has to be brought from
the factory to the port, loaded into a ship, and shipped to the port in the importing country. The amount to be
deducted, as reported in the questionnaire response, is USD 2.50/kg.
To arrive at the adjusted weighted average export price, we must deduct the USD 0.35/kg and USD 2.50/kg
from the weighted average selling price for exports of USD 7.33/kg, as follows:
USD 7.33 - USD 0.36 - USD 2.50 = USD 4.47
Thus, the weighted average export price is USD 4.47/kg.
We are now ready to calculate the dumping margin!
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III.D. CALCULATION OF THE DUMPING MARGIN
IN BRIEF
The AD Agreement contains rules governing the calculation of dumping margins. In the usual case, the AD
Agreement requires either the comparison of the weighted average normal value to the weighted average of
all comparable export prices, or a transaction-to-transaction comparison of normal value and export price.
IN DETAIL
The following slide shows the basic formula for calculating the margin of dumping in percentage terms:
Figure 3: Basic formula for calculating the margin of dumping
Important note
Normally, the margin of dumping is expressed as a percentage of the adjusted export price; this is why
the difference between the adjusted normal value and the adjusted export price is divided by the adjusted
export price.
III.D.1. OUR INVESTIGATION OF PARACETAMOL - THE DUMPING
MARGIN
We have determined that the adjusted weighted average normal value is USD 5.50/kg and that the adjusted
weighted average export price is USD 4.48/kg. Let's apply the above formula for calculating the margin of
dumping in percentage terms:
(5.50 – 4.48) / 4.48 = 22.8%
Given that the result is a positive number (the normal value is higher than the export price), we have found
that the product under investigation is dumped, and that the margin of dumping is 22.8 per cent. Thus, one of
the necessary elements for application of a measure - dumping - has been found.
A word on "zeroing"
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Our example above is very simple, as only a single, uniform product is involved. Sometimes, however, the
product covered by an anti-dumping investigation may have a number of different presentations, or "models",
which are sufficiently distinct from one another that each requires its own margin calculation. (That is, the
differences are too significant to be addressed via adjustments.) An example might be fresh, chilled and
frozen salmon in all presentations (whole, gutted, head-on, head-off, filleted or otherwise cut in pieces, etc.).
It could be that the production processes (i.e., cost structure) and pricing of these different presentations or
models are sufficiently diverse that each should have its own dumping margin calculation, while ultimately a
single, weighted average dumping margin should be calculated for each producer (covering all of the models
that it produces). In such a case, it may be that for some models, no dumping (in fact, negative dumping) is
apparent, because for that model the weighted average export price exceeds the weighted average normal
value. For other models, there may be dumping. The question becomes how to calculate the overall weighted
average dumping margin for all of the models combined, and in particular, how in the weight-averaging across
models to treat the models where no dumping/negative dumping is apparent.
There has been a lengthy series of WTO disputes about this issue. Some Members have applied the practice of
"zeroing" the negative margins (i.e., assigning them a value of zero in the weight averaging), on the grounds
that a negative margin signifies an absence of dumping ("zero" dumping). Other Members instead factor the
full negative margin into their weighted average calculations. The Appellate Body ultimately has ruled in a
series of cases that "zeroing" violates various provisions of the AD Agreement, including the "fair comparison"
provisions. Thus, the full value of the negative margins of dumping needs to be included in calculating the
overall weighted average margin of dumping.
The example below illustrates this:
Weighted average dumping margin Quantity Margin * Quantity
Model 1 8.5% 10 + 85.00
Model 2 -5.3% 5 - 26.50
Model 3 9.1% 7 + 63.70
Weighted Average overall margin of dumping, all models:
With zeroing (NOT PERMITTED)
Without zeroing
INDIVIDUAL DUMPING MARGINS AND SAMPLING
The AD Agreement requires that in principle, when anti-dumping duties are imposed, a dumping margin be
calculated for each exporter known to the investigating authority. Is an investigating authority required to
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calculate an individual margin of dumping for each exporter even where there are many of them (e.g.,
hundreds or even thousands)? No. In those cases, the AD Agreement allows an investigating authority to
select a sample, and to calculate individual margins of dumping only for the exporters included in the sample.
However, the AD Agreement also sets forth rules to determine how the margin of dumping for the non-
sampled exporters must be calculated.
NEXT STEPS
Calculation of the dumping margin is not the "end of the road", but only the first step, for the application of an
anti-dumping measure. As discussed in the first section, for an anti-dumping measure to be applied, the
authorities also must make a determination that the domestic industry producing the like product in the
importing country is experiencing injury due to the dumping. We therefore now turn to examining the state of
the domestic industry.
EXERCISES:
3. How is the dumping margin calculated?
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IV. DETERMINATION OF INJURY AND CAUSAL LINK
After calculating the margin of dumping, the next step is to determine whether the domestic industry
producing the like product in the importing country is suffering injury as a result of the dumped imports.
IN BRIEF
The determination of injury and causal link will require us to go through a number of steps:
Determination of what is the "like product" produced by the "domestic industry";
Identification of which producers constitute the domestic industry;
Determination of whether the domestic industry is suffering injury (including data collection and
analysis);
Determination of whether the injury suffered by the domestic industry is caused by the dumped
imports.
These are the basic questions on the injury side of an anti-dumping investigation.
IV.A. LIKE PRODUCT
We have examined at some length above the concept of "like product". It is important to recall that a product
identical to, or with characteristics closely resembling those of, the imported product must be produced in the
importing Member. Otherwise, it would not be possible to proceed further with the examination of injury.
Let's imagine for instance that apples are the product imported at dumped prices. There are, however, no
producers of apples in the importing country. Indeed, bananas are the only fruit produced in the importing
country. Before being able to consider whether domestic banana producers are injured by imports of dumped
apples, an investigating authority first would have to ask whether bananas, not being identical to apples,
nonetheless are "like" apples in the sense of having characteristics closely resembling those of apples.
To answer to this question, the investigating authority would have to consider all relevant factors, as
mentioned in the previous section. These would need to include in the first place the products' physical
characteristics, and also might include raw materials, production process, end use, and users' perceptions,.
Let's suppose that the result of the examination is the (perhaps obvious) conclusion that bananas do not have
characteristics closely resembling those of apples, i.e., that bananas are not a "like product" to apples.
What would this mean? It would mean that no like product is produced in the market of the importing country,
and hence that there is no domestic industry to examine. As a consequence, the investigating authority would
not have a basis for an injury investigation or determination. Thus, because it would be impossible to make
two of the three determinations required for the imposition of an anti-dumping measure (i.e., the
determinations of injury and causation), the investigation on imports of apples would have to be terminated
immediately, without the imposition of measures!
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IV.B. DOMESTIC INDUSTRY
IN BRIEF
The AD Agreement defines the term "domestic industry" to mean "the domestic producers as a whole of
the like products or those of them whose collective output of the products constitutes a major proportion of
the total domestic production of those products". Importers that do not themselves produce the like
product therefore cannot be considered "domestic producers".
IN DETAIL
Why do we need to identify a "domestic industry"?
Because the investigating authority will have to determine the existence of injury in respect of a particular
domestic producer or group thereof producing the product that is "like" the investigated product. For that
purpose, information will have to be sought from that or those domestic producers.
While conceptually the domestic industry is composed of all the producers of the like product, the AD
Agreement opens the door to considering less than 100 per cent of the domestic producers as the "domestic
industry". In this case, the determination of injury will be based on information relating to these producers.
DOMESTIC PRODUCERS "AS A WHOLE" OR THOSE ACCOUNTING FOR "A MAJOR PROPORTION OF
TOTAL DOMESTIC PRODUCTION"
The AD Agreement provides for two bases on which the domestic industry can be defined. First, and clearly
the most accurate, is "domestic producers as a whole", that is producers accounting for 100 per cent of
domestic production of the like product. There may be situations in which it is difficult or impossible to gather
data from, or even to identify, all domestic producers of the product, however. For example, it could be a
highly fragmented industry with hundreds or thousands of small producers. The AD Agreement thus also
allows the domestic industry to be defined as those domestic producers whose collective output of the like
product accounts for "a major proportion" of total domestic production of that product. In fact, the AD
Agreement does not express a hierarchy between these two bases for identifying (and thus gathering and
analysing data on) the domestic industry. That said, panels and the Appellate Body have ruled that where the
domestic industry is defined for purposes of an injury investigation as less than all domestic producers, care
must be exercised that the industry is not defined in a way that would introduce a bias into the results of the
investigation. In particular, it is not allowed to exclude entire categories of producers of the like product from
the domestic industry definition. For example, it is not permissible to exclude producers of one presentation of
the like product, where more than one presentation is produced). Nor is it permissible to define the industry
as only including "cooperative" domestic producers, or those willing to provide data, or those supporting the
application.
EXCLUSION OF CERTAIN DOMESTIC PRODUCERS FROM THE DOMESTIC INDUSTRY
The AD Agreement recognizes that in certain circumstances, it may not be appropriate to include all producers
of the like product in the domestic industry (even where the industry is defined, in principle, as the domestic
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producers as a whole). In particular, Members are permitted to exclude from the definition of "domestic
industry":
Producers related to the exporters or importers under investigation; or
Producers who are themselves importers of the allegedly dumped product.
The AD Agreement contains its own definition of when a producer is to be considered "related" to an importer
or an exporter.
IV.C. INJURY
INJURY AS A LEGAL CONCEPT
IN BRIEF
The AD Agreement does not define the term "injury", although it does specify that three types of injury may
be found in an anti-dumping investigation:
"Material" injury to a domestic industry;
Threat of material injury to a domestic industry; or
Material retardation of the establishment of a domestic industry.
IN DETAIL
The AD Agreement does not define any of the above types of injury but it tells an investigating authority what
it must examine in order to determine whether a domestic industry has suffered "material" injury or threat
thereof. The AD Agreement does not provide any specific rules on how a determination of "material
retardation" must be conducted, and "material retardation" cases are rare. We turn now to the rules applicable
to injury investigations.
General requirements applicable to injury determinations:
As an overarching obligation, the AD Agreement requires that a determination of injury must be based on
"positive evidence" and involve an "objective examination" of:
The volume of the dumped imports;
The effect of the dumped imports on prices in the domestic market for like products; and
The consequent impact of these imports on domestic producers of such products.
The AD Agreement develops in detail what is expected, at a minimum, from an investigating authority with
respect each of the above items:
With regard to the volume of the dumped imports, an investigating authority must consider whether there has
been a significant increase in dumped imports, either in absolute terms or relative to production or
consumption in the importing Member.
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Important note
It is not required that the volume of dumped imports has increased, but rather that the investigating
authority consider whether there has been any such increase. However, a decrease in the volume of
dumped imports might be a factor weighing against a finding that the domestic industry has suffered
injury due to dumped imports.
It also should be noted that the increase might be in "absolute" terms, or "relative" to production or
consumption. Thus, there might be situations where there is no absolute increase in dumped imports because,
for instance, the total consumption of the like product has decreased, but dumped imports, in relative terms
(to production or consumption) might have increased.
As far as the effect of the dumped imports on prices is concerned, an investigating authority must consider
whether there has been a significant price undercutting by the dumped imports as compared with the price of
the like product produced in the importing Member, or whether the effect of such imports is otherwise to
depress prices to a significant degree, or to prevent price increases that otherwise would have occurred, to a
significant degree, for that like product.
EFFECT OF DUMPED IMPORTS ON THE PRICES OF DOMESTIC LIKE PRODUCTS
Thus, an investigating authority must examine whether dumped imports have any effect on the prices at which
the domestic industry sells the like product. As noted, these "effects" can be in the form of "price
undercutting", "price depression" or "price suppression". In some cases, "price undercutting" might be
observed together with, for instance, "price suppression".
Let's look at an example:
0
50
100
150
200
250
2007 2008 2009 2010 2011
Price DLP
COP DLP
Price Dumped I.
2007 2008 2009 2010 2011
Price domestic like product 150 155 150 140 145
Cost of production, domestic like product 125 130 135 140 145
Price dumped imports 200 170 150 140 140
Figure 3: Relationship of prices of dumped imports, and costs and prices of domestic like products
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While the AD Agreement does not set forth any particular methodology to assess "price undercutting",
generally the term means selling at a lower price. Thus, assessing whether there is price undercutting by
dumped imports involves comparing the price of those imports with the price at which the domestic industry
sells the like product in the domestic market.
In the example in Figure 4, in the most recent period of time, i.e. 2011, the price of dumped imports is lower
than the price of the domestic like product (140 vs. 145), i.e., there appears to be price undercutting by the
dumped imports during that period.
Furthermore, the data presented show that the domestic industry's cost of production has been rising steadily
over the entire period for which data are available. Under this circumstance, the domestic industry could have
been expected to increase its selling prices in order to pass on the cost increases. However, in the above case
we see that this did not happen. Rather, at the same time that unit production costs increased from 125
to 145, the domestic industry's selling price decreased from 150 to 145. In the meantime, the price of dumped
imports dropped from 200 to 140. One possible conclusion is that the price pressure from the dumped imports
has prevented the domestic industry from raising its prices, which otherwise it would have done. In other
words, this could be a case of "price suppression"?
Finally, we observe that the domestic industry's selling prices decreased during the 5-year period, from 150
to 145. This could be an indication that the dumped imports have depressed the domestic industry's prices to a
significant degree.
It should be noted, however, that the AD Agreement does not contain any methodology or guidance as to how
to assess whether there is "price suppression" or "price depression" due to dumped imports, or as to when any
such suppression or depression is "significant".
IMPACT OF THE DUMPED IMPORTS - THE CONDITION OF THE DOMESTIC INDUSTRY
Finally, the examination of the impact of the dumped imports on the domestic industry concerned must include
an evaluation of all relevant economic factors and indices having a bearing on the state of the industry,
including:
Actual and potential declines in sales, profits, output, market share, productivity, return on
investments, or utilization of capacity;
Factors affecting domestic prices;
The magnitude of the margin of dumping;
Actual and potential negative effects on cash flow, inventories, employment, wages, growth, ability to
raise capital or investments.
The AD Agreement provides that this list is not exhaustive, and that no one or several of these factors will
necessarily be determinative in a given case. Nevertheless, in any analysis of injury, all 15 of the above
factors must be considered (i.e., analysed).
Investigating authorities should treat injury investigations on a case by case basis, with no single factor or
group of factors necessarily being decisive in all cases. Each investigation involves a unique set of facts, and
thus all of the above mentioned factors must be evaluated, and considered within the overall context in which
the domestic industry operates. This context could include business cycles, product life cycles, conditions of
competition among domestic and other competitors, or other circumstances. These considerations should be
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part of the assessment by the investigating authorities as to whether the industry is suffering injury (as
opposed, for example, to experiencing typical business upswings and downswings).
The ultimate conclusion as to whether or not the domestic industry is being injured may rest on fewer than all
of the obligatory, listed factors, but it must be apparent that all were examined.
SPECIFIC REQUIREMENTS FOR DETERMINATIONS BASED ON THREAT OF MATERIAL INJURY
A finding of current, present material injury is not necessary for an anti-dumping measure to be applied.
Rather, a finding that there is a threat of material injury is one of two alternative bases for a measure
(material retardation of establishment of an industry being the second). "Threat" implies that if certain
changes take place - notably increases in the volume or rate of the dumped imports, reductions in their prices,
etc. - material injury will occur in the imminent future. Although the threat of injury analysis is necessarily
prospective in nature, the AD Agreement emphasizes that a threat determination cannot be based "merely on
allegations, conjecture or remote possibility", but must instead be based on facts. Furthermore, "the change in
circumstances which would create a situation in which the dumped imports would cause injury" needs to be
"clearly foreseen and imminent".
The AD Agreement sets forth a non-exclusive list of specific factors to be considered (in addition to the 15
listed injury factors discussed above) in determining whether the domestic industry faces a threat of material
injury, including:
The rate of increase in dumped imports
A significant rate of increase of dumped imports into the domestic market indicating the likelihood of a
substantially increased importation.
Capacity
Sufficient freely disposable capacity of the exporter, or an imminent, substantial increase of that
capacity, indicating the likelihood of substantially increased dumped exports to the importing Member's
market, taking into account the availability of other export markets to absorb any additional exports.
Price Suppressing or Depressing Effects
Whether the dumped imports are entering the market at prices that will have a significant depressing or
suppressing effect on domestic prices, and would likely increase the demand for further imports.
Inventories
Inventories of the imported product being investigated, whether held in the country of export or in the
importing investigating country. (A buildup of inventories of the domestically-produced like product also
might be relevant.)
As noted, a determination of threat of injury cannot be based solely on these threat-specific factors, but also
must take into account all 15 of the factors pertaining to the condition of the domestic industry, discussed in
the previous section.
Furthermore, the AD Agreement requires that, where an affirmative injury determination is based on the threat
of material injury, "the application of anti-dumping measures shall be considered and decided with special
care". This provision suggests that an even higher level of scrutiny is expected in investigations predicated on
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threat of, as compared to actual, material injury. Thus, the investigating authorities should provide a
particularly thorough discussion of the analysis and rationale underlying a decision to impose anti-dumping
duties in any final determination that is based on a determination of threat of material injury, setting forth the
factual evidence leading to the conclusion that injury would be imminent if no anti-dumping action were taken.
MATERIAL RETARDATION OF THE ESTABLISHMENT OF AN INDUSTRY
As noted, the AD Agreement provides for a third possible basis for an injury finding, material retardation of the
establishment of an industry. Formally, all of the requirements for analysing the state of the domestic industry
(the 15 listed factors, the question of the impact of dumped imports on the condition of the domestic industry,
etc.) are applicable in material retardation cases, but there is no specific guidance in the AD Agreement as to
how to do this, and there have been very few anti-dumping measures based on material retardation. It is clear
that in practice, many of the listed factors may be of limited relevance (for example, level of production may
not be able to be analysed if the industry in the process of establishment has not yet started producing).
Furthermore, the AD Agreement contains no definition of what constitutes an industry "in establishment".
Thus, investigating authorities should proceed very cautiously in considering allegations of material retardation
due to dumped imports.
IV.D. DEMONSTRATION OF A CAUSAL LINK
Let's suppose that the investigating authority of Member B has found that the imported goods from Member A
are dumped and that the domestic industry of Member B is suffering injury. This still is not a sufficient basis to
apply an anti-dumping measure. Rather, the final requirement under the AD Agreement is a demonstration
that the dumped imports have caused injury, and this demonstration must be based on an examination of all
relevant evidence. While imports need not be the only cause, or even the predominant cause, of any injury
found to exist, there must be a causal relationship. Furthermore, as part of this analysis, the authority must
ensure that it does not attribute to the dumped imports any injury caused by known factors other than those
imports.
In respect of the causation and non-attribution requirements of the AD Agreement, the Appellate Body has
ruled that the investigating authority must demonstrate on the basis of the evidence that there is an
affirmative genuine and substantial relationship of cause and effect between the dumped imports and the
injury. In addition, in conducting the non-attribution analysis, the investigating authority must separate and
distinguish the injury caused by other factors from that caused by dumped imports.
The AD Agreement does not specify particular factors or give detailed guidance on how the relevant evidence is
to be evaluated. Again, recalling the overarching obligations, the injury/causation analysis must be based on
positive (i.e., robust, verifiable) evidence, and involve an objective examination of the volume of dumped
imports and their effect on domestic prices, and the consequent impact of those imports on the condition of the
domestic industry. All of the factors discussed in the preceding section are to be taken into account in this
analysis.
In addition, the AD Agreement lists some possible factors to examine in the consideration of known factors
other than dumped imports that may be causing injury. These factors are:
Volumes and prices of imports not sold at dumped prices. Returning to the example referred to above,
let us suppose that the dumped imports from Member A represent 15% of the total imports in Member
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B and that the prices of the other, non-investigated imports (from countries C, D and E) are
considerably lower than the price of the dumped imports. The question that one could pose is whether
injury suffered by the domestic industry is due to the much larger volume of imports from countries C,
D and E (which, not being investigated, cannot be treated as "dumped"), rather than to the dumped
imports from Member A. (There is no clear-cut right or wrong answer to this example, it is simply
meant to point to issues and questions that would need to be explored in the "non-attribution" analysis.
Contraction in demand and changes in the pattern of demand. One example might be hula hoops,
which were a fad during a particular year, but which went out of fashion the following year. The sharp
drop in the domestic industry's production, employment, profits etc. for hula hoops might be solely
attributable to this contraction in demand, and not to dumped imports.
Developments in technology. An example could be portable digital storage devices, from floppy disks
to micro disks to data sticks. A decline in production, employment, profits etc. for one kind of device
might well be due to its displacement in the market by a next generation device, which uses different
technology.
Export performance and productivity of the domestic industry. Let's suppose that a domestic industry
historically has exported 90% of its output of a product, because the domestic market is very small.
Let's further suppose that the industry's exports cease abruptly, due to new import restrictions in the
export markets. At the same time, the industry starts facing dumped imports in its domestic market,
and its selling price in that market declines by 3 per cent. An investigating authority finds that the
imports are dumped and that the domestic industry is injured. The question, however, is whether the
dumped imports have contributed in a real and substantial way to the injury, or whether in fact the
injury is exclusively a function of the disappearance of the export markets.
The AD Agreement contains no guidance on how either the causal relationship or non-attribution is to
be established. In practice, different Members use different methodologies, ranging from detailed
qualitative analyses of prices, costs, other conditions of competition to sophisticated econometric
models. While there is no one right approach, the most important thing is for the investigating
authority to provide in its reports and determinations a detailed explanation and justification, based on
the factual evidence on the record, relating to both the finding of affirmative causality and the non-
attribution analysis.
EXERCISES:
4. How is a determination of injury to the domestic industry reached?
5. How is a causal link between dumped imports and injury established?
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V. PROCEDURAL REQUIREMENTS
V.A. INTRODUCTION
The AD Agreement contains detailed procedural requirements on a number of issues, which are applicable at
different stages of the proceeding. These are contained in among others, Articles 5 (Initiation and Subsequent
Investigation), 6 (Evidence), 7 (Provisional Measures), 8 (Price Undertakings), 9 (Imposition and Collection of
Anti-dumping Duties), 10 (Retroactivity), 11 (Duration and Review of Anti-dumping Duties and Price
Undertakings), 12 (Public Notice and Explanation of Determinations), 13 (Judicial Review), 14 (Anti-dumping
Action on Behalf of a Third Country), 15 (Developing Country Members), 16 (Committee on Anti-dumping
Practices), 17 (Consultation and Dispute Settlement), 18 (Final Provisions), and Annexes I (Procedures for the
On-The-Spot Investigations Pursuant to Paragraph 7 of Article 6) and II (Best Information Available in Terms of
Paragraph 8 of Article 6).
TIP
Before plunging into those provisions, it must be stressed that anti-dumping investigations conducted by
WTO Members must, at a minimum, comply with the requirements contained in the Agreement. WTO
Members are free, and in some cases even encouraged by the AD Agreement itself, to establish additional
procedural requirements.
Should a Member fail to respect certain provisions of the AD Agreement, Article 13 allows an interested party
to request the judicial review of final determinations and reviews of determinations, before an independent
judicial, arbitral or administrative tribunal maintained for that purpose within the jurisdiction of the importing
Member. Thus, the investigating authority may be found to have violated provisions pertaining to the use of
anti-dumping measures under the national legislation implementing the AD Agreement.
In addition, under the AD Agreement, an affected Member can use the WTO dispute settlement mechanism if it
considers that the authorities of the importing Member have violated one or more substantive or procedural
provisions of the AD Agreement.
Whether under national procedures or WTO dispute settlement, findings of violation may require the measure
to be removed. It is therefore essential, even for Members that are new users of anti-dumping, to comply
strictly with all of the requirements set forth in the AD Agreement.
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STAGES OF AN INVESTIGATION
Any investigation may be conceptually and chronologically divided into the following stages:
DURATION: Normally 12 months; cannot exceed 18 months
Figure 4: Stages of an investigation
Any anti-dumping measure, either in the form of anti-dumping duty or price undertaking, can only be imposed
after an investigation consistent with the AD Agreement has been conducted.
In a nutshell, this entails a number of distinct steps or stages, the first of which is that an investigation be
initiated. Once this has been done, a number of obligations will apply, including informing the parties
(exporters, importers, domestic producers, etc.) of the information that they need to submit.
This starts the process of gathering the information to be used in the investigation. The examination,
verification and analysis of this information will form the heart of the investigation. Relevant information that
is found to be complete and accurate will be taken into account in the preliminary and/or final determinations,
which are the next steps in the investigation process. Only if there are affirmative final determinations of
dumping, injury and causation, can a measure ultimately be applied.
Those determinations in turn must be based on the information before the investigating authority. In
particular, the focus of the authority's analysis of the information is to determine whether the conditions for
imposing measures are met. Should the relative determinations be affirmative, the government of the Member
may then consider whether it is in its interest to impose a measure, whether any measure should be for the full
amount of the dumping margin or something less, whether to accept a price undertaking from an exporter in
lieu of imposing a duty, and similar questions.
Should the Member determine, however, that the dumping margin is zero or "de minimis", that the volume of
imports is negligible, that the domestic industry is not injured, or that dumped imports have not caused injury,
there will be no legal basis for any measure. In such cases, the Member must terminate the proceeding
without the imposition of measures.
The entire process of investigation, from initiation to final determinations of dumping, injury and causation,
and decisions related to the application of measures, normally lasts for at least 12 months. While some
investigations proceed more quickly than this, in many other cases the process will take longer. The AD
Agreement makes some allowance for this, providing that in exceptional circumstances an investigation can
last as long as, but in no case more than, 18 months following initiation.
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V.B. THE PROCESS LEADING TO THE INITIATION OF AN
ANTI-DUMPING INVESTIGATION
The AD Agreement establishes a number of requirements for the initiation of investigations. The following slide
shows the main elements of the pre-initiation stage:
Figure 5: Main elements of the pre-initiation stage of an anti-dumping investigation
Normally, an investigation will be initiated at the request of the domestic industry, on the basis of a written
application.
As an exception to this rule, an investigation can be initiated ex oficio by the authorities of the importing
Member, but only in special circumstances, and on the basis of sufficient evidence of dumping, injury and
causal link to justify initiation.
The application should contain evidence of dumping, injury to the domestic industry, and a causal link between
the dumped imports and the alleged injury. The AD Agreement specifies what this information should be, to
the extent it is reasonably available to the application. Mere assertion of dumping, injury and causation,
unsupported by evidence, is insufficient.
Once an application is received, the investigating authority must examine the accuracy and adequacy of the
evidence it contains, to determine whether there is sufficient evidence to justify the initiation of an
investigation. If the authority concludes that there is insufficient evidence on dumping, injury or causal
relationship, then the application must be rejected.
Sufficient evidence in the application is not, however, enough for an investigation to be initiated. Rather, the
investigating authority also must determine whether the applicants are sufficiently representative of the
domestic industry, i.e., whether the applicants have "standing" to bring the case.
The AD Agreement contains a two-part standing test that must be applied by the investigating authority in
every case.
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The first part of the standing test is that domestic producers that support the application (i.e. that
favour the eventual application of an anti-dumping measure) must account for more than 50% of the
total production of the like product by all producers expressing an opinion about the application (either
in support of or opposition to it).
The second part of the standing test is that the domestic producers that support the application must
account for more than 25% of total domestic production of the like product.
How does it work in practice? The following example provides an illustration:
Category of Domestic Producer Quantity of Production
a. Producers, applicants 30
b. Producers, non-applicants, supporting 20
c. Producers, non-applicants, opposing 20
d. Producers, no opinion expressed 30
TOTAL, ALL DOMESTIC PRODUCERS 100
Total expressing support = a + b =50
Total opposing =c = 20
Total expressing opinion = a + b + c =70
Part 1 of test Part 2 of test
Total expressing support as % of total
expressing opinion:
Total expressing support as % of total
production:
50/70 = 71% > 50% 50/100 = 50% > 25%
Both parts of "standing" test are satisfied
Figure 6: Two-part "standing" test required for the initiation of an anti-dumping investigation
In the above example, both parts of the test are fulfilled. Thus, the applicants have standing, and the
authorities can proceed with initiation. If either part of the test had not been met, however, the investigation
could not be initiated.
During the pre-initiation stage, i.e., during the period between receipt of an application and the decision
whether or not to initiate an investigation, the authorities of the importing country are required to avoid
publicizing the fact that they have received the application. This is to prevent the mere existence of an
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application from having a "chilling effect" on imports of the product concerned. Notwithstanding this non-
publication requirement, after receiving a properly documented application and before initiating an
investigation, the authorities of the importing Member are required bilaterally to notify the government of the
exporting Member concerned.
V.C. CONDUCT OF THE INVESTIGATION: INITIATION TO THE
STAGE OF IMPOSITION OF PROVISIONAL ANTI-DUMPING
DUTIES
The AD Agreement also sets forth detailed rules on the process of investigation. The following slide summarises
the main steps between initiation and preliminary determination:
Figure 7: Main steps between the initiation of the anti-dumping investigation and the preliminary determination
V.C.1. PLAN OR TIMETABLE OF AN INVESTIGATION
While not required by the AD Agreement, when an investigation is initiated, investigating authorities generally
establish and publish the "plan" or timetable of the investigation. This sets forth the various steps within an
investigation, together with dates on which each of those steps should be completed. The establishment of
such a plan is essential to complete the investigation within the 12 month period accorded by the AD
Agreement.
V.C.2. ILLUSTRATION 5
See as an example the plan from the Canadian anti-dumping and countervail investigations into the import of
Grain Corn from the United States:
Initiation decision; publication of initiation notice; notifications
issuance of questionnaires
Receipt of questionnaire
responses
Preliminary determination, application of
provisional measure, if any
Minimum 30 days + 7 + any extensions
Minimum 60 days
Information gathering etc.
Analysis of questionnaire
responses and other information gathered
Investigation
continues
TIME
Rights of interested parties to see information, participate, throughout
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INVESTIGATION SCHEDULE Grain Corn from USA
Dumping file #: 4214-10 Dumping case #: AD/1347
Subsidy file #: 4218-20 Subsidy case #: CVD/115
President's Investigation Schedule
September 16, 2005 Initiation of President's dumping and subsidy investigation.
September 19, 2005 Initial compilation of CBSA exhibits available
September 30, 2005 Statement of Reasons Re: Initiation of Investigation
October 24, 2005 Importers' responses to CBSA's Request for Information due
October 24, 2005 Exporters' responses to CBSA's Request for Information due
October 24, 2005 US Government response to CBSA's Request for Information due
December 15, 2005 Preliminary Determination and/or Termination of President's dumping and/or subsidy investigation
December 30, 2005 Statement of Reasons (Preliminary Determination and/or Termination) issued
In the event of a Preliminary Determination
December 15, 2005 Exporters and Importer ruling letters available
December 30, 2005 Revised import statistics available
January 16, 2006 Closing of the Record Date
January 26, 2006 Case Arguments due from all parties
February 6, 2006 Case Arguments due from all parties Re: Exhibit #120 Only
February 6, 2006 Reply submissions due from all parties in respect of case arguments
February 10, 2006 Reply submissions due from all parties Re: Exhibit #120 Only
March 15, 2006 Final Determination and/or Termination of President's dumping and/or subsidy investigation
March 15, 2006 Exporter and importer ruling letters available
March 31, 2006 Statement of Reasons (Final Determination and/or Termination) issued
This Investigation Schedule will be updated as necessary. Parties/counsel should monitor the
website to inform themselves of changes. Any changes which reduce the time allowed for
parties/counsel to submit information or make representations will be communicated directly to
parties/counsel.
Together with the plan, it is essential to keep a proper record of the investigation.
To ensure that a proper record is kept, it is essential that an investigating authority file all documents, either
submitted by the parties or generated internally, sequentially and cumulatively.
For instance, this could be achieved by maintaining a listing of exhibits and information such as the one below:
132
Listing of Exhibits and Information Dumping Investigation
Grain Corn from USA Dumping file #: 4214-10
Dumping case #: AD/1347
Placed on exhibit listing – September 19, 2005
Exhibit Exhibit
Type
Class Description of Information
1 Producer Non-
Confidential.
Non-confidential version of the complaint
Please note that access is provided as a courtesy only.
therefore, this document is in the language in which it was
submitted to us.)
August 12, 2005
(Note: All information contained in the complaint is public,
as such there is no confidential version)
2 CBSA Non-
Confidential.
Notice of a properly documented complaint – Embassy of
United States
August 17, 2005
3 CBSA Non-
Confidential.
Notice of a properly documented complaint – CITT
August 17, 2005
(..................)
Placed on Exhibit Listing – February 4, 2006
Exhibit Exhibit
Type
Class Description of Information
126 CBSA Non-
Confidential.
CBSA response to representations made on behalf of Maple
Leaf Foods concerning the question of standing. (See
exhibits #115 & #116)
February 3, 2006
127 CBSA Non-
Confidential.
CBSA response to representations made on behalf of the
Canadian Corn Producers concerning the question of
standing. (See exhibits #117)
February 3, 2006
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V.C.3. NOTICE OF INITIATION
Once the competent authority has decided to initiate an investigation, the AD Agreement requires that public
notice be given of that decision.
The AD Agreement also sets forth the minimum content requirements for the notice of initiation. These include
the name of the exporting country or countries; a description of the product involved; the basis on which
dumping is alleged in the application; a summary of the factors on which the allegation of injury is based; and
contact information and deadlines for interested parties to make their representations.
This information can be contained in the Notice of Initiation itself or in a separate report (as is the case in the
notice below).
V.C.4. ILLUSTRATION 6
See as an example, the notice initiating the Canadian anti-dumping and countervail investigations into Grain
Corn from the United States:
NOTICE OF INITIATION OF INVESTIGATION – GRAIN CORN
Ottawa, September 16, 2005
The Canada Border Services Agency (CBSA), initiated an investigation on September 16, 2005,
under the Special Import Measures Act into the alleged injurious dumping and subsidizing of grain
corn in all forms, excluding seed corn (for reproductive purposes), sweet corn, and popping corn,
originating in or exported from the United States of America. The investigation follows a complaint
filed by the Ontario Corn Producers' Association, the Fédération des producteurs de cultures
commerciales du Québec and the Manitoba Corn Growers Association, Inc.
For further clarity "grain corn in all forms" includes whole kernel corn and grain corn that has been
processed in a limited way by cracking, crushing, rolling, grinding, or flaking and includes ground
corn such as corn flour, corn grits, corn meal, corn bran, sharps and other residues, corn which is
hulled, sliced or kibbled, as well as grain corn mixed with other grains and oilseed (such as millet)
which can be separated from the grain corn after importation. The product definition also includes
white dent corn.
Additional information about this investigation is contained in a Statement of Reasons which will be
available within 15 days on the CBSA's web site at: www.cbsa.gc.ca/sima.
Contacts:
Gilbert Huneault (613) 954-7376
Ron McTiernan (613) 954-7271
Media Relations (613) 957-6500
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V.C.5. NOTIFICATION AND TRANSMISSION OF THE APPLICATION
The AD Agreement requires the authorities of the importing Member immediately to notify the initiation of an
investigation to the Member or Members the products of which are subject to that investigation, as well as to
notify other interested parties known to the investigating authorities. These other known interested parties
could include, for instance, exporters that are mentioned in the application or otherwise known to the
investigating authority.
The AD Agreement also requires the authorities of the importing Member to provide to the known exporters
and to the authorities of the exporting Member the full non-confidential text of the written application. . In
addition, the full non-confidential text of the written application must be made available, upon request, to
other interested parties involved.
"Interested parties" are defined, for purposes of the entire AD Agreement, as including at least:
exporters, foreign producers or importers of a product subject to investigation, or a trade or business
association a majority of the members of which are producers, exporters or importers of such product;
the government of the exporting Member; and
producers of the like product in the importing Member or a trade and business association a majority of
the members of which produce the like product in the territory of the importing Member.
Members also are allowed to include other parties as interested parties.
The AD Agreement further requires that authorities provide opportunities for industrial users of the product
under investigation, and for representative consumer organizations in cases where the product is commonly
sold at the retail level, to provide information which is relevant to the investigation regarding dumping, injury
and causality.
V.C.6. ILLUSTRATION 7
See a real-life example of a letter notifying an interested party (a foreign producer or exporter) of the United
States' initiation of an investigation, and transmitting a questionnaire:
A-xxx-xxx
Investigation
Public Document
NAME
ADDRESS
Dear Sir or Madam,
I am writing to you on behalf of Import Administration, a unit of the United States Department of
Commerce. On [insert date], we initiated an investigation to determine whether merchandise
imported into the United States that you are believed to produce and/or export is being sold at
dumped prices. Dumping occurs when imported merchandise is sold in, or for export to, the United
States at less than the normal value of the merchandise; i.e., the United States price is less than
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the price at which identical or similar merchandise is sold in a foreign market (usually the home
market of the producer and/or exporter merchandise), or less than the constructed value of the
merchandise. The product under investigation is [insert short name of product] from [insert
country]. We began the investigation based on a petition filed by [insert name(s) of the
petitioner(s)] on behalf of the United States industry producing the merchandise under
investigation.
On [insert date], the United States International Trade Commission ("the Commission")
preliminarily determined that there is a reasonable indication that imports of the product under
investigation are injuring the United States industry. We will now determine whether sales of the
subject merchandise in, or to, the United States are being dumped. If so, the Commission will
decide whether those dumped imports are injuring the United States industry. If we find that sales
are made at dumped prices, and the Commission finds that the dumped imports are a cause of
injury we will issue an anti-dumping order.
We are soliciting the information requested in the enclosed questionnaire to determine whether
subject merchandise that you produced and/or exported was in fact sold in, or to, the United
States at dumped prices. General instructions for responding to the questionnaire follow
immediately after the table of contents. We have divided the questionnaire itself into five sections,
A though E, and attached supplemental information, including a glossary of terms, in the sections
of the questionnaire. If you have not received the entire questionnaire, please contact the official in
charge immediately.
All parties are requested to respond to sections A (General Information), B (Sales in the Home
Market or to Third Countries), and C (Sales to the United States).
V.C.7. ISSUANCE OF QUESTIONNAIRES/DEADLINES
The AD Agreement requires authorities to inform interested parties in detail, as soon as possible after
initiation, as to the information which they require. Such information requests normally take the form of
questionnaires.
Typically, questionnaires intended for foreign producers and exporters request information on the prices at
which those enterprises export the product under consideration to the importing Member, as well as on the
domestic selling prices of the like product in the producers'/exporters' home market. These questionnaires
sometimes also request information on these enterprises' cost of production for the product under
consideration. The questionnaires typically are quite lengthy. While the AD Agreement only mentions explicitly
questionnaires for foreign producers and exporters, investigating authorities routinely also issue questionnaires
to other interested parties, such as the domestic industry and importers. It also is common for investigating
authorities to issue supplemental information requests, either to seek clarifications on the questionnaire
responses, or to pursue additional issues that may have arisen in the investigation.
The AD Agreement also requires that foreign producers and exporters be given at least 30 days to reply to the
questionnaire. The 30 day deadline is counted from the date of receipt of the questionnaire, which is deemed
in the AD Agreement to be one week from the date on which the questionnaire was sent. Furthermore,
requests for extensions of the 30-day period should be granted, whenever practicable, upon cause shown.
An example of a US questionnaire can be found at http://ia.ita.doc.gov/questionnaires/questionnaires-ad.html
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Due process rights
The AD Agreement requires that all interested parties have a full opportunity to defend their interests, and that
they be given ample opportunity to present in writing all evidence which they consider relevant.
In application of the above general principle, the AD Agreement requires that evidence presented in writing by
one interested party must be made available promptly to other interested parties participating in the
investigation. This is linked to the AD Agreement's requirement that authorities must, whenever practicable,
provide timely opportunities for all interested parties to see all information that is relevant to the presentation
of their cases, and that is used by the authorities in an anti-dumping investigation, so that they can prepare
submissions on the basis of this information. These disclosure obligations apply, for instance, to access to the
non-confidential file.
Finally, the AD Agreement requires investigating authorities to provide opportunities, upon request, for all
interested parties to meet those parties with adverse interests, in oral hearings or other formats. The AD
Agreement requires that confidential information be protected, however, as discussed below.
V.C.8. TREATMENT OF CONFIDENTIAL INFORMATION
Some information and data required in order to carry out a dumping determination is highly confidential
(e.g. costs, list of customers, pricing policies, etc.).
Given the extreme sensitivity of much of the information that they are requested to submit, interested parties
generally are very concerned to ensure that the information be protected as confidential, i.e., not accessible to
their competitors or to the public more broadly.
In fact, unless the investigating authority treats sensitive business information as confidential, an interested
party would likely refuse to submit it. The AD Agreement thus requires investigating authorities to treat such
information in confidence. This means that other interested parties will normally not be allowed to access that
information in its confidential form.
That said, however, to ensure that other parties can defend their interests, the AD Agreement requires that
the party requesting confidential treatment inter alia justify its request, and, more importantly, submit a non-
confidential summary of the information submitted in confidence. This summary must permit a reasonable
understanding of the substance of the information submitted in confidence. It also must be made available to
the other parties in the investigation.
137
V.C.9. ILLUSTRATION 8
How does this work in practice? Let's suppose that the exporter submits the following table with information
requested by the investigating authority:
Fiscal Year 2009 Fiscal Year 2010 Fiscal Year 2011
Unrelated
Customers
Related
Customers
Unrelated
Customers
Related
Customers
Unrelated
Customers
Related
Customers
All products
Total company turnover 150,327 0 93,334 0 56,245 0
Domestic Market 24,078 0 14,000 0 3,937 0
United States 18,375 0 20,533 0 34,309 0
Other Countries 57,873 0 58,800 0 17,998 0
Subject product
Turnover of subject
product
77,175 0 59,072 0 39,609 0
Domestic Market 9,300 0 4,522 0 1,705 0
United States 18,375 0 20,250 0 26,757 0
Other Countries 49,500 0 34,300 0 11,146 0
Table 3: Submission of information requested by the investigation authority
The exporter requests confidential treatment for the above information. One way it could fulfil its obligation to
provide a non-confidential summary of the information would be to index all of the actual values to one
particular value. In the example below, all of the data are indexed to 2009 total company turnover:
Fiscal Year 2009 Fiscal Year 2010 Fiscal Year 2011
Unrelated
Customers
Related
Customers
Unrelated
Customers
Related
Customers
Unrelated
Customers
Related
Customers
All products
Total company turnover 100 0 62.1 0 37.4 0
Domestic Market 16.0 0 9.3 0 2.6 0
United States 12.2 0 13.7 0 22.8 0
Other Countries 38.5 0 39.1 0 12.0 0
Subject product
Turnover of subject
product
51.3 0 39.3 0 26.3 0
Domestic Market 6.2 0 3.0 0 1.1 0
United States 12.2 0 13.5 0 17.8 0
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Other countries 32.9 0 22.8 0 7.4 0
Table 4: Non-confidential summary
By submitting an indexed table, the submitter does not public reveal its actual turnover figures, but
nevertheless illustrates the relationships among the various values in the table, as well as the trends in the
individual indicators. This is only one possible way to summarize confidential numerical data in a non-
confidential way, and the AD Agreement contains no precise directives on how such summarization is to be
done. Thus other approaches also are possible.
Furthermore, the AD Agreement recognizes that some confidential data or information simply may not be
capable of summarization (customer lists, e.g.). In such cases, the investigating authority is under the
affirmative obligation to require a justification from the interested party submitting the information as to why
summarization is not possible.
ANALYSIS OF THE SUBMISSIONS MADE BY INTERESTED PARTIES / VERIFICATION
Once the investigating authority has received the replies to the questionnaires from the various interested
parties, it will analyze the information received to determine:
whether the product under consideration has been exported at dumped prices;
whether the domestic industry has suffered material injury or threat thereof; and
if so, whether the material injury or threat thereof is caused by the dumped imports.
The AD Agreement requires investigating authorities, during the course of an investigation, to satisfy
themselves as to the accuracy of the information supplied by interested parties upon which their findings are
based.
Typically, investigating authorities discharge this obligation by carrying out on-the-spot verifications at the
premises of the exporters, domestic industry, importers, etc. Special procedures are set forth in case an
investigating authority decides to carry out verifications in the territory of the exporting Member. On-the-spot
verifications are not, however, mandatory. Particularly for verification of information submitted by foreign
interested parties, on-the-spot verification in a foreign country may be very costly, especially for developing
Members. Investigating authorities thus can comply with the obligation to satisfy themselves as to the
accuracy of the information through any reasonable means, which for example could include requiring the
provision of back-up documentation showing how certain questionnaire responses were calculated, comparing
submitted data with comparable public data, etc.
FACTS AVAILABLE
Unfortunately there are cases where one or more interested parties do not fully cooperate in an investigation.
For instance, parties may not provide the information requested by an investigating authority, or they may
provide only incomplete information, or provide information after the set deadlines.
In such cases, how can an investigating authority determine the dumping margin for those exporters? The AD
Agreement contains a provision which allows an investigating authority "to fill the gap" where information is
missing due to lack of cooperation. In particular, the authority is allowed to use information from other
sources. The use of such "facts available" is however subject to strict rules developed in detail in Annex II to
the AD Agreement.
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IMPOSITION OF PROVISIONAL MEASURES / DURATION
The AD Agreement does not require the imposition of provisional measures, but if a Member wishes to do so,
the AD Agreement sets forth certain rules. In particular, it provides that measures may only be applied if:
(i) an investigation has been initiated in accordance with the provisions of the AD Agreement, a public notice
of initiation has been issued. and interested parties have been given adequate opportunities to submit
information and make comments;
(ii) a preliminary affirmative determination has been made of dumping, injury and causation; and
(iii) the authorities concerned judge such measures necessary to prevent injury being caused during the
remainder of the investigation.
Provisional measures may take the form of a provisional duty or, preferably, a security in the form of a cash
deposit or bond for not more than the amount of the preliminarily -determined margin of dumping.
THE AD AGREEMENT SETS FORTH CERTAIN TIME LIMITATIONS
First, the AD Agreement provides that no provisional measure may be applied sooner than 60 days after
initiation of an investigation.
Second, the AD Agreement contains time limits for the application of provisional measures - generally four
months, with a possible extension to six months at the request of exporters. Longer periods (six and nine
months, respectively), are allowed where the authorities examine whether an anti-dumping measure lower
than the margin of dumping would be sufficient to remove injury.
See, as an example, the EC's preliminary determination regarding the investigation on imports of Lever Arch
Mechanisms originating in China at:
http://europa.eu.int/eur-lex/lex/LexUriServ/site/en/oj/2006/l_023/l_02320060127en00130033.pdf
NOTICE OF IMPOSITION OF PROVISIONAL MEASURES / NOTIFICATION
The AD Agreement contains guidelines as to the required minimum content of a notice of imposition of
provisional measures. In particular, such a notice must include the names of the suppliers (or where
impracticable, the supplying countries); a description of the product sufficient for customs purposes; the
margins of dumping established and a full explanation of the reasons for the methodology used in the
establishment and comparison of the export price and the normal value; considerations relevant to the injury
and causation determination; and the main reasons leading to the determination. Again, this information can
be contained in the Notice itself or in a separate report (as is the case in the notice below).
140
V.C.10. ILLUSTRATION 9
See, as an example, a Canadian notice of imposition of provisional measures on imports of Grain Corn from the
United States:
GRAIN CORN – NOTICE OF PRELIMINARY DETERMINATION
OTTAWA, DECEMBER 15, 2005
On December 15, 2005, the President of the Canada Border Series Agency made a preliminary
determination of dumping and subsidizing respecting unprocessed grain corn, excluding seed corn
(for reproductive purposes), sweet corn, and popping corn, originating in or exported from the
United States of America, pursuant to subsection 38(1) of the Special Import Measures Act (SIMA).
Provisional duty will now be payable on the subject goods that are released from Customs on or
after December 15, 2005.
On the same date, the President terminated the dumping and subsidy investigation with respect to
processed grain corn from the United States of America, pursuant to paragraph 35(2)(a) of SIMA,
as a result of the decision by the Tribunal that the evidence did not disclose a reasonable indication
that the dumping or subsidizing of processed grain corn was causing or was threatening to cause
injury. Briefly stated, processed grain corn results from dry milling operations that separate or
remove constituent parts of the whole kernel corn.
For further factual information consult the Fact Sheet pertaining to this decision.
A Statement of Reasons that summarizes the information on which this decision was based and
which describes futures activities in this investigation will be available within 15 days on our Web
site at www.cbsa.gc.ca/sima/.
Contacts/Personnes-ressources:
Gilbert Huneault
(613) 954-7376
Ron McTiernan
(613) 954-7271
The AD Agreement requires that the notice imposing provisional anti-dumping measures be forwarded to the
Member or Members the products of which are subject to such determination, and to other interested parties
known to have an interest in the matter. Thus, in addition to the authorities of the exporting Member, the
investigating authority must also send the notice to exporters.
141
EXERCISE:
6. How is an anti-dumping investigation begun?
142
V.D. CONDUCT OF THE INVESTIGATION: FROM THE STAGE
OF PROVISIONAL ANTI-DUMPING DUTIES TO THE FINAL
DETERMINATION
IN BRIEF
Before issuing its final determination, an investigating authority must disclose the "essential facts" under
consideration which form the basis of the decision whether or not to apply a definitive measure. Where a
provisional measure is applied, the preliminary determination and associated reports can perform this
function. Otherwise, a separate essential facts disclosure must be made. Often, following the disclosure of
essential facts, interested parties submit written comments, on the preliminary determination if there is one,
or on the other disclosure they have received. They may request an oral hearing to address issues
pertaining to the disclosed information and/or to the preliminary determination. In some cases, the
interested parties are allowed at this stage to present new evidence in support of their contentions.
Verifications of the information/evidence submitted at this stage of the investigation, and verification results
may form part of the disclosed "essential facts".
This process is summarized in the following slide:
Figure 8: Stages from provisional anti-dumping duties to the final determination
Parties' arguments and views: written; possible oral
hearings
Essential facts disclosure
Parties' comments/arguments on essential facts; possible negotiation
of undertakings
Verification of questionnaire responses; other information; further information - gathering
and analysis
Receipt and analysis of parties comments and
arguments
Rights of interested parties to see information, participate, throughout
Final determination; application of
definitive measures, if any
Normally, within 12
months from initiation; not
more than 18
143
The main steps in this part of the investigation are examined in more detail below.
IN DETAIL
Essential facts
Before a final determination is made, the AD Agreement requires investigating authorities to inform all
interested parties of the essential facts under consideration which form the basis for the decision whether to
apply definitive measures. In addition to disclosing the "essential facts", an investigating authority can for
instance provide reasons for resorting to facts available; explanations relating to all economic factors
considered relevant to the determination of injury; etc.
Notice of final determination, imposition of definitive measures; Notification
Once the final determination has been made, whether affirmative or negative, the investigating authorities
must publish a notice to that effect, and must directly provide it to the Member(s) whose products are subject
to the final determination, and to the other interested parties. The notice or separate report shall set forth in
sufficient detail the findings and conclusions reached on all issues of fact and law that the investigating
authorities consider to be material.
Where the decision has been taken to impose a definitive measure or to accept an undertaking, the authorities
must publish a notice and/or make available a separate report setting forth all of the relevant information on
the matters of fact and law and reasons which have led to the imposition of the measure or acceptance of the
undertaking. The AD Agreement contains detailed rules about the minimum content of the public notice, which
are essentially the same as those for the notice/report concerning the imposition of a provisional measure.
V.D.1. ILLUSTRATION 10
See, as an example, a Canadian notice imposing final measures on certain flooring from China and France.
SIMA – Final Determination
On May 17, 2005, pursuant to paragraph 41(1)(a) of the Special Import Measures Act (SIMA), the
President of the Canada Border Services Agency (President) made a final determination of dumping
in respect of laminate flooring in thickness ranging from 5.5mm to 13mm (other than laminate
hardwood flooring where the hardwood component exceeds 2mm in thickness) originating in or
exported from the people's Republic of China and France and a final determination of subsidizing in
respect of such product originating in or export from the People's Republic of China (China).
On the same date the President terminated the dumping investigation of the same goods
originating in or exported from Austria, Belgium, the Federal Republic of Germany and the Republic
of Poland, pursuant to paragraph 41(1)(b) of SIMA.
Today's decisions follow the preliminary determination of dumping and subsidizing made on
February 16, 2005.
The Canadian International Trade Tribunal (Tribunal) is continuing its inquiry into the question of
injury to the Canadian industry for subject good from China and France. The Tribunal will make a
144
decision by June 16, 2005. Provisional duty will continue to apply until this date for these two
countries.
Additional information about this investigation is contained in a Statement of Reasons that will be
available on the CBSA's Web site by June 1, 2005, at www.cbsa-asfc.gc.ca/sima.
Contacts:
Roger Lyons
(613) 954-7342
Blair Hynes
(613) 954-1641
V.E. APPLICATION OF DEFINITIVE ANTI-DUMPING
MEASURES
IMPOSITION AND COLLECTION OF ANTI-DUMPING DUTIES
In accordance with the AD Agreement, no anti-dumping measure can be imposed if:
there is no dumping, injury to the domestic industry and/or a causal relationship between the two;
the margin of dumping calculated is de minimis (less than 2%); and
where the volume of imports is negligible, the investigation must also be terminated. Imports must
normally be regarded as negligible if the volume of dumped imports from a particular country is found
to account for less than 3 per cent of imports of the like product in the importing Member. However,
where countries which individually account for less than 3 per cent of the imports of the like product in
the importing Member collectively account for more than 7 per cent of imports of the like product in the
importing Member, then the investigating authority may consider those imports not to be negligible.
Where the above conditions are fulfilled, and the importing Member decides to apply an anti-dumping duty, the
AD Agreement contains specific rules regarding its collection. The basic principle is that the amount of any
anti-dumping duty must not exceed the margin of dumping established in accordance with the AD Agreement.
The AD Agreement contains detailed rules to ensure that any excess duties paid are promptly refunded.
The AD Agreement further indicates that it is desirable that the imposition of measures be "permissive" in the
territory of Members, that is, that Members have discretion not to impose measures, or not to impose
measures up to the full amount of the dumping margin, even where all of the requirements for doing so are
met. In many cases, Members deciding not to impose a measure or to impose a duty below the margin of
dumping do so to protect the interests of users of the product under consideration or of final consumers.
In this context, the AD Agreement also encourages the use of a "lesser duty" rule. Under such a rule, an anti-
dumping authority imposes a measure at a level lower than the margin of dumping if it finds that this lower
level would be adequate to remove the injury to the domestic industry.
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RETROACTIVE APPLICATION OF DUTIES
The normal rule for application of definitive duties is that such duties shall only be collected on imports made
after the effective date of the final determination.
There are two exceptions to this general rule, providing for the retroactive collection of definitive duties (that
is, for the collection of definitive duties before the effective date of the final determination). In no case,
however, can definitive anti-dumping duties be collected on imports that took place before the initiation of an
investigation.
The first such situation involves the collection of definitive anti-dumping duties for the period during
which provisional measures were applied (for all practical purposes "converting" the provisional
measure into a definitive measure). For this to be permissible, the injury finding generally must be
based on present material injury, unless a determination is made that in the absence of a provisional
measure a threat of material injury would have become present material injury. (No retroactivity is
permitted in case of a material retardation finding, however.)
The second such situation involves the collection of definitive duties up to 90 days prior to the date of
application of provisional measures. This is only permissible where there is a history of inuurious
dumping or the importer was or should have been aware that injurious dumping was taking place, and
where the injury is caused by massive dumped imports in a short period.
INDIVIDUAL MARGINS OF DUMPING, SAMPLING, "ALL OTHERS" RATE
The AD Agreement generally requires investigating authorities to calculate an individual margin of dumping for
each known exporter or producer of the product under consideration.
In some cases, however, the number of producers, exporters, importers or types of products is so large as to
make individual margin calculations impracticable. Where this is the case, the AD Agreement permits limiting
the examination (for purposes of calculating dumping margins) either to a reasonable number of interested
parties or products by using statistically valid sample, or to the largest percentage of the volume of the
investigated exports that can reasonably be investigated. Where the examination is so limited, an exporter or
producer that was not included in the sample nevertheless must be given an individual margin of dumping if it
supplies the necessary information during the course of the investigation, unless the number of such exporters
or producers is so large that individual examinations would be unduly burdensome to the authorities and would
prevent the timely completion of the investigation.
Where a limited examination is used, the authorities must calculate an individual dumping margin for each
examined producer or exporter.
For the non-examined producers or exporters ("all others"), the maximum dumping margin that can be applied
is either the weighted average margin of dumping for the producers or exporters that were examined; or,
where liability for anti-dumping duties is calculated on the basis of prospective normal value, the difference
between the weighted average normal value of the selected exporters or producers, and the export prices of
exporters or producers not individually examined. In making these "all others" calculations, zero or de minimis
margins must be disregarded, as must any margins established on the basis of "facts available".
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NEW-SHIPPER REVIEW
Exporters or producers that did not export the product to the importing Member during the period of
investigation (i.e., "new shippers") have the right to a review to obtain individual margins of dumping.
However, to exercise this right, these exporters or producers must show that they are not related to any of the
exporters or producers subject to the anti-dumping duties. New shipper reviews are to be initiated and carried
out on an accelerated basis, compared with normal duty assessment and review proceedings. No anti-
dumping duties can be levied on imports from such exporters or producers while the review is being carried
out, although the authorities are entitled to withhold appraisement or to require a guarantee to ensure
payment of duties retroactive to the initation of the review if dumping is found. .
TIP
See, as an example of a new-shipper review, the EC determination in Polyethylene Terephtalate (PET)
from China at:
http://europa.eu.int/eur-lex/lex/LexUriServ/site/en/oj/2005/l_345/l_34520051228en00110014.pdf
DUTY COLLECTION SYSTEMS
Pursuant to the AD Agreement, importing Members can assess and collect anti-dumping duties on either a
"prospective" or "retrospective" basis. Each Member using anti-dumping measures should choose one or the
other of these systems, and establish the necessary domestic procedures to implement it.
Under a "prospective" duty assessment system, the margin of dumping found in the investigation is the basis
for the definitive assessment of anti-dumping duties going forward, unless and until a review establishes that
the margin of dumping has changed. An importer at any time can request a refund where it believes that its
actual margin of dumping is lower than that being used for duty assessment. Such reviews should be
completed within 12 months, and in no case more than 18 months, after the request is lodged. Any refunds
normally should be made within 90 days.
Under a "retrospective" duty assessment system, the final margin of dumping and thus the final amount of
liability for anti-dumping duties is only determined sometime after the imports have entered. Thus the
amounts collected at the border are in the nature of deposits or guarantees, and the actual calculations are
made in a review conducted upon request. Where it is determined in such a review that the duties collected
are more than the actual margin of dumping, the excess is to be refunded promptly, normally within 90 days.
PRICE UNDERTAKINGS
The AD Agreement contains rules on the offering and acceptance of price undertakings, in lieu of the imposition
of anti-dumping duties. It establishes the principle that any exporter may enter into an undertaking with the
authorities of the importing Member (not the domestic industry in the importing member!), to revise its prices,
or to cease exports at dumped prices, as a way to settle an investigation. If an undertaking is accepted,
therefore, anti-dumping duties cannot be levied on the imports that it covers for as long as it stays in place.
The AD Agreement provides that any price increases pursuant to an undertaking must not be higher than
necessary to eliminate the margin of dumping. In other words, price increases are limited by the margin of
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dumping found. While this is an absolute limit, the AD Agreement does not impede an investigating authority
from accepting an undertaking for price increases below the amount of the dumping.
TIP
See, as an example, an undertaking granted by the EC to some exporters in an investigation concerning
imports of Grain Oriented Flat-Rolled Products of Silicon-Electrical Steel originating in the US and Russia:
http://europa.eu.int/eur-lex/lex/LexUriServ/site/en/oj/2005/l_223/l_22320050827en00420043.pdf
An undertaking may be withdrawn where a breach is found. In that case, anti-dumping duties would normally
begin to apply, to replace the withdrawn undertaking.
TIP
See, as an example, the withdrawal by the EC of an undertaking offered in connection with the anti-
dumping proceeding concerning imports of Steel Ropes and Cables originating in India at:
http://europa.eu.int/eur-lex/lex/LexUriServ/site/en/oj/2006/l_022/l_02220060126en00540059.pdf
DURATION OF ANTI-DUMPING MEASURES
The AD Agreement provides that normally, any measure (i.e. duty or price undertaking) must be terminated on
a date not later than 5 years from its imposition, or from the date of the most recent expiry ("sunset") review
or, if it has covered both dumping and injury, the most recent changed circumstances review. Some Members,
however, apply measures for shorter periods of time.
EXPIRY OR "SUNSET" REVIEW
As stated above, anti-dumping measures (not only duties but also price undertakings) generally must expire no
later than 5 years from their imposition. The AD Agreement allows, however, a departure from this general
principle where, as a result of a review investigation initiated prior to expiry of the measure (a so-called
"sunset" review), an investigating authority establishes that the expiry of the measure would be likely to lead
to continuation or recurrence of dumping and injury.
A mere possibility that the dumping or injury would be likely to continue or recur is not sufficient for the
extension of the application of the anti-dumping measure beyond the 5 year limit.
There is no limitation in the AD Agreement on the number of times a measure can be extended through sunset
reviews, nor an overall maximum period of application for an anti-dumping measure. Indeed, there are a few
measures that have been maintained in force for 10 or 20 years or longer, via a series of reviews.
TIP
See, as an example of a sunset review, the EC determination in Steel Ropes and Cables from China, India,
South Africa and Ukraine at:
http://europa.eu.int/eur-lex/lex/LexUriServ/site/en/oj/2005/l_299/l_29920051116en00010022.pdf
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CHANGED CIRCUMSTANCES REVIEW
Following the imposition of anti-dumping measures, the circumstances on the basis of which the original
measure was imposed may change. For instance, the normal value may decrease, or the exporter may cease
to export to the country imposing the measure. As a consequence of such changes, the dumping margin might
decrease or disappear altogether. Or the domestic industry may stop producing the good in question.
Bearing in mind such possibilities, the AD Agreement requires investigating authorities to review the need for
the continued imposition of measures, where warranted, on their own initiative (e.g., where they have
information of possible changes that would affect the need for the measure), or based on a request from an
interested party substantiated by positive information, so long as in the latter case a reasonable period has
elapsed since the imposition of the measure. In such a review, the authorities examine whether the continued
imposition of the duty is necessary to offset dumping, whether the injury would be likely to continue or recur if
the duty were removed or varied, or both. If in the review the authorities conclude that the anti-dumping
measure is no longer warranted, it must be repealed immediately. Another possible outcome of such a review
is that while the measure may be continued in force, its level may be adjusted.
TIP
See, as an example of a change-of-circumstances review, the determination of New Zealand in Galvanised
Wire from Malaysia at: http://www.med.govt.nz/buslt/trade_rem/galvan-wire-mal-reass/final/final.pdf
JUDICIAL REVIEW (APPEAL) BEFORE DOMESTIC TRIBUNALS
The AD Agreement requires Members that have promulgated anti-dumping legislation to maintain judicial,
arbitral or administrative tribunals, or other procedures, for the purpose of reviewing, or hearing appeals of,
administrative actions relating to final determinations and to reviews of determinations. These tribunals must
be independent from the investigating authorities.
V.E.1. ILLUSTRATION 11
See, as an example, an appeal before Canada's Federal Court:
OTTAWA, June 24, 2005
Notice of Appeal – Laminate Flooring
Concerning the final determination of dumping of certain laminate flooring from the
people's Republic of China and France, the final determination of subsidization of such
product from the people's Republic of China and the termination of the certain laminate
flooring investigation concerning Austria, Belgium, the Federal Republic of Germany,
and the Republic of Poland.
On June 14, 2005, pursuant to section 96.1 of the Special Import Measures Act (SIMA), Uniboard
Surfaces Inc. of Laval, Quebec filed a notice of application with the Federal Court to appeal the
Canada border Services Agency's final determination of dumping of certain laminate flooring from
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the People's Republic of China and France, the final determination of subsidization of such
product from China and the termination of the certain laminate flooring investigation concerning
Austria, Belgium, the Germany, and Poland.
LEGAL REVIEW IN WTO DISPUTE SETTLEMENT
Legal review in the WTO is subject to the general provisions of the Dispute Settlement Understanding, except
where otherwise stated in the AD Agreement. The AD Agreement contains quite detailed rules on consultations
and on the standard of review applicable to panels examining claims under the AD Agreement. Thus, the
investigating authorities' determinations on factual matters should be accepted by a panel so long as the
investigating authorities' establishment of the facts was proper, and the evaluation of those facts was unbiased
and objective. Furthermore, where there is more than one permissible interpretation of a given provision of
the AD Agreement, if the measure at issue is in conformity with one of those interpretations it should be
accepted by a panel.
In addition, the AD Agreement requires panels to limit their examination to the information that was actually
before the investigating authority at the time the challenged measures were adopted.
V.E.2. ILLUSTRATION 12
See, as an example, one of the most recent requests for consultations in DS335, United States - Anti-dumping
Measure on Shrimp from Ecuador:
WORLD TRADE
ORGANIZATION WT/DS335/1
G/L/762 G7ADP/D63/1 21 November 2005 (05-5489)
Original: English
1. United States – anti-dumping measure on shrimp from Ecuador
Request for Consultations by Ecuador
The following communication, dated 17 November 2005, from the delegation of Ecuador to the delegation of the United States and to the Chairman of the Dispute Settlement Body, is circulated in a accordance with Article 4.4 of the DSU.
____________________________
My authorities have asked me to request consultations with the Government of the United States under Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), Article XXII of the General Agreement on Tariffs and Trade 1994 (GATT 1994) and Article 17 of the Agreement on Implementation of Article VI of GATT 1994 (Anti-Dumping Agreement) Concerning the final affirmative determination of sales at less than fair value with respect to certain frozen warm water shrimp from Ecuador (Inv. No. A-331-802) published by the United States Department of Commerce (DOC) on 23 December 2004 (69 Fed. Reg. 76913). This request for consultations includes two additional measures: the amended final determination of sales at less than fair value that the DOC published on 1 February 2005 and the accompanying anti-dumping duty order (70 Fed. Reg. 5156).
Specifically, the Government of Ecuador requests consultations on the DOC's practice of "zeroing" negative anti-dumping margins. Through this practice, the SOC treats transactions with negative dumping margins as having margins equal to zero in determining weighted average anti-dumping margins in an
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anti-dumping investigation. The DOC applied its practice of zeroing in its investigation of certain frozen warm water shrimp from Ecuador. Had the DOC not applied this practice, the two named Ecuadorian respondents and the "all others" for which it determined anti-dumping margins above the de minimis level would have been found not to have been dumping and, as a result, the DOC would not have issued an affirmative final determination, an amended affirmative final determination, or an anti-dumping duty order. Instead, the DOC would have calculated de minimis margins for the two named respondents and for "all others" in Ecuador.
The Government of Ecuador considers the DOC's use of its practice of zeroing in its final determination, amended final determination and anti-dumping duty order to violate Article VI of the GATT 1994 and Articles 1, 2.1, 22, 2.4, 24.2, 5.8, 6.10, 9.2, 9.3, 9.4, and 18.1 of the Anti-dumping Agreement. Zeroing resulted in unfair and improper comparisons between the export price and the normal value, resulting in artificial and inflated margins of dumping where none existed.
The zeroing methodology that the DOC used in its anti-dumping investigation of certain frozen warm water shrimp from Ecuador is virtually identical to the methodology that was held to be inconsistent with the Anti-Dumping Agreement in European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India (Panel Report, WT/DS141/R, and Appellate Body Report, WT/DS141/AB/R, adopted 12 March 2001, and also in United States – Final Dumping Determination on softwood Lumber from Canada (Panel Report, WT/DS264/R, and Appellate Body Report, WT/DS264/AB/R, adopted 31 August 2004).
Ecuador reserves the right to raise additional claims and legal matters concerning the DOC's zeroing practice during the course of consultations.
I look forward to receiving your reply to this request and, in accordance with Article 4.3 of the DSU, to selecting a mutually acceptable date for holding consultation. Ecuador welcomes any suggestion that the United States may have concerning the date and venue for these consultations.
IF YOU WANT TO KNOW MORE
Cases which have resulted in decisions by panels and/or the Appellate Body can be found by clicking here.
EXERCISES:
7. How long may an anti-dumping measure remain in place?
8. What is the maximum level of anti-dumping duty that may be applied on dumped imports that are
causing injury to the domestic industry producing the like product?
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VI. ALL YOU WANTED TO KNOW ABOUT THE
COMMITTEE ON ANTI-DUMPING PRACTICES
The AD Agreement establishes a Committee on Anti-dumping Practices ("the AD Committee"). This Committee
is composed of representatives of each Member. The Committee is tasked with reviewing all notifications
related to anti-dumping, and to otherwise monitoring the implementation of the AD Agreement.
Pursuant to the AD Agreement, the AD Committee meets at least twice a year in regular session. In addition,
there may be special meetings to address particular issues. Regular meetings provide Members the opportunity
to discuss any matters relating to the AD Agreement. See, as an example, the draft agenda for the
October 2005 meeting:
WTO/AIR/2703 21 October 2005
SUBJECT:
Committee on Anti-Dumping Practices – Regular meeting to be held on 31 October 2005
1. The Committee on Anti-Dumping practices will hold a regular meeting commencing on Monday,
31 October 2005 in the centre William Rappard immediately following the conclusion of the
meeting of the working group on implementation (see WTO/AIR/2702).
2. The following items are proposed for discussion in the regular session:
A. Albania – review of new legislative notification (G/ADP/N/1/ALB/1)
B. Turkey – review of new legislative notification (G/ADP/N/1/TUR/3/SUPPL.2-
G/SCM/N/1/TUR/3/SUPPL.2)
C. Semi-annual reports of anti-dumping actions
- G/ADP/N/132 – reports received to date
- Other semi-annual reports not previously reviewed
D. Preliminary and final anti-dumping actions (G/ADP/N/129-131 and G/ADP/n/133-136)
E. Transitional review under paragraph 18 of the protocol of Accession of the people's Republic
of China to the World Trade Organization.
F. Chairperson's report on meeting of working group on implementation
G. Other Business
H. Date of next regular meeting
I. Annual report to the council for Trade in Goods (Articles 18.6)
3. Due to the volume of documentation involved, additional copies of the notifications of
Legislation to be discussed under agenda items A-F will not be available from the
documents centre before the meeting. Delegations are, therefore, requested to bring
copies of the relevant documents to the meeting.
4. Members of the WTO, other governments with observer status international government with
observer status (IMF, UNCTAD, World Bank), and International Intergovernmental Organizations
invited to attend this meeting as observers (ACP Group, OECD) which wish to be represented at
this meeting are requested to inform the secretariat of the names of their representatives as soon
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as possible.
Pascal Lamy
Typically, as in the above draft agenda, a regular meeting of the Committee starts with a review of several
types of notifications required from Members.
First, legislative notifications. These are notifications of the full text of existing domestic laws and
regulations in the area of anti-dumping, or any changes to previously notified laws and regulation.
Second, notifications of semi-annual reports of any anti-dumping actions taken within the
preceding six months.
Finally, notifications of preliminary and final anti-dumping actions. Participants will see more
detailed discussions on the notifications below.
These notifications must have been translated into the three WTO working languages and circulated to
Members prior to the meeting. During the review exercise, Members have the opportunity to raise questions
concerning the operation of national anti-dumping laws and regulations, the application of particular measures,
and the consistency of national practice with the AD Agreement.
The next item in the above agenda is the transitional review under paragraph 18 of China's Protocol of
Accession to the WTO. This is a special procedure that was conducted once a year for the first 10 years of
China's WTO membership. 2011 was the final transitional review of China.
At regular meetings, the Chairman generally reports on the activities of the Committee's two subsidiary bodies:
the Working Group on Implementation and the Informal Group on Anti-Circumvention. (See below) These two
Groups generally meet immediately before the regular meetings of the Committee.
Under "Other Business", Members generally raise specific issues such as concerns over other Members'
investigations and/or measures.
Finally, once a year, at its autumn regular meeting, the Committee prepares and sends a factual report of its
activities to the Council for Trade in Goods.
The Working Group on Implementation, which is open to all Members of the WTO, constitutes a forum primarily
aimed at discussing technical issues regarding methodologies and practices used by different Members in
making dumping and injury determinations. The Working Group also considers procedural matters. The Group
works on the basis of submissions by Members, and seeks to the extent possible to develop non-binding
recommendations as to "best practices" in particular areas. Over the years, the Working Group has agreed on
a number of such recommendations which have then been approved by the Committee.
The Informal Group on Anti-Circumvention discusses the following three topics: "What constitutes
circumvention?" (topic 1), "What is being done by Members confronted with what they consider to be
Circumvention?" (topic 2), and "To what extent can circumvention be dealt with under relevant WTO rules?"
(topic 3). The Informal Group, which was constituted pursuant to the Uruguay Round Ministerial Decision on
Anti-Circumvention, currently meets once a year, and generally works on the basis of written submissions by
Members.
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VII. LAST BUT NOT LEAST: NOTIFICATION
REQUIREMENTS
The AD Agreement contains a number of notification obligations.
First, and foremost, the AD Agreement requires full transparency in respect of Members' laws,
regulations and procedures in the anti-dumping area. Thus, Members must notify the Committee of
their existing domestic laws and regulations in the area of anti-dumping, or any changes to previously
notified laws and regulations as soon as possible. During the Committee review of these notifications,
Members can raise questions and concerns that they may have as to the consistency with the AD
Agreement of particular provisions of the domestic laws and regulations of the notifying Members. All
Members are required to submit a legislative notification, even where they have no such laws or
regulations (in which case the notification simply states that fact).
Second, the AD Agreement requires Members to report without delay all preliminary or final actions
taken with respect to anti-dumping measures. The Committee has adopted guidelines (G/ADP/2/Rev.2)
for the minimum information to be provided. The format also reflects a consensus among Members
that at least initiations, preliminary determinations, imposition of provisional measures, final
determinations, and imposition of definitive measures, are to be notified in this context. A number of
Members notify other types of actions as well and many Members provide the full text of their
determinations, rather than creating a specific minimum information notification.
Third, the AD Agreement also requires the submission of semi-annual reports of any anti-dumping
actions taken within the preceding six months. A request for these notifications is circulated by the
Secretariat in January and July of each year. A report is due in February of each year covering actions
taken during the period 1 July through 31 December of the previous year, and a report is due in August
of each year covering actions taken during the period 1 January through 30 June of the current year.
The Committee has adopted a format and guidelines (G/ADP/1/Rev.1) for semi-annual reports of
actions taken. All Members must submit a semi-annual report, even if they have not taken any such
action during the reporting period. In such cases, simple nil notifications are provided.
Finally, the AD Agreement requires Members to notify the Committee regarding their authorities
competent to initiate and conduct anti-dumping investigations. All Members with such authorities must
notify the Committee of the name, address, telephone and fax number, and e-mail address (if
applicable) of those authorities, and thereafter must update or correct the submitted information as
necessary.
EXERCISES:
9. What are the functions of the Committee on Anti-dumping Practices?
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VIII. SUMMARY
ANTI-DUMPING
Anti-dumping refers to offsetting, with a border measure, dumping that has been found injurious to the
domestic industry. (Dumping is where a given producer or exporter exports a product to another country at
a price lower than the producer or exporter that normally charges in its own home market).
WTO rules do not pass judgement on the practice of dumping; they do however impose disciplines on anti-
dumping measures through GATT Article VI and in the Anti-dumping Agreement.
Accordingly, a Member can impose specific anti-dumping duty on imports from a particular source, in
addition to import tariffs, when the importing Member fulfils the requisite substantive and procedural
requirements.
On the substantive side, the following three criteria must be demonstrated:
dumping is occurring;
the domestic industry producing the like product in the importing country is suffering material injury
or threat thereof; and
there is a causal link between the two.
Investigations have to be conducted to determine the margin of dumping and consequently define the level
of the anti-dumping duty:
The AD Agreement contains detailed procedural requirements on a number of issues, which are
applicable at different stages of the anti-dumping proceeding. Members must at a minimum comply
with the procedural rules laid out in the AD Agreement.
Importantly, the AD Agreement sets out notification requirements that must be adhered to for the
sake of transparency.
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PROPOSED ANSWERS:
1. What is dumping? What are the possible bases for determining normal value?
The AD Agreement defines dumping as the sale of a product for export at a price below its "normal
value". This definition entails a comparison between two prices, the export price and the "normal value",
in order to determine if a product is dumped. Normal value is usually the domestic price of the product in
the exporting country. If this price cannot be used for comparison purposes, normal value may be
calculated on the basis of the price of the product when sold to a third country, or as a constructed value
including per unit fixed and variable costs plus a reasonable amount for profits.
It is important to point out that dumping is not the sale of a product for export at a price below that
charged by domestic producers in the importing country. This is price undercutting. The prices charged by
the producers in the importing country are not relevant for determining whether an imported product is
dumped. The question of price undercutting is, however, among the relevant factors to be considered in
determining whether the domestic industry is injured by dumped imports.
2. What must a Member do to have the right to apply an anti-dumping measure?
To have the right to apply an anti-dumping measure, a Member must make determinations of the
existence of dumping, injury to the domestic industry (understood as material injury or threat thereof, or
material retardation of the establishment of an industry), and a causal link between the dumping and the
injury. All three elements must be determined via an investigation carried out by the authorities of the
importing Member, in accordance with the procedural rules set out in the AD Agreement.
3. How is the dumping margin calculated?
The dumping margin is the difference between the export price and the normal value. The AD Agreement
sets forth rules for calculating the export price (the price of the allegedly dumped product in the importing
country) and the normal value (usually the price of the allegedly dumped product in the exporting
country). Among the requirements is that the comparison of the two prices must be "fair", and the AD
Agreement specifies some of the elements of a fair comparison: the two prices must be at the same level
of trade, normally the ex-factory level, and must represent sales at as nearly the same time as possible.
The preferred methodologies for calculating the dumping margin are either to compare the weighted
average normal value to the weighted average export price, or to calculate dumping margins on a
transaction-to-transaction basis. Where the investigated product encompasses more than one sub-
product or "model", any negative dumping margins (i.e., where the normal value is below the export
price) on a given model must be given their full (negative) value in calculating the overall weighted
average margin of dumping for all of the models together. That is, negative margins cannot be treated as
"zero" dumping (i.e, they cannot be "zeroed"). The dumping margin is usually expressed as a percentage
of the export price. For example, if the normal value is 100, and the export price is 80, the difference is
20, and the dumping margin would usually be expressed as 25% (i.e., (20 ÷ 80) * 100).
Before comparing the export price and the normal value to determine the dumping margin, AD
Agreement requires that "due allowance" must be made for any differences between export price and
normal value that affect price comparability, for example, differences in physical characteristics, sales
volume, terms of sale, and taxation. Due allowances can be made by adjusting either the export price or
the normal value or both to account for the particular differences in question before the two prices are
compared.
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4. How is a determination of injury to the domestic industry reached?
The AD Agreement leaves a great deal of discretion to the investigating authorities as to how the question
of injury to the domestic industry is to be analyzed. That said, the AD Agreement sets out a series of
mandatory factors to be considered in the analysis of the impact of dumped imports on the domestic
industry, including actual and potential decline in sales, profits, output, market share, productivity, return
on investments, or utilization of capacity; factors affecting domestic prices; the magnitude of the margin
of dumping; actual and potential negative effects on cash flow, inventories employment, wages, growth,
ability to raise capital or investments.
The list is not exhaustive, and in a given case no one or several of the factors necessarily give decisive
guidance. Thus, all of these factors must be examined in every case, along with any other factors that
may be relevant to that particular case. Furthermore, determinations of threat of material injury must
consider all of the foregoing factors, and there needs to be a finding based on facts, not speculation or
conjecture, that a change of circumstances in which dumping would cause injury must be clearly foreseen
and imminent (for instance a significant increase in the rate of dumped imports, spare capacity in the
exporting country, etc.).
5. How is a causal link between dumped imports and injury established?
The AD Agreement requires that on the basis of the examination of its listed factors regarding the
condition of the industry and the impact of the dumped imports, it be demonstrated that the dumped
imports are, through the effects of dumping, causing injury. The AD Agreement further requires that
injury caused by factors other than dumped imports must not be attributed to those imports. The
possible "other factors" listed in the AD Agreement in this context are: imports at non-dumped prices,
contraction in demand or changes in the pattern of consumption, developments in technology, trade
restrictive practices or competition by other producers, and the productivity of the domestic industry. The
AD Agreement however does not address exactly how the causal link between the imports and the injury
is to be established, or how non-attribution to other factors is to be ensured. Based on WTO dispute
settlement, we know that an affirmative, genuine and substantial relationship of cause and effect must be
established between the dumped imports and the injury, and we also know that the effects of the factors
other than dumped imports must be separated and distinguished from those of the dumped imports to
ensure that causation is not wrongly attributed to those imports. In practice, Members rely on a range of
methodologies to address these issues, and no one methodology is required by the AD Agreement. The
important thing is for the investigating authority, in its reports and other documents setting forth the
determination of injury and causation, to fully explain and justify, on the basis of positive evidence from
the record, how the determination was reached.
6. How is an anti-dumping investigation begun?
An anti-dumping investigation is begun on the basis of a decision to initiate by the investigating
authorities of the importing Member. Generally, such a decision is taken after the receipt, and on the
basis, of a written application filed by or on behalf of the domestic industry producing the like product. In
exceptional cases, however, the government of the importing Member can initiate an investigation
without an application having been filed. Importantly, the AD Agreement contains a two-part "standing"
test, which the investigating authority must conduct before proceeding to initiate, to check whether the
applicant is representative of the domestic industry. In addition, in general the investigating authority
must review the accuracy and adequacy of the information contained in the application, to determine
whether that information provides enough evidence of dumping, injury and causation to constitute a
sufficient basis for initiating.
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7. How long may an anti-dumping measure remain in place?
The general principle is that an anti-dumping measure should remain in force only for as long as, and to
the extent necessary, to counteract dumping which is causing injury. In addition, the AD Agreement
establishes a specific time-limit, five years, at the end of which a measure should expire. The importing
Member may extend the period of imposition beyond five years if it conducts a review before the end of
the five-year period, and determines in that review that the elimination of the measure would be likely to
lead to the continuation or recurrence of dumping and injury.
8. What is the maximum level of anti-dumping duty that can be applied to dumped imports that
are causing injury to the domestic industry producing the like product?
An anti-dumping duty can be applied up to, but not in excess of, the full amount of the margin of
dumping. That is, the level of anti-dumping duties cannot exceed the amount of the difference (normally
expressed as a percentage of the export price) between the normal value of the product and the export
price to the Member applying the AD duty. A Member of course is free to apply a lower duty if it so
wishes, or to apply no duty at all.
For instance, if shoes are sold at $10.00 per pair in the home market of the exporter, and the same shoes
are exported to the importing Member at $8.00 per pair, the margin of dumping for such shoes, and thus
the maximum anti-dumping duty that the importing Member could apply, would be $2.00 per pair
or 25%.
9. What are the functions of the Committee on Anti-dumping Practices?
The Committee on Anti-dumping Practices ("the AD Committee") is generally responsible for overseeing
Members' implementation of the AD Agreement, and the Agreement's functioning. In this respect, one of
the AD Committee's main functions is to receive and review the notifications submitted by Members under
the AD Agreement. These notifications of anti-dumping legislation, and notifications of anti-dumping
actions taken. The AD Committee also has two subsidiary bodies. The Informal Group on Anti-
Circumvention discusses issues arising under the Uruguay Round Ministerial Decision on Anti-
Circumvention. The Working Group on Implementation offers a forum where Members can exchange
their experiences in implementing particular provisions of the AD Agreement, and develops
recommendations as to certain best practices in the conduct of investigations and application of
measures.
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Subsidies and Countervailing
Measures ESTIMATED TIME: 3 hours
OBJECTIVES OF MODULE 4
Understand the basic WTO disciplines related to subsidies and countervailing
measures; and
Get acquainted with the different procedures and investigations connected to
subsidies and countervailing duties.
MODULE
4
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I. INTRODUCTION
The WTO Agreement on Subsidies and Countervailing Measures ("the SCM Agreement") both disciplines the
use of subsidies, and regulates the actions countries can take to counter the effects of the subsidies of other
countries. Under the SCM Agreement, a Member can use the WTO's dispute settlement procedure to seek the
withdrawal of the subsidy or the removal of its adverse effects. Or, the Member can launch its own
investigation and ultimately charge an additional import duty ("countervailing duty") in the case of subsidized
imports that are found to be causing injury to the domestic industry.
WHY DO COUNTRIES USE SUBSIDIES AND WHY DOES THE WTO HAVE AN INTEREST?
Governments use subsidies for a number of reasons. One is market failure, where the market provides less of
certain things than the economically optimal level. For example, a new environmental regulation may require
businesses to clean up their sites to reduce the level of pollution (following the "polluter pays" principle). An
investor considering purchasing and restarting a defunct plant may find that the cost of the required clean-up
(of pollution that was caused by the plant's previous owner) is so high that the investment would not be
profitable. A government might, in that circumstance, offer a subsidy to the investor to offset some or all of
the clean-up cost, in order to ensure that the investment is made. Another example could be where the
market does not provide long-term financing, and the government steps in a lender. Depending on the
interest rates and other loan terms, the government-provided financing might or might not be subsidized.
Governments also use subsidies as instruments of economic and social policy. For example, a government
may wish to ensure that particular stretches of coastline, or particular border areas, are inhabited. It thus may
offer subsidies of various kinds for investment and job creation in those areas. Or a government may seek to
even out regional economic disparities by offering subsidies for investment and job creation in disadvantaged
regions. Or a government may wish to encourage the adoption of certain technologies, or the use of certain
kinds of equipment, and thus may offer subsidies to enterprises that do so.
Under the SCM Agreement, most forms of subsidies are allowed, although subject to rules and disciplines. As
will be discussed in detail below, only two kinds of subsidies are outright prohibited.
Why does the WTO regulate the use of subsidies? Because regardless of whether they are intended only to
correct market failures or to address policy priorities of the government involved, subsidies can distort
international markets. In particular, a subsidy can introduce a structural competitive imbalance into the
market for a good which is unrelated to the natural comparative advantages of the different countries
producing that good. Where this occurs, an unsubsidized good can find it impossible to compete with the
subsidized good (as it in effect is competing with the treasury of the subsidizing country), even where the
unsubsidized good has the intrinsic comparative advantage.
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II. THE AGREEMENT ON SUBSIDIES AND
COUNTERVAILING MEASURES
IN BRIEF
The SCM Agreement disciplines the use of subsidies by Members and regulates the actions Members can take
to counter the effects of other Members' subsidies. The SCM Agreement does not prohibit Members from
granting most forms of subsidies. It contains rules to determine which programmes, measures, etc. are
subsidies, as well as rules governing the use of and disciplines on subsidies, and disciplines on the use of
countervailing measures.
The SCM Agreement thus contains two "tracks". The first is the multilateral track, which sets forth the
disciplines on governments' use of subsidies, and provides for WTO dispute settlement to enforce those
disciplines. Thus, under the multilateral track, a Member concerned over the use of an allegedly prohibited
subsidy by another Member, or over the adverse effects allegedly caused by another Member's non-
prohibited subsidy, has the right to raise a challenge under the WTO's dispute settlement system. The
second track is the unilateral or national track, which is the use of countervailing measures by an importing
Member where subsidized imports are causing injury to the domestic industry in the importing Member.
(Countervailing measures are similar in form and in terms of procedural requirements to anti-dumping
measures, the main difference being that CV measures apply to subsidized, rather than dumped, imports.)
For a measure, programme, incentive etc. to be a "subsidy" in the sense of the SCM Agreement, it must
correspond to the legal definition in that Agreement, namely it must involve a financial contribution by a
government or any public body within the territory of a Member, which confers a benefit to the recipient.
Furthermore, for a subsidy thus defined to be covered by the SCM Agreement and hence subject to its
disciplines, the subsidy also must be "specific". Each of these concepts is examined below.
The SCM Agreement classifies specific subsidies into two groups: prohibited subsidies and actionable
subsidies. There are only two kinds of prohibited subsidies: export subsidies and local content (or import
substitution) subsidies.
The SCM Agreement applies not only to industrial products, but to agricultural products as well. Thus subsidies
disciplines and countervailing measures can be invoked in respect of agricultural products. That said, the
Agreement on Agriculture modulates some of the multilateral disciplines of the SCM Agreement in respect of
those products.
II.A. LEGAL CONTEXT
IN DETAIL
The rules governing subsidies are contained in the SCM Agreement while the Agreement on Agriculture
contains specific rules governing the use of agricultural subsidies.
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THE HISTORICAL BACKGROUND TO THE SCM AGREEMENT
Rules on the use of subsidies and countervailing measures have been part of the multilateral trading system
since the beginning. In particular, Article XVI of GATT 1947 contained the original rules on subsidies, and
Article VI (which also covers anti-dumping) contained the original rules on the use of countervailing measures.
These original rules were, however, relatively general. For instance, Article XVI of GATT 1947 did not define
the term "subsidy" and contained little detail as to the types of adverse effects that might be caused by
subsidies or as to the actions other Contracting Parties could take in response. Article VI contained only three
paragraphs regarding the use of countervailing measures.
In response to the need to elaborate on the GATT rules on subsidies and countervailing measures, the
Tokyo Round of multilateral negotiations, which took place between 1973 and 1979, saw the creation of the
Agreement on Implementation and Application of Articles VI, XVI and XXIII of the General Agreement,
generally known as the "Tokyo Round Subsidies Code", or "Subsidies Code". .
Unfortunately the Subsidies Code, which was a plurilateral agreement, did not fully achieve its purpose. It was
ratified by only twenty -five Contracting Parties, and under it there were a number of disputes including over
fundamental concepts that were not defined in the Code.
Therefore, in the Uruguay Round, the rules on subsidies and countervailing measures were once again put on
the negotiating agenda. The Punta del Este Ministerial Declaration, which launched the Round, called for a
fundamental review of all of the rules on subsidies and countervailing measures: Articles VI and XVI of the
GATT 1947 and the Subsidies Code. The final result of these negotiations was the SCM Agreement.
THE SCM AGREEMENT
The SCM Agreement builds upon the Subsidies Code and the original GATT provisions. Unlike those
predecessors, the SCM Agreement contains a definition of subsidy and introduces the concept of the
"specificity" (selective availability) of a subsidy. Only specific subsidies are subject to the disciplines set out in
the SCM Agreement.
The object of the SCM Agreement is to impose multilateral disciplines on subsidies that distort international
trade. The SCM Agreement also regulates WTO Members' reactions against subsidized imports. Subsidies result
from the decisions of governments. The provisions of the SCM Agreement not only regulate the unilateral
action (countervailing duties) that may be taken against subsidized imports, but also establish multilateral
disciplines to control the use of subsidies themselves.
The SCM Agreement, forming part of the single undertaking under the WTO Agreement, applies to all WTO
Members, developed and developing (in contrast to the Subsidies Code which applied only to its signatories).
The SCM Agreement contains special provisions in favour of developing countries, which are perhaps the
broadest and most significant of those in any WTO agreement.
Furthermore, the SCM Agreement goes far beyond its predecessors in terms of the level of detail and specificity
of the rules in respect of subsidies. It establishes detailed disciplines in respect of both prohibited and non-
prohibited subsidies, including definitional provisions on prohibited subsidies, lengthy provisions concerning
adverse effects of subsidies, and details as to the applicable multilateral dispute settlement procedures. It also
expands upon the provisions of the Subsidies Code in respect of the use of countervailing measures
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A BRIEF NOTE ON AGRICULTURAL SUBSIDIES: THE "PEACE CLAUSE"
From 1995 – 2003, the so-called "implementation period" under the Agreement on Agriculture, WTO Members'
ability to challenge other Members' agricultural subsidies under the SCM Agreement was subject to a number
of constraints, so long as the subsidizing Member fully conformed to its commitments under the Agreement on
Agriculture. Among these constraints was that domestic agricultural subsidies that had no or at most minimal
trade- or production-distorting effects, and that conformed fully to the provisions of Annex 2 (the so-called
"green box") of the Agreement on Agriculture, could not be subjected to countervailing duties. There also were
limitations on the multilateral challenges that could be brought in respect of agricultural export subsidies and
domestic support measures that were fully consistent with the subsidizing Member's commitments under the
Agreement on Agriculture. Other than the subsidies covered by the green box, however, agricultural subsidies
remained countervailable (although subject to a "due restraint" clause on initiation). This so-called "peace
clause" was contained in Article 13 of the Agreement on Agriculture.
With the expiry of the implementation period at the end of 2003, the peace clause also expired. The
Agreement on Agriculture nonetheless continues to modulate, in certain cases, the SCM Agreement's
disciplines as they apply to agriculture subsidies.
TIP
It is important to note that pursuant to Article 21 of the Agreement on Agriculture, in case of conflict
between the Agreement on Agriculture and any agreement in Annex 1A to the WTO Agreement, including
the SCM Agreement, the provisions of the Agreement on Agriculture prevail.
II.B. INTRODUCTION
II.B.1. TWO AGREEMENTS IN ONE: THE TWO TRACKS
The Agreement on Subsidies and Countervailing Measures, as its name indicates, addresses two separate but
closely related topics: multilateral disciplines regulating the provision of subsidies, and the unilateral or
national use of countervailing measures by a Member to offset injury in its territory caused by subsidized
imports.
Multilateral subsidies disciplines are the rules governing whether or not a subsidy may be provided by a
Member, and regulating the adverse trade effects that a subsidy may cause. These disciplines are enforced
through invocation of the WTO dispute settlement mechanism.
Countervailing duties are a unilateral instrument, which may be applied by a Member to imports of a product
into its territory, on the basis of an investigation in which the imports in question are found to be subsidized,
and to be causing injury to the domestic industry of the importing Member.
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The following diagram summarizes the main features of each track:
Figure 1: Main features of the two tracks of the SCM Agreement
As we will see in the next section, some parts of the SCM Agreement apply to only one of the tracks, while
other parts apply to both. For instance, Part I "General Provisions" defines the measures subject to the
Agreement, and thus the measures that must be notified and that can be challenged in dispute settlement or
subjected to countervailing measures. Thus Part I is relevant to both tracks. By contrast, Part II contains
disciplines on prohibited subsidies, and thus is relevant only to the multilateral track, while Part V contains the
rules on countervailing measures and thus is relevant only to the unilateral track.
II.B.2. STRUCTURE OF THE AGREEMENT
The SCM Agreement contains 11 parts:
Part I contains the fundamental definitional provisions, of "subsidy" and of "specificity", and further
provides that only measures constituting specific subsidies in the sense of these definitions are
covered by the SCM Agreement.
Parts II and III divide all specific subsidies into one of two categories: prohibited and actionable,
respectively, and establish certain substantive disciplines, as well as dispute settlement rules, with
respect to these categories.
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NOTE: Part IV, applicable to non-actionable subsidies, expired at the end of 1999.
Part V establishes the substantive and procedural requirements for application by a Member of
countervailing measures.
Parts VI and VII establish the institutional structure and notification and surveillance mechanisms for
implementation of the SCM Agreement.
Part VIII contains special and differential treatment rules for various categories of developing
Members.
Part IX contains transition rules for non-developing Members to bring their non-conforming measures
that existed as of the entry into force of the SCM Agreement into conformity with it. Separate rules
applied to developed Members and Members in transformation to market economies.
Parts X and XI contain dispute settlement and final provisions.
II.C. COVERAGE OF THE SCM AGREEMENT
Part I of the Agreement defines the coverage of the Agreement. Specifically, it establishes definitions of the
terms "subsidy" and "specificity". As noted above, only "specific subsidies" within the meaning of Part I are
subject to the SCM Agreement's multilateral disciplines and can be countervailed.
II.C.1. DEFINITION OF SUBSIDY
IN BRIEF
Unlike the Tokyo Round Subsidies Code, the SCM Agreement contains a definition of the term "subsidy". The
definition contains three basic elements: (i) a financial contribution (ii) by a government or any public body
within the territory of a Member (iii) which confers a benefit. All three of these elements must be present for
a subsidy to exist. Remember, however, that not all "subsidies" are covered by the SCM Agreement.
Rather, only those that are "specific" are covered.
Scheme, Measure, program, etc
It is a subsidy
Does it involve a financial contribution by the government?
It is not a subsidy
Yes
Does it confer a benefit?
No
Yes No
It is not a subsidy
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Figure 2: What is a subsidy
IN DETAIL
FINANCIAL CONTRIBUTION
Pursuant to Article 1.1 (a)(1) of the SCM Agreement, only measures in the form of a "financial contribution"
may be subsidies. This provision sets forth a closed (exclusive) list of the types of measures that constitute
financial contributions, namely:
Direct transfer of funds (example, a grant, a loan, etc.);
Potential direct transfer of funds or liabilities (example, a loan guarantee);
Government revenue otherwise due that is foregone or not collected (example, fiscal incentives such as
tax credits);
Government provision of goods or services other than general infrastructure, or government purchase
of goods;
Government payment into a funding mechanism.
In addition, certain income or price support also is listed as potentially constituting a subsidy, if it confers a
benefit.
TIP
The term "financial contribution" as used in the SCM Agreement does not connote, by itself, that there is a
subsidy (in the sense of a "gift" from the government). Rather, this term simply connotes the transfer of
something of value. Whether there is a subsidy depends on the terms of this transfer, which is where the
concept of "benefit", discussed below, comes into play.
You will find a video clip on financial contribution in the section "Supporting materials" (just go to the
departure board).
BY A GOVERNMENT OR PUBLIC BODY
For a financial contribution to be deemed a subsidy for the purposes of the SCM Agreement, the financial
contribution must be made by government or a public body. A government can be at the national or sub-
national level, and can be any sort of governmental entity. A public body is an entity other than a
government, but which has or fulfils some sort of public policy role. A financial contribution made by a private
body may still fall under the definition in Article 1.1 of the SCM Agreement if that contribution was made
pursuant to entrustment or direction by the government.
You will find a video clip on public body in the section "Supporting materials" (just go to the departure
board).
What happens where both parties involved in a transaction, for instance the bank granting a loan and the
company receiving it, are private entities? If the government or any public body has entrusted or directed a
private body, in this case the bank, to make the loan, the financial contribution is, for purposes of the
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Agreement, made by the government. If there is no evidence of such entrustment or direction, however, the
loan cannot be attributed to the government, and thus will not be covered by the SCM Agreement, meaning
that it cannot be subject to WTO dispute settlement or to countervailing measures.
You will find a video clip on entrustment or direction in the section "Supporting materials" (just go to the
departure board).
Also, it is not only (the subsidies of) national-level governments and public bodies, but also (those of) all sub-
national levels of government and public bodies that are subject to the SCM Agreement. Thus, if a provincial
or municipal government provides a subsidy, this is fully subject to the disciplines of the SCM Agreement.
CONFERRING A BENEFIT
Pursuant to the SCM Agreement, a financial contribution by a government does not involve a subsidy unless it
confers a "benefit". In many cases, as in the case of a cash grant, the existence of a benefit will be clear. A
grant, being a gift, confers a benefit in its full amount, as the recipient does not have to pay anything for it. In
some cases, however, the issue of benefit will be more complex. For example, when does a government loan, a
government equity infusion, or the provision or purchase by a government of a good confer a benefit?
Although the SCM Agreement does not provide complete guidance on these issues, the Appellate Body has
ruled that the existence of a benefit is to be determined by comparison with the market-place. The question to
be answered is therefore whether the financial contribution is "provided on terms which are more
advantageous than those that would have been available to the recipient on the market." If the answer is
positive, then the financial contribution confers a benefit. So, for example, a government-provided loan
confers a benefit where its terms are more favourable to the recipient than those the recipient could have
obtained from a commercial lender. Similarly, government provision of goods confers a benefit where the price
charged for the goods by the government is less than the prevailing market price for those goods, in the
country where the goods are provided.
The SCM Agreement provides some, albeit not complete guidance on the question of benefit, in the form of
guidelines for calculating the amount of subsidy in terms of the benefit to the recipient, for purposes of
countervailing duty investigations (addressed in detail below). These guidelines have been found by panels
and the Appellate Body also to be useful in determining the existence of a benefit (for purposes of determining
whether a measure is or is not a subsidy). The guidelines address how to determine benefit for four different
forms of financial contribution: (1) equity infusions by the government - the market-based comparison is with
the "usual investment practice of private investors"; (2) government loans - the market-based comparison is
with a comparable commercial loan that the borrower could actually obtain on the market; (3) government
loan guarantees - the market-based comparison is with what the borrower would pay for the loan on the
market in the absence of the guarantee; and (4) government provision of goods or services, or government
purchase of goods - the comparison is with the prevailing terms and conditions in the market where the
provision or purchase takes place, to determine if the price paid to the government is too low (in the case of
government provision of goods or services), or the price paid by the government is too high (in the case of
government purchase of goods).
It may seem that if a government incurs a net cost when it makes a financial contribution then the recipient
automatically receives a benefit. This is not necessarily the case. Rather, the existence of a benefit is
independent of whether or not the government incurs a cost in providing the financial contribution.
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The following diagram illustrates this point, using the example of a government loan to company. In the
example, although the government actually makes money on the transaction, by lending the money at a higher
interest rate than its own cost of funds, the loan recipient nonetheless receives a benefit, as it obtains the
government loan for a lower interest rate than it could have obtained from a commercial lender.
No cost to Government but benefit. Example:
LOAN
By contrast, a government might incur a cost in providing a certain financial contribution, without conferring a
benefit. For example, a government might provide inputs to a producer of a particular product. Assuming that
the government is a high-cost producer of those inputs, it might have to incur a loss in order to sell them at
the prevailing market price, in which case there would be a cost to the government. Assuming that the
government simply meets the prevailing market price, however, the company purchasing from the government
rather than from a private supplier would not receive a benefit, and thus there would be no subsidy, in spite of
the cost incurred by the government.
In analysing a measure under the SCM Agreement, it is important to separate completely the concepts of
financial contribution and benefit.
Whether a given measure, programme, incentive, etc. constitutes a financial contribution does not depend on
and should not be mixed with whether it confers a benefit. Rather, a measure will constitute a financial
contribution only if it takes one of the forms listed in the SCM Agreement. If the measure does not take one of
these forms, then even if it confers a measurable benefit to a company or a sector of the economy, it is not a
subsidy and thus cannot be subject to the disciplines of the SCM Agreement.
You will find a video clip on benefit in the section "Supporting materials" (just go to the departure board).
II.C.2. SPECIFICITY
Assuming that a measure is a subsidy within the meaning of the SCM Agreement (i.e., a financial contribution
that confers a benefit), it nevertheless is not subject to the provisions of the SCM Agreement unless it is
specific to, i.e., provided on a selective basis to, to a particular enterprise or industry or group of enterprises or
industries, or to a particular region.
Loan proceeds
Interest: 10%
Loan proceeds
Interest: 8%
Bond proceeds
Interest: 6%
Benefit to borrower
10%-8%=2%
Cost to government
6%-8%=zero cost
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The basic principle is that a subsidy that distorts the allocation of resources within an economy should be
subject to discipline. Where a subsidy is widely available within an economy, such a distortion in the allocation
of resources is presumed not to occur. Thus, only "specific" subsidies are subject to the SCM Agreement
disciplines. Four types of "specificity" are identified in the SCM Agreement:
Enterprise specificity: Access to a subsidy is limited to a particular company or companies.
Industry specificity: Access to a subsidy is limited to a particular industry or industries.
Regional specificity: Access to a subsidy is limited to recipients located in a geographical region within
the jurisdiction of the granting authority.
Prohibited subsidies: These subsidies are automatically deemed by the SCM Agreement to be specific.
The SCM Agreement covers not only subsidies to which access is explicitly limited, in the law or by the granting
authority, to certain enterprises (so-called de jure specificity). It also covers subsidies to which access is
limited in fact (so-called de facto specificity). A subsidy which by law can only be provided to a given company
or a given sector, for example, would be specific de jure. In many cases, however, there is no such explicit
limitation of access to the subsidy in the law, or established by the authority granting subsidy. Specificity can
still be established, nonetheless, if the facts demonstrate that in practice the subsidy is limited to only certain
of the nominally eligible recipients. The factors that can be considered in assessing whether an apparently
non-specific subsidy in fact may be specific are:
The use of the subsidy by a limited number of certain enterprises.
The predominant use of the subsidy by certain enterprises,
The granting of disproportionately large amounts of subsidy to certain enterprises.
The manner in which discretion has been exercised by the granting authority in making its decisions
about granting the subsidy.
The Agreement contains provisions for identifying subsidies that are not specific. In short, specificity cannot be
found where eligibility for the subsidy is based on objective criteria, which are set forth explicitly in law,
regulation or other official document, so as to be capable of verification, and those criteria are strictly adhered
to and are applied in an automatic manner. Objective criteria are defined as criteria that are neutral, that do
not favour certain enterprises over others, and that are economic in nature and horizontal in application.
Examples given are the number of employees or the size of the enterprise. Thus, an investment tax credit
available to any enterprise that invests at least $100,000, or that creates at least 10 new jobs, to which access
is automatic so long as these criteria are met, would not be specific. (Specificity could only be found if the
criteria were not strictly adhered to, and access was not automatic, and otherwise there was evidence to show
that the programme was operated in a de facto specific manner.)
In assessing whether or not a subsidy is de facto specific, on the basis of the above and any other relevant
factors, account must be taken of the extent of diversification of economic activities within the jurisdiction of
the granting authority, as well as of the length of time during which the subsidy programme has been in
operation. This is to avoid unjustified findings of specificity. For example, if in a given country there are two
main industries, the fact that these industries are the main users of the subsidy programme at issue may
simply reflect the structure of the economy, rather than targeting of subsidies to them by the government.
Similarly, if a subsidy programme has only been in existence a short time, the fact that the range of actual
users of the programme is limited compared with the universe of those eligible may simply reflect the fact that
other potential users have not yet become aware of the programme, rather than any deliberate targeting by
the government.
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Finally, subsidies that are contingent on export performance, and subsidies that are contingent on the use of
domestic over imported goods (the prohibited subsidies) are defined in the SCM Agreement as being per se
specific. That is, the existence of the contingency in question, which is what makes the subsidy in question
prohibited, automatically satisfies the specificity requirement of the SCM Agreement. Both the contingency on
export performance and the contingency on the use of domestic goods can be established on a de jure or a de
facto basis,
The following diagram illustrates how "specificity" works under the SCM Agreement:
Figure 3: How "specificity" works under the SCM Agreement
II.C.3. ILLUSTRATION 1
Now, let's apply the basic concepts and definitions of subsidy and specificity to an example. The law of
Country A establishes a minimum salary of USD500 per week, and further provides that workers cannot work
more than 35 hours per week. To improve the competitiveness of the wagon wheel sector, the Government of
Country A issues a proclamation pursuant to which the minimum salary and the maximum number of hours
worked per week do not apply to that sector. As a consequence, wagon wheel producers in Country A have an
advantage in terms of labour costs over companies in other industries and sectors of the economy.
It could certainly be argued that the measure (i.e., the non-application of the legally-required minimum salary
and maximum working hours) confers a tangible, measurable benefit to the wagon wheel industry, in the
amount of labour costs saved. And it is clear that the measure is a governmental measure, given that it was
created via an official proclamation. Furthermore, because the measure is limited to only one sector of the
whole economy of Country A, it is specific, and as this limitation is explicitly set forth in the proclamation, the
specificity is de jure. Do all of these facts mean that the measure is subject to the SCM Agreement? Not
necessarily, because in the first place the measure must constitute a financial contribution, as defined by the
SCM Agreement, to be potentially covered thereby.
In this regard, a measure such as the one described above – an exemption from legal requirements as to
minimum salary and maximum number of working hours per week – does not correspond to any of the types
of financial contributions listed in the Agreement. In particular, it is not a transfer of funds (either direct or
or or or
Explicit limitation to an enterprise or
group of enterprises
Explicit limitation to an industry or
group of industries
Explicit limitation to a geographical region within the jurisdiction
of the granting authority
If yes, de jure specific [subsidies contingent in law on exports or use of
domestic goods, deemed specific]
If no, not de jure specific [Subsidies not contingent in law on exports or use of
domestic goods, not deemed specific on this basis]
Possibility of de facto specificity: use by limited number of enterprises; disproportionate use by certain enterprises; predominant use by certain enterprises; exercise of discretion by granting
authority.
Contingent in law on exports
or use of domestic
goods
Possibility of in fact contingency: Facts demonstrate conditionality between subsidy
and exports or use of domestic goods; deemed specific
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potential direct); it is not the non-collection of revenue that otherwise would be due to the government; it is
not the provision of goods or services, or the purchase of goods, by a government; and it is not the payment
by the government into a funding mechanism. Given that the measure does not fit within the definition of a
financial contribution, it cannot give rise to a subsidy in the sense of the SCM Agreement, and thus is not
subject to the disciplines of that Agreement, in spite of being a de jure specific governmental measure that
confers a benefit.
Now, let's change the facts, and assume that everything else is the same except for the form of the measure.
In particular, let's now assume that the measure is a government grant programme, under which wagon wheel
producers can obtain an investment grant of USD 10,000 for every USD 500,000 that they invest in new
energy-efficient plant and equipment. Once again, the measure is established via government proclamation,
and the proclamation specifies that only wagon wheel producers are eligible. Would this measure be covered
by the SCM Agreement? Yes. As in the first scenario, the measure is governmental, and it is de jure specific
to the wagon wheel industry, based on the proclamation. Being in the form of a grant, it clearly confers a
benefit (as grants are gifts). Finally, again because it is in the form of a grant, it clearly falls within the SCM
Agreement's list of financial contributions (it is a "direct transfer of funds"). Being covered by the Agreement
does not mean that the measure is illegal. Because in our example the subsidy is not contingent on exporting
or on the use of domestic goods, it is not a prohibited subsidy; rather it is actionable. This means that if harms
the trade interests of another Member in any of the ways specified in the SCM Agreement, that other Member
can take action (either under the multilateral subsidies disciplines or by imposing a countervailing measure), if
all of the requisite conditions are met.
EXERCISES:
1. Does there have to be a monetary payment for a subsidy to exist?
2. Does the SCM Agreement cover subsidies given at a sub-national level?
3. Would a special three-year exemption from a pollution tax, provided to one industry, be a measure
covered by the SCM Agreement?
4. Are subsidies on agricultural products subject to the SCM Agreement?
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II.D. CATEGORIES OF SUBSIDIES UNDER THE SCM
AGREEMENT
Since 2000, with the expiry of the provisions related to non-actionable subsidies (see Tip below), the SCM
Agreement regulates two basic categories of subsidies: those that are prohibited, and those that are actionable
(i.e., not prohibited but potentially subject to challenge on the basis of adverse effects, or to countervailing
measures). All specific subsidies fall into one of these categories.
TIP
For the first five years after its entry into force, the SCM Agreement contained a third category of
subsidies, non-actionable, or "green light" subsidies. (The non-actionable subsidy provisions were
contained in Articles 8 and 9 of the SCM Agreement.) The non-actionable subsidies were certain narrowly-
defined specific subsidies for research and development, for adaptation of existing facilities to new
environmental regulations, and for assistance to disadvantaged regions. These subsidies were selected for
non-actionable status on the basis that they furthered important policy goals and were unlikely to have
harmful effects on trade. The provisions on non-actionable subsidies applied provisionally for a period of
five years, and expired at the end of 1999. The covered subsidies thus reverted to actionable status at
that time. Provisions on presumed serious prejudice from certain (other) kinds of subsidies expired at the
same time. See Tip below.
The SCM Agreement adopts what is sometimes called a "traffic light" approach in categorizing different types of
subsidies:
1. Prohibited. "Red light" or "red" subsidies: Prohibited on the basis of their (irrebutably) presumed adverse
effects on trade. There are two types of prohibited subsidies:
Subsidies contingent, in law or in fact, upon export performance, ("export subsidies").
Subsidies contingent upon the use of domestic over imported goods("import substitution" or "local
content" subsidies).
TIP
Annex I to the SCM Agreement contains an illustrative NON-exhaustive list of eleven types of export
subsidies. The listed subsidies are per se export subsidies. Measures not listed in the Annex must be
analysed to determine whether they meet the definitions of "subsidy" and export contingency.
Prohibited subsidies are subject to special and additional dispute settlement rules (i.e., in addition to those in
the Dispute Settlement Understanding). One such special rule is that if a challenged subsidy is found to be
prohibited, the remedy is that the subsidy must be withdrawn immediately.
2. Actionable. "Yellow light" or "amber" subsidies: Actionable, i.e., subject to challenge, on the basis of
evidence that they have caused specified adverse effects, in particular cases. (That is, there is no presumption
of adverse effects in respect of actionable subsidies. But see the Tip below.)
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There are three types of adverse effects on the basis of which a Member can bring a dispute against another
Member's subsidies:
Serious prejudice - this can take a number of specified forms, including: displacement or impedance
of imports of a "like product" into the market of the subsidizing Member; displacement or impedance of
exports of a "like product" into a third country market; significant price undercutting, price suppression
or depression, or lost sales; in the case of a primary product, an increase over historical levels in the
world market share of the subsidized product.
Injury - injury to the domestic industry producing the like product in the importing country, caused by
subsidized imports.
Nullification or impairment of benefits - Where the effect of the subsidy in the territory of the
subsidizing Member is to prevent trading partners from enjoying the benefits of multilateral market
access concessions that they have received from the subsidizing Member.
Members considering that they are subject to serious prejudice, injury or nullification or impairment of benefits
can refer the matter to the Dispute Settlement Body. In the area of actionable subsidies, the SCM Agreement
contains certain special and additional dispute settlement rules. One such rule is that if a challenged subsidy is
found to be causing specified adverse effects, the subsidizing Member must withdraw the subsidy or remove
the adverse effects.
TIP
Through the end of 1999, four specified types of actionable subsidies were "deemed" (that is, rebuttably
presumed) to cause serious prejudice. (This presumption was contained in Article 6.1 of the SCM
Agreement.) The subsidizing Member could rebut such a presumption by demonstrating (on the basis of
evidence) that in fact the subsidies at issue did not cause any of the forms of serious prejudice referred to
above. The provisions on presumed serious prejudice and on non-actionable subsidies were negotiated as
a package during the Uruguay Round. Both sets of provisions were in force for a provisional period of five
years (through the end of 1999) and both could have been extended by consensus of the Committee on
Subsidies and Countervailing Measures ("SCM Committee"). No such consensus was reached, and all of
these provisions thus lapsed simultaneously.
3. Non-actionable, or "green": Lapsed 31 December 1999.
IF YOU WANT TO KNOW MORE...
AFTERMATH ON NON-ACTIONABLE SUBSIDIES
Pursuant to Article 31 of the SCM Agreement, the non-actionable subsidies provisions (as well as the
deemed serious prejudice provisions) could have been extended for a further period, beyond 1999, on the
basis of a consensus of Members in the SCM Committee. Certain developing Members insisted, in the
Committee's review of whether or not to extend these provisions, that non-actionability be refocused or at
least broadened to address subsidies of specific interest to developing Members. No consensus on
extension of these provisions (with or without modification) was reached by 31 December 1999, the end of
the five-year period, and the provisions therefore lapsed. The issue was re-raised by certain developing
Members at the Doha Ministerial Conference, where the Doha Round was launched. In this connection,
paragraph 10.2 of the Doha Ministerial Decision on Implementation-Related Issues and Concerns referred
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the question of non-actionability for certain subsidies of developing Members to the relevant negotiating
group (the Negotiating Group on Rules). No specific textual proposals on this issue have been tabled in the
negotiations, however.
II.D.1. PROHIBITED SUBSIDIES - EXPORT SUBSIDIES
For a subsidy to be an export subsidy prohibited under the SCM Agreement, it must be "contingent" upon
export performance, whether solely or as one of several conditions. This means that eligibility for the subsidy
depends in some way, at least to some extent, on the recipient's export activities. In other words, contingency
on export performance has to do with the eligibility criteria for obtaining the subsidy, and in particular those
criteria must include export activities in some way. Furthermore, the export criterion may either be explicit (de
jure) or evident from the facts surrounding the granting of the subsidy (de facto).
An example of a subsidy that would be de jure contingent upon export performance is a grant programme for
which the eligibility criteria are that the recipient be located in a particular region, that it be in one of three
specified industries, and that at least 4 per cent of its total sales be export sales. Notwithstanding the
existence of the other (non-export-related criteria), the fact that one of the criteria is a minimum level of
export sales renders this subsidy contingent on export performance. As such, it would be a prohibited subsidy.
Determination of de facto export contingency is considerably more difficult. In particular, it is necessary to
look at the facts surrounding the granting of the subsidy to ascertain the extent to which exportation, or
anticipation of exportation, figured in the granting authority's decision to provide the subsidy.
You will find a video clip on export subsidies in the section "Supporting materials" (just go to the departure
board).
CASE STUDY 1
This case study, of an actual dispute, demonstrates inter alia one approach that has been followed in
determining de facto export contingency.
CANADA — MEASURES AFFECTING THE EXPORT OF CIVILIAN AIRCRAFT (DS70)
Parties Agreements Timeline of the Dispute
Complainants Brazil SCM Agreement
Articles. 1, 3.1
and 4.7
Establishment of Panel 23 July 1998
Circulation of Panel Report 14 April 1999
Respondent Canada Circulation of AB Report 2 August 1999
Adoption 20 August 1999
1. Measure and Industry at Issue
Measure at issue: Canadian measures providing various forms of financial support to the domestic civil
aircraft industry.
Industry at issue: Civil aircraft industry.
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2. Summary of Key Panel / AB Findings
ASCM Art. 1.1 (subsidy): The Panel found that a "financial contribution" confers a "benefit" and
constitutes a subsidy under Art. 1 when provided on terms more advantageous that those otherwise
available to the recipient on the market. The Appellate Body, in upholding this finding, concluded that
the word "conferred", in conjunction with "thereby", calls for an inquiry into what was conferred on the
recipient, not an inquiry into the cost to the government as argued by Canada.
ASCM Art. 3.1(a) (export subsidies): The Appellate Body upheld the Panel's finding that contingency
upon export performance exists if there is a relationship of conditionality or dependence between the
grant of the subsidy and the anticipated exportation or export earnings.
Examination of Canada's individual measures: The Panel concluded that the evidence did not
demonstrate that the "EDC" programme was contingent on export performance. The Panel also found
that the "Canada Account" programme was in some cases providing subsidies contingent on export
performance. Regarding the "TPC" programme, the Panel also that the "the facts demonstrate[d] that
[TPC contributions] would not have been granted but for anticipated exportation". The Appellate Body
upheld these findings by the Panel. The Panel and Appellate Body considered that the entire
constellation of the facts surrounding the decisions to grant the subsidies at issue demonstrated the
export contingency.
The SCM Agreement contains, in its Annex I, an "Illustrative List of Export Subsidies". The Agreement provides
that any measure identified in the List as an export subsidy automatically fulfils the definitions of subsidy and
contingency on export performance. That is, these measures, per se, are export subsidies for purposes of the
SCM Agreement. Certain panels have found, however, that it is not permissible to read any item in the List in
an inverse sense to determine whether a measure is not an export subsidy. Rather, only where the List
explicitly identifies something as not being an export subsidy can that conclusion be drawn.
II.D.2. PROHIBITED SUBSIDIES - IMPORT SUBSTITUTION SUBSIDIES
For a subsidy to be prohibited under the SCM Agreement as an import substitution subsidy, it must be
"contingent" on the use of domestic over imported goods. As in the case of export subsidies, the concept of
contingency means dependence or conditionality - eligibility for the subsidy must depend or be conditioned on
the use of domestic goods. This contingency can be one among several other factors, and it can be either de
jure or de facto. It should be noted that the possibility of establishing this conditionality on a de facto basis is
not expressly set forth in the SCM Agreement. The Appellate Body nevertheless has found that the provision
encompasses de facto as well as de jure conditionality.
II.D.3. ACTIONABLE SUBSIDIES - GENERAL
Under the actionable subsidies provisions, there are a number of forms of adverse effects caused by subsidies
that a complaining Member can allege before a WTO dispute settlement panel. In all cases, the assessment is
fact-specific. It is not sufficient (as in the case of prohibited subsidy disputes) to establish that the subsidy in
question, as alleged, exists. Rather, for actionable subsidies, not only must it be established that there is a
specific subsidy, it also must be demonstrated that the subsidies provided benefit the production, sale,
marketing, etc. of the product in question, and that the subsidized competition causes harm to the trade
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interests of the complaining Member, in respect of the same product. The causation analysis must include a
non-attribution analysis, to ensure that harm caused by other factors is not attributed to the subsidies at issue.
II.D.4. ACTIONABLE SUBSIDIES - SERIOUS PREJUDICE
One of the kinds of adverse trade effects contemplated by the SCM Agreement is "serious prejudice to the
interests of a […] Member" caused by another Member's subsidies, which includes both present serious
prejudice and threat of serious prejudice. The Agreement contains provisions on a number of particular forms
of serious prejudice, the first two of which are based on the concept of "displacement or impedance" of trade
flows. In particular, there can be displacement or impedance of a Member's exports of a "like product" into a
subsidizing Member's market, or displacement or impedance of a Member's exports of a "like product" into a
third country market. In both cases, a causal link needs to be established between the subsidized product and
the negative effects on the exports of the like product.
The second basis of serious prejudice provided for in the SCM Agreement is significant price undercutting by a
subsidized product compared with the price of a like product of another Member, in the same market (whether
the market of the importing Member, a third country market, or the world market). This involves a comparison
of the prices of the two products, and the establishment of a causal link between the subsidy and the price
undercutting.
The third basis of serious prejudice provided for in the SCM Agreement encompasses significant price
suppression or depression, or lost sales, in the same market. Price suppression is where the price competition
from a subsidized product prevents the prices of the complaining Member's like product from increasing as
much as they otherwise would in the absence of the subsidized competition. Price depression is where the
competition from the subsidized product causes the prices of the complaining Member's like product to fall.
Both of these require an analysis of price trends of the subsidized product and the like product, of the subsidy
or subsidies in question, and of the other conditions of competition in the market for the goods in question.
Finally, "lost sales" refers to the situation where particular contracts or sales are awarded to subsidized
producers, due to subsidies, instead of to the producers of the complaining Member. Again, to establish a
situation of lost sales requires detailed information as to both the subsidies and the sales contracts at issue.
The fourth basis of serious prejudice provided for in the SCM Agreement pertains only to primary products or
commodities. In particular, serious prejudice can arise where the subsidy gives rise to an increase in the world
market share of the subsidized primary product, compared to the average share that it held during the
previous three years, and the increase follows a consistent trend over a period when subsidies have been
granted. This would involve a panel obtaining information as to the size of the world market for the product in
question, and of the relative market shares, and movements thereof, of the allegedly subsidizing Member and
other countries. The panel also would need to obtain and analyse information about the alleged subsidy or
subsidies, including the timing thereof, and the degree to which those subsidies benefited the product in
question.
II.D.5. ACTIONABLE SUBSIDIES - INJURY
A second basis for action under the actionable subsidies provisions is "injury", which has the same meaning as
for countervailing duty investigations. That is, this refers to material injury or threat of material injury to the
domestic industry producing the product that is "like" the subsidized product imported into the territory of the
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complaining Member, or to material retardation of the establishment of a domestic industry producing that
product. Thus, if an allegation of injury were brought before a WTO dispute settlement panel, the panel would
have to gather all of the necessary information about the condition of the domestic industry, the like product,
the alleged subsidies, the allegedly subsidized product, the conditions of competition for that product in the
market of the importing (complaining) Member, etc., exactly as would be required for a national countervailing
duty investigation.
II.D.6. ACTIONABLE SUBSIDIES - NULLIFICATION OR IMPAIRMENT OF
BENEFITS
The final kind of adverse effect provided for in the SCM Agreement is nullification or impairment of benefits
accruing directly or indirectly to other Members under GATT 1994, in particular under multilateral tariff
bindings. This provision reflects the reality that under certain circumstances, a subsidy provided within the
territory of a Member may directly undercut the market-opening concessions that that Member has negotiated
with its WTO trading partners. An example helps to illustrate the kind of situation contemplated by this
provision. Suppose that Country A agrees in trade negotiations to reduce its tariff on imported barley by 10
per cent. Country B, which is a barley exporter, thus expects that its exports to Country A will increase when
the tariff cut takes effect. These expectations are not realized, however. Country A, simultaneously with
implementing the tariff cut, begins to subsidize its domestic purchasers of barley by an amount equal to the
tariff reduction, thus removing the incentive that purchasers otherwise would have, due to the tariff reduction,
to buy imported barley. These purchasers thus continue to buy the domestic barley, meaning that Country B's
benefits that should have accrued from Country A's tariff reduction have been nullified or impaired by Country
A's subsidy. A panel faced with a claim of nullification or impairment of benefits thus would need to obtain and
analyse information on the tariff concessions involved, on the trade flows, on the alleged subsidy, and on the
relationship of the subsidy to the tariff concession.
EXERCISES:
5. At present, how many categories of subsidies are there under the SCM Agreement, and what are they?
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II.E. MEASURES AGAINST CERTAIN SUBSIDIES:
COUNTERVAILING MEASURES
II.E.1. OVERVIEW: WHAT IS A COUNTERVAILING DUTY?
Article VI of the GATT 1994 and footnote 36 to the SCM Agreement define a countervailing duty in the
following way:
A special duty levied for the purpose of offsetting any subsidy bestowed, directly or indirectly, upon the
manufacture, production or export of any merchandise.
RECALL
As discussed above, the SCM Agreement contains a two track system, therefore:
In addition to the possibility of challenging prohibited subsidies, or adverse effects caused by actionable
subsidies, before a WTO dispute settlement panel, Members also have the option to use a countervailing
measure on a unilateral basis, under particular, defined circumstances.
These circumstances are, in particular, where the domestic industry in the importing Member is injured by
subsidized imports of a particular product. (Recall that a claim of injury, with the same meaning, also is
one of the possible bases for a multilateral challenge under WTO dispute settlement.)
Although very similar to anti-dumping measures at the level of procedures, in practice countervailing duties are
much less used than anti-dumping duties, for a number of reasons. A first reason is that while dumping is a
practice of private parties, subsidization (the subject matter of countervailing duty investigations) is a
government practice (remember, "subsidies" between private parties are not covered by the SCM Agreement).
Thus, the investigating Member will have to conduct detailed inquiries into, and analyses of, the actions and
measures of another government. Countervailing measures therefore are seen as more intrusive into
Members' sovereignty than anti-dumping. Related to this, some Members may be reluctant to initiate a
countervailing duty investigation to avoid the investigated Member from responding in kind.
Finally, in certain respects countervailing duty investigations are more complicated than anti-dumping
investigations. For one thing, a great deal of calculation and estimation is involved in linking a given subsidy
received by an enterprise to a particular unit of the exported good in question. Furthermore, in countervailing
duty investigations, a considerable amount of information must be obtained from the government of the
exporting Member, and without full co-operation from that government, there may be few if any alternative
sources for the necessary information.
The provisions of the SCM Agreement applicable to countervail investigations, particularly the procedural
provisions, are very similar to those we have examined in Module 3, on anti-dumping investigations. To avoid
repetition, in this module we will focus on the points specific to countervailing measures. For the remainder,
please refer back to Module 3.
Finally, because they are a border measure, countervailing measures can only be applied by an importing
Member, where subsidized imports into its territory are causing injury to its domestic industry producing the
like product. Any adverse effects from subsidized products in other markets (i.e., the market of the subsidizing
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Member, a third country market, or the world market) cannot be addressed by countervailing measures.
Rather they would need to be the subject of a multilateral challenge under WTO dispute settlement procedures
based on one or more of the causes of action described above (i.e., serious prejudice or nullification or
impairment of benefits). (A multilateral claim of injury would not apply, as this deals with the same situation
as a unilateral countervailing measure.)
II.E.2. FORMS OF COUNTERVAILING MEASURES:
As is the case for anti-dumping, the SCM Agreement provides for three kinds of countervailing measures:
provisional countervailing duties;
definitive countervailing duties; and
voluntary undertakings.
PROVISIONAL COUNTERVAILING DUTIES:
Pursuant to the SCM Agreement, provisional countervailing duties may be imposed before the conclusion of an
investigation, provided that there has been a preliminary affirmative finding of subsidization, injury and
causation. In no case, however, can such provisional duties be applied until at least sixty days have elapsed
from the date of initiation of the investigation. Furthermore, provisional countervailing duties must be limited
to as a short a period as possible, and under no circumstances can they be applied for longer than four
months.
DEFINITIVE COUNTERVAILING DUTIES:
Definitive duties can only be imposed on the basis of a final determination in an investigation. In particular,
before it can apply a definitive duty, the importing Member must have initiated and conducted an investigation
in full conformity with the applicable provisions of the SCM Agreement, and in the investigation it must have
arrived at affirmative final determinations of subsidization, injury and causation.
VOLUNTARY UNDERTAKINGS:
Voluntary undertakings represent an alternative to definitive duties. In particular, a countervailing duty
investigation can be suspended without the imposition of countervailing duties if the Member and/or exporter
being investigated gives the investigating Member a satisfactory voluntary undertaking under which:
the government of the exporting Member agrees to eliminate or limit the subsidy or to take other
measures concerning its effects; and/or
the exporter agrees to revise its prices so that the investigating authorities are satisfied that the
injurious effect of the subsidy is eliminated.
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II.E.3. RULES ON THE APPLICATION OF COUNTERVAILING MEASURES
IN BRIEF
The SCM Agreement sets forth certain substantive requirements that must be fulfilled in order to impose a
countervailing measure, as well as detailed procedural requirements regarding the conduct of a
countervailing investigation and the imposition and maintenance in place of countervailing measures. A
failure to respect either the substantive or procedural requirements can be taken to dispute settlement.
IN DETAIL
SCM Agreement, PART V
Article 10 (Application of Article VI of GATT 1994)
Members shall take all necessary steps to ensure that the imposition of a countervailing duty36 on any
product of the territory of any Member imported into the territory of another Member is in accordance with
the provisions of Article VI of GATT 1994 and the terms of this Agreement. Countervailing duties may only
be imposed pursuant to investigations initiated and conducted in accordance with the provisions of this
Agreement and the Agreement on Agriculture.
________________________
36 The term "countervailing duty" shall be understood to mean a special duty levied for the purpose of
offsetting any subsidy bestowed directly or indirectly upon the manufacture, production or export of any
merchandise, as provided for in paragraph 3 of Article VI of GATT 1994.
GATT 1994, Article VI:3
No countervailing duty shall be levied on any product of the territory of any contracting party imported into
the territory of another contracting party in excess of an amount equal to the estimated bounty or subsidy
determined to have been granted, directly or indirectly, on the manufacture, production or export of such
product in the country of origin or exportation, including any special subsidy to the transportation of a
particular product. The term "countervailing duty" shall be understood to mean a special duty levied for the
purpose of offsetting any bounty or subsidy bestowed, directly or indirectly, upon the manufacture,
production or export of any merchandise.
As is the case for anti-dumping, once the conditions set forth in the WTO rules are fulfilled, the importing
Member has the legal right to apply a countervailing measure at its border in respect of the investigated
imports. In other words, it does not need to seek approval from the WTO membership.
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SUBSTANTIVE RULES
Similar to anti-dumping, a Member cannot impose a countervailing measure unless it determines that three
elements are present:
subsidized imports;
injury to a domestic industry; and
a causal link between the subsidized imports and the injury.
We have examined injury and causal link in Module 3 above, dealing with anti-dumping investigations. These
concepts have almost the same meaning in the countervail context. Hence, we refer to our discussion above.
The key difference between anti-dumping and countervailing measures, of course, is that for a countervailing
measure, the imports in question must be subsidized. In this regard, the investigating authorities will need to
collect detailed information about the alleged subsidies, to determine whether in fact these measures involve a
financial contribution by a government or public body, whether they confer a benefit, and whether they are
specific. If these conditions are fulfilled, the authorities will then need to determine the extent to which the
subsidies in question can be attributed to the particular product under investigation. This will involve
calculating the total amount of the subsidy, and then allocating or apportioning that subsidy amount over all of
the products that it benefits, so that only the amount attributable to the investigated product will be taken into
account in the investigation.
RECALL
As we have discussed above, the definition of a countervailable (actionable) subsidy contains four basic
elements: (i) a financial contribution (ii) by a government or any public body within the territory of a
Member (iii) which confers a benefit, and (iv) which is specific.
The analysis of these four factors will have to be performed separately for each programme, measure,
incentive, etc. being investigated.
Let's suppose that on the basis of such an analysis, the authority determines that programmes A, B and C are
specific subsidies. The next step is to quantify the subsidy amount under each one. The SCM Agreement does
not require any particular methodology for quantifying the amount of a subsidy. It does provide certain basic
guidelines to be followed in respect of four different types of subsidies in order to calculate the subsidy amount
in terms of the "benefit to the recipient". All of these guidelines are based on a comparison of the terms on
which the government makes the financial contribution with the terms that the recipient could obtain on the
market. This of course is consistent with the "benefit" element in the subsidy definition itself.
The four types of subsidies for which such guidance is provided are: (1) government equity infusions - to be
compared with the "usual investment practice" of private investors in the territory of the Member involved:
the benefit is the amount of any overpayment by the government; (2) government loans - what the recipient
actually pays to be compared with what it would pay on a comparable commercial loan that the recipient could
actually obtain on the market: the benefit is the amount of underpayment by the recipient; (3) government
loan guarantees - what the recipient actually pays on the loan with the guarantee to be compared with what it
would pay on the loan in the absence of the guarantee: the benefit is the amount of underpayment by the
recipient; and (4) government provision of goods or services, or government purchases of goods - the
comparison is between what the recipients pays for the goods or services it buys from the government, or
what it receives for the goods it sells to the government, and the prevailing market conditions in the country of
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provision or purchase of the goods or services, taking into account price, quality, availability, marketability,
transportation and other conditions of purchase or sale: the benefit is the amount of underpayment to the
government (where the government provides goods or services) or overpayment by the government (where
the government purchases goods).
You will find a video clip on benchmarks for certain kinds of financial contribution in the section
"Supporting materials" (just go to the departure board).
With respect to the amount of countervailing duty that can be imposed on subsidized imports, the SCM
Agreement (in Article 19.4) sets forth two requirements:
(1) that no countervailing duty can be levied on an imported product in excess of the amount of the
subsidy found to exist; and
(2) that the subsidy amount is to be expressed as an amount of subsidization per unit of the subsidized
and exported product.
Thus, in the first place, no countervailing duty can ever be for an amount greater than the amount of the
subsidy. (In this respect, the SCM Agreement, like the AD Agreement, expresses a preference (not an
obligation) for applying a "lesser duty" if that would be sufficient to remove the injury caused by the subsidized
imports.)
Furthermore, these rules make clear that finding an absolute amount of subsidization received by an enterprise
is not necessarily the end of the calculation process. Rather, that total subsidy amount will need somehow to
be translated into a per unit or ad valorem amount on the particular investigated product, which in turn will
form the basis of the countervailing duty.
Also, like anti-dumping measures, countervailing measures are not of infinite duration. Rather, the SCM
Agreement provides that such measures can be kept in place only for as long as and to the extent necessary to
counteract subsidization which is causing injury. In this regard, the SCM Agreement contains similar provisions
to those of the Anti-dumping Agreement regarding expiry or sunsetting of measures, as well as regarding
changed circumstances, and the related reviews.
Let's look at some subsidy calculations in a hypothetical countervailing duty investigation:
II.E.4. ILLUSTRATION 2
Company A Hot rolled coils (USD250/MT)
Private Steel Co.
Company A Hot rolled coils (USD200/MT)
Gov't Owned Steel Co.
Subsidy amount Amount 50USD/MT
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In this example, we have a private company – called Company A – that needs hot rolled coils to make tubes.
In this country, there are two steel producers: a private company called "Private Steel Co." and a company
owned by the state "Gov't Owned Steel Co.", which for purposes of this example we assume to be a "public
body" within the meaning of the SCM Agreement.
Company A asks for a price quote. For the technical characteristics, credit and delivery terms, etc. requested,
"Private Steel Co." offers hot rolled coils to Company A at USD250/MT. At the same time, "Gov't Owned Steel
Co." offers identical hot rolled coils on identical credit and delivery terms to Company A, but for the price of
USD200/MT. The reason for this price difference is that the government wants Company A to be able to
produce tubes at competitive prices. No other company is granted such a preferential price.
The first step would be to determine whether this programme, measure, incentive, etc. constitutes a subsidy.
The answer is: yes, to the extent that Company A buys any hot rolled coils from the government steel
company. There is a financial contribution in the form of government provision of goods, and it confers a
benefit because the price of the goods provided by the government is lower than the price that Company A
would have paid for goods purchased from the private company. The measure also is specific because it only
benefits Company A.
The second step is to quantify the amount of the subsidy, per unit or ad valorem, that is attributable to the
investigated product. In this example, this calculation is relatively simple, as the subsidy itself is provided on a
per unit basis, namely USD50/MT, which is the difference between the price paid to "Gov't Owned Steel Co."
for the hot rolled coil and the price charged by "Private Steel Co." If we assume for simplicity that that every
tonne of tubing produced uses exactly one tonne of coil (i.e., that there is no waste factor), a countervailing
duty of USD 50/MT, or the ad valorem equivalent, could be applied by the importing Member on the imported
tubing.
A different kind of subsidy could pose more calculation complexities, however. Let's assume that Company A
also receives a loan from the government, and that the annual amount of the benefit under the loan (i.e., the
difference between what Company A pays on the loan and what it would pay on a comparable commercial
loan) is USD10,000. How do we translate this subsidy amount into a per unit or ad valorem amount on
imports of tubing? First we need to know which products of Company A's product line benefit, in a theoretical
sense, from the subsidy. Let's assume that the subsidy is for export enhancement, so it is contingent on
export performance, i.e., it is an export subsidy. Given this, it is reasonable to attribute the subsidy benefits
to Company A's total exports of all products. Because Company A produces and exports a number of different
products, we must spread these benefits equally over all of these exports, not just exports of the investigated
tubing. Let's further assume that Company A's total export sales during the one-year period of investigation
total USD100,000. The ad valorem subsidy calculation would be:
How then would the investigating authority determine the maximum countervailing duty that it could apply? It
would have to sum the subsidy amounts on the product from the different investigated subsidies. This in turn
would imply putting these amounts on the same basis. In our example, this would mean that the investigating
authority would need to calculate the ad valorem equivalent of the USD50 per metric tonne subsidy amount on
the hot rolled coils, so that this could be added to the 10 per cent from the subsidized loan, to arrive at the
maximum ad valorem countervailing duty that could be applied to the imported tubing. To calculate the ad
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valorem subsidization of the tubing from the hot rolled coils, we will need to have a value per ton, say its
selling price, for the tubing. Let's assume that this is USD 400.
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The following example presents the calculation of the total ad valorem subsidization of the investigated
tubing:
Calculation of the total ad valorem subsidization of the investigated tubing
Subsidy 1:
USD 50 per MT of tubing.
Selling price of tubing = USD 400.
USD 50 ÷ USD 400 = 12.5% ad val.
Subsidy 2: 10% ad val.
Total ad valorem subsidization of tubing
exported by Company A:
12.5% + 10%= 22.5%
The maximum level of countervailing duty that could be applied to imported tubing produced by Company A
thus is 22.5% ad valorem.
PROCEDURAL RULES
As stated above, the procedural rules in the SCM Agreement covering countervailing duty investigations and
application of measures are very similar to those contained in the Anti-Dumping Agreement. The following
main differences should be noted:
Consultation requirement: As soon as possible after an application is accepted, and in any event before
the initiation of any investigation, Members the products of which may be subject to such investigation
must be invited for consultations with the aim of clarifying the situation and arriving at a mutually
agreed solution.
De minimis subsidization, negligible import volumes: The SCM Agreement contains its own levels for
de minimis subsidization and negligible import volumes. Countervailing duty investigations and
measures must be terminated immediately in cases where the amount of a subsidy is de minimis
(generally, less than 1% ad valorem) or where the volume of subsidized imports, actual or potential, or
the degree of injury, is negligible. Separate thresholds are established for developing country Members
(as discussed below)..
Undertakings: These are not limited to "price" undertakings by the exporting companies, as in the Anti-
Dumping Agreement. Rather, the SCM Agreement also contemplates undertakings under which the
government of the exporting Member agrees to eliminate or limit the subsidy or to take other measures
concerning its effects.
Other: The SCM Agreement does not contain specific rules on issues such as sampling of exporters,
duty collection systems, or individual rates. Nor, unlike the Anti-Dumping Agreement, does it contain
an Annex setting forth the detailed rules on the use of facts available (although recourse to facts
available is permitted under the same circumstances as apply in the case of anti-dumping).
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EXERCISES:
6. What can a Member do if it believes that its interests have been harmed by the subsidization of another
Member?
7. What three determinations does a Member need to make in order to be able to apply a countervailing
measure?
8. If a company that produces 20 products receives a general subsidy to its overall operations, can a
Member importing one of those products, and conducting a countervailing duty investigation on that
product, treat the entire subsidy as a subsidy to the imported product that it is investigating?
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II.E.5. ILLUSTRATION 3
Let's look at another illustration:
Let's assume that over the years the watch industry of Member A has begun to compete strongly with that of
Member D.
The Government of Member D, concerned over the declining competitiveness of its national industry, grants a
subsidy of 5 billion Crowns to one of its companies, VanWatch Ltd. Because of the subsidy, VanWatch is able to
buy new state-of-the-art equipment that allows it to produce more watches at a price 20% lower than
previously, while maintaining high quality. VanWatch begins to export these watches to Member A.
Pursuant to the SCM Agreement, the Government of Member A conducts a countervailing duty investigation.
TickTock, a watchmaker from Member A, produces evidence that it is losing market share because of the now
cheaper Member D watches being exported by VanWatch.
Once the Government of Member A determines that there is indeed subsidization, that the domestic industry
has been injured, and that there is a link between the injury and the subsidy, the Government of Member A
has to determine the level of the countervailing duty. The countervailing duty cannot be more than what is
necessary to counteract or "offset" the subsidization from the Government of Member D.
Member A thus would need to allocate on a reasonable basis the total subsidy amount of 5 billion Crowns to
the products produced by VanWatch that are benefited by the subsidy, in this case, the products produced on
the new equipment purchased with the subsidy proceeds. In addition, given that the subsidy is for production
equipment (i.e., capital equipment) with presumably a multi-year productive life, Member A would need to
consider the timeframe over which the subsidy could be seen as benefiting VanWatch. In this regard,
Member A might follow the theory that, while the subsidy is given all at once, the benefits it confers will persist
over the full useful life of the assets that VanWatch acquired with the subsidy. Thus, rather than assuming
that all of the benefits were "consumed" instantaneously by VanWatch when it received the subsidy, the idea
would be that those benefits would be gradually used up as the equipment itself was used up.
As a simple example, assume that the useful life of the production equipment acquired with the subsidy is 15
years. This would give a per year subsidy amount of 333,333,333 Crowns (not taking into account any
adjustment for time value of money). Assuming that VanWatch's annual sales turnover of watches produced
on this equipment was 3 billion Crowns, the ad valorem subsidy amount on those watches would be 11.1 per
cent.
It is possible that this same subsidy granted to VanWatch, which is causing injury to the domestic industry of
Member A via the subsidized imports into Member A's territory,, also could have the effect of reducing Member
A's exports to the market of Member D. For example, in addition to exporting, VanWatch might also sell a
considerable number of watches into its own home market (the territory of Member D), and the subsidy to
VanWatch would make it difficult for Member A to maintain its market share there. Clearly, Member A's
countervailing measure, on subsidized imports into its own territory, would not have any impact on its exports
to another market. However, Member A could bring a claim of displacement or impedance of its exports into
the territory of the subsidizing Member (Member D) before a WTO dispute settlement panel. If Member A
prevailed, Member D would have to withdraw the subsidy or eliminate the adverse effects thereof on Member
A's exports.
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II.F. TRANSITION RULES AND SPECIAL AND DIFFERENTIAL
TREATMENT
II.F.1. DEVELOPED MEMBERS
According to Article 28.1 of the SCM Agreement, developed Members were granted a period of three years
from the date on which the SCM Agreement entered into force (i.e., through 31 December 1997), to phase out
any existing subsidies that fell into the prohibited category (i.e. export subsidies and import substitution
subsidies). Such subsidies had to be notified to the SCM Committee within 90 days of the date of entry into
force of the SCM Agreement.
II.F.2. MEMBERS IN TRANSFORMATION FROM CENTRALLY-PLANNED
TO MARKET ECONOMIES
Members in transformation from centrally-planned to market, free-enterprise economies were given seven
years from the date of entry into force of the WTO Agreement (i.e., through 31 December 2001) to phase out
their existing prohibited subsidies of both types (export subsidies and import substitution subsidies). To be able
to take advantage of this transition period, these Members had to notify the subsidies in question to the SCM
Committee not later than two years after the entry into force of the WTO Agreement (i.e., by 31
December 1996).
During the seven-year transition period, the actionable subsidies of Members in transformation to market
economies also were exempted from certain disciplines on actionable subsidies.
II.F.3. DEVELOPING MEMBERS
The SCM Agreement recognizes that subsidies may play an important role in economic development
programmes of developing Members, and in this respect provides extensive special and differential treatment
for those Members.
In particular, the SCM Agreement establishes a unique sub-categorization of developing Members for purposes
of transition rules and other S&DT provisions pertaining to prohibited subsidies. The Agreement also provides
for S&DT in respect of actionable subsidies, and for certain provisions related to the use of countervailing
measures in respect of developing Members' exports.
S&DT - EXPORT SUBSIDIES
On export subsidies, the SCM Agreement breaks developing Members into three sub-categories: least
developed ("LDC") Members; certain listed other developing Members with GNP per capita below USD1,000 per
annum; and all other developing Members. Generally speaking, the lower the level of the developing Member's
development as reflected in these categories, the more flexible the rules regarding the use of export subsidies.
First, LDC Members are not subject to the prohibition on export subsidies for as long as they remain designated
as LDCs by the United Nations. (This provision is contained in paragraph (a) of Annex VII to the SCM
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Agreement). Second, certain listed Members with GNP per capita below USD1000 per year are not subject to
the prohibition on export subsidies until their GNP per capita reaches USD1000. (This provision is contained in
paragraph (b) of Annex VII to the SCM Agreement. Finally, all other developing Members had a period of eight
years from the entry into force of the SCM Agreement to phase out their export subsidies. These other
developing Members had the possibility to seek extension of this eight-year phase-out period, by agreement of
the SCM Committee.
Certain decisions relative to the S&DT provisions on export subsidies were taken in the Doha Ministerial
Decision on Implementation-Related Issues and Concerns. First, concerning the GNP per capita threshold
applicable to Members listed in Annex VII(), Ministers decided that the listed Members would remain exempt
from the prohibition on export subsidies until their GNP per capita had reached USD1000 calculated in constant
1990 US dollars for three consecutive years. They further decided that if the GNP of a Member that had
already surpassed that threshold fell back below USD1000, that Member could re-introduce export subsidies.
Second, concerning the possibility to extend the eight-year transition period applicable to the other developing
Members, Ministers also decided on a package of "fast-track" extension procedures for certain developing
Members with small economies and small shares of world trade. Under these procedures, these Members
obtained extensions on a streamlined basis, subject to standstill and transparency requirements. The
extension package was renewed, with important modifications, in 2007. Pursuant to the renewal package, the
small developing Members with the extensions must completely eliminate their export subsidies not later than
the end of 2015.
You will find a video clip on Article 27 of the SCM Agreement in the section "Supporting materials" (just go
to the departure board).
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It is important to note that even where a developing Member is exempt from the prohibition on export
subsidies via any of the above-discussed provisions and mechanisms, its export subsidies remain
actionable. That is, they can be subject to countervailing measures, as well as to multilateral claims of
adverse effects (serious prejudice, injury, or nullification or impairment).
S&DT - IMPORT SUBSTITUTION SUBSIDIES
The special and differential treatment provisions of the SCM Agreement in respect of the other category of
prohibited subsidies (import substitution subsidies) are considerably simpler than those for export subsidies.
Furthermore, these provisions have now expired for all developing Members, including LDCs.
In particular, LDC Members had a flat, non-extendable period of eight years in which to fully eliminate their
import substitution subsidies. All other (i.e., non-LDC) developing Members were given five years to fully
eliminate their import substitution subsidies. These periods thus expired at the end of 2002 and 1999,
respectively.
S&DT - ACTIONABLE SUBSIDIES
Developing Members also benefit from certain special treatment in respect of the disciplines on actionable
subsidies. First, regarding adverse effects, the actionable subsidies of these Members cannot be subject to
multilateral claims of serious prejudice, but only to claims of injury or nullification or impairment of benefits.
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As noted above, only the prohibited subsidies of these Members could potentially be subject to serious
prejudice claims (in theory this would probably only occur where a developing Member remained exempt from
the prohibition due to one of the transition rules or mechanisms discussed above.) Furthermore, actionable
subsidies directly linked to a developing Member's privatization programmes are exempt from adverse effects
challenges, if they meet certain conditions.
S&DT - COUNTERVAILING MEASURES
Finally, although all specific subsidies of developing Members are fully countervailable, these Members
nevertheless benefit from certain S&DT in this area as well. In particular, the de minimis subsidization
threshold applicable to exports of a developing Member is 2 per cent (compared with 1 per cent for developed
Members' exports); and the negligible imports thresholds also are higher for developing Members' exports than
for developed Members' exports. In other words, in in a countervailing duty investigation of a developing
Member's exports it is determined that the ad valorem amount of subsidization of the product is 2 per cent or
less, the investigation must be terminated immediately. By contrast, if the investigated exporter were a
developed country, the investigation could continue, and a countervailing measure eventually could be applied,
given the lower de minimis threshold applicable to developed Members' exports.
IF YOU WANT TO KNOW MORE...
Definition of a "developing country" in the WTO
How is a Member designated as "developing" at the WTO?
In fact, there are no official agreed WTO definitions or lists of "developing" and "developed" Members.
Instead, Members announce for themselves whether they are "developed" or "developing". Other Members
do have the possibility to challenge a given Member's decision to make use of developing Member special
and differential treatment provisions. To date, however, no such challenges have been raised.
II.G. NOTIFICATIONS
II.G.1. SUBSIDIES
The SCM Agreement obliges Members to submit a variety of notifications to the SCM Committee. Except where
a notifying Member has specifically requested to the contrary, all notifications are issued as unrestricted
documents and are fully accessible to the public upon their circulation to Members.
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All notifications are available through the WTO Web site. The discussion below of some of the main types
of notifications submitted to the SCM Committee, and of the document series in which they may be
located, is intended to assist in the identification and retrieval of these documents by interested Members
and others.
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NOTIFICATIONS OF SPECIFIC SUBSIDIES.
Article 25 of the SCM Agreement requires that all Members periodically submit new and full notifications of all
of their specific subsidies.
The notification obligation covers all specific subsidies related to goods, in all sectors (including agriculture),
and provided by all levels of government (national, regional, state or provincial, local, etc.). Members that
consider that they provide no specific subsidies are required to make a "nil" notification to that effect.
Importantly, the SCM Agreement provides explicitly that submitting a notification in no way constitutes an
admission that the measure is a specific subsidy. In particular, the SCM Agreement states that notifying does
not prejudge a measure's legal status under GATT 1994 and the SCM Agreement, its effects under the SCM
Agreement, or the nature of the measure itself. In practical terms, this means among other things that the
fact that a measure is notified under the SCM Agreement cannot be used as evidence, either in a countervailing
duty investigation or in a WTO dispute, that that measure is a specific subsidy. Instead, such a measure would
need to be analysed fully under the provisions of the SCM Agreement to determine if it fulfilled all of the
pertinent definitional requirements contained therein. This protection of a measure from legal characterization
based upon its having been notified is intended to encourage Members to err on the side of inclusiveness in
their notifications, in the interests of transparency.
A format for notifying measures under the SCM Agreement can be found in document G/SCM/6/Rev.1.
The document sets forth information that must be provided in a Member's notification:
INFORMATION TO BE PROVIDED
1. Title of the subsidy programme, if relevant, or brief description or identification of the subsidy.
2. Period covered by the notification. The period to be covered by the notification should be the most
recently completed calendar or fiscal year. In the latter case, the start and end dates of the fiscal year
should be specified.
3. Policy objective and/or purpose of the subsidy.
4. Background and authority for the subsidy (including identification of the legislation under which it is
granted).
5. Form of the subsidy (i.e., grant, loan, tax concession, etc.).
6. To whom and how the subsidy is provided (whether to producers, to exporters, or others; through what
mechanism; whether a fixed or fluctuating amount per unit; if the latter, how determined).
7. Subsidy per unit, or in cases where this is not possible, the total amount or the annual amount budgeted
for that subsidy (indicating, if possible, the average subsidy per unit in the previous year). Where
provision of per unit subsidy information (for the year covered by the notification, for the previous year,
or both) is not possible, a full explanation.
8. For the information cited in items 3 to 7 above, the notification does not necessarily have to have an
independent heading corresponding to each item, and may provide information on multiple items in one
heading (e.g. provide information on items 3 and 4 under one heading). In this case, the notification must
clearly specify what items are covered by which heading.
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9. Duration of the subsidy and/or any other time limits attached to it, including date of
inception/commencement.
10. Statistical data permitting an assessment of the trade effects of the subsidy. The specific nature and
scope of such statistics is left to the judgement of the notifying Member. To the extent possible, relevant
and/or determinable, however, it is desirable that such information include statistics of production,
consumption, imports and exports of the subsidized product(s) or sector(s):
(a) for the three most recent years for which statistics are available;
(b) for a previous representative year, which, where possible and meaningful, should be the latest year
preceding the introduction of the subsidy or preceding the last major change in the subsidy.
New and full subsidy notifications are, by understanding of the SCM Committee, to be provided every two
years. Also by understanding of the SCM Committee, compliance with this requirement is generally taken to
be sufficient also to comply with the SCM Agreement's provisions on updating notifications.
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Subsidy notifications are circulated in the G/SCM/N series, with a unique number assigned to the series for
each notification year. For example, the 2011 new and full notifications are contained in the series
G/SCM/N/220/…, with the notifying Member identified by its three- or four-letter ISO country code. Thus,
Chile's 2011 new and full notification is contained in document G/SCM/N/220/CHL. In addition, there may
be corrections, revisions, and supplements to any given notification, so a complete notification may include
several documents.
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WORLD TRADE
ORGANIZATION
G/SCM/N/220/CHL 27 July 2011
(11-3812)
Committee on Subsidies and Countervailing Measures
Original: Spanish
SUBSIDIES
New and Full Notification Pursuant to Article XVI.1 of the GATT 1994 and Article 25 of the SCM Agreement
CHILE
The following notification, dated 25 July 2011, is being circulated at the request of the delegation
of Chile.
_______________
TABLE OF CONTENTS
Page
I. TAX CREDIT FOR INVESTMENT IN THE PROVINCES OF ARICA AND PARINACOTA (REGION I) ..................................................................................................................... 2
II. EXEMPTION FROM FIRST-CATEGORY TAX UNDER THE INCOME TAX LAW ON FISCAL-YEAR PROFITS OF MANAGEMENT COMPANIES AND USERS IN THE FREE ZONES IN THE CITIES OF IQUIQUE (REGION I) AND PUNTA ARENAS (REGION XII) ................................................................................................................. 3
III. FUND FOR THE PROMOTION AND DEVELOPMENT OF REMOTE AREAS ............................. 5
I. TAX CREDIT FOR INVESTMENT IN THE PROVINCES OF ARICA AND PARINACOTA
(REGION I)
Title
Tax Credit for Investment in the Provinces of Arica and Parinacota (Region I).
Period
To July 2011. I.A.1 Objectives
To reverse the declining economy of the provinces of Arica and Parinacota, making use of both their advantageous geographical position for trade purposes and their tourist attractions, strengthening entrepreneurship and consolidating Arica as an inter-ocean corridor.
Background and authority
Background: Arica and Parinacota, as outlying provinces, are at a disadvantage in relation to the development of the rest of the country.
Authority: Law No. 19.420, published in the Official Journal of 23 October 1995, amended by Laws
Nos. 19.478 (Official Journal of 24 October 1996) and 19.669 (Official Journal of 5 May 2000). Decree having Force of Law (DFL) No. 1 of the Ministry of Finance, published in the Official Journal of 11 September 2001, contains the revised, coordinated and consolidated text of Law No. 19.420. The latest amendment to this Law was by means of Law No. 20.512 of 7 May 2011.
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Form of the subsidy
Tax credit in the form of a tax allowance.
To whom and how is the subsidy provided
This incentive is for taxpayers with investment projects in the following amounts for the periods below:
1. In the province of Arica:
(a) 2008 and 2009: 1,000 UTM ($38,173,000, equivalent to US$81,614)5; (b) 2010: 1,500 UTM ($57,259,000, equivalent to US$122,420); (c) 2011: 2,000 UTM ($76,346,000, equivalent to US$163,227).
2. In the province of Parinacota, investments must amount to more than 1,000 UTM
($38,173,000, equivalent to US$81,614).
The period for eligibility is up to 31 December of each year. The beneficiaries are entitled to a tax credit of 30 per cent of the value of certain non-convertible
assets, namely, buildings, machinery and equipment, including immovable property intended primarily for commercial exploitation for tourist purposes, directly tied in with the production of goods or the supply of services of the taxpayer's business or activity, purchased new or finished in the financial year.
For investment operations carried out in Parinacota, the tax credit is 40 per cent. The same
percentage is applied to investments made in Arica in immovable property intended primarily for commercial exploitation for tourist purposes, and identified as being of particular interest by the Director of the National Tourism Service.
Taxpayers are also eligible for this credit if they invest in the construction of buildings for use as
offices or dwellings, whether or not they include business premises, car parks or shops, consisting of more than five units, in places specified in the Law, with a built area of not less than 1,000m2 and completed or built during the financial year.
The taxes are forgiven by deducting the credit from the first-category tax payable as from the
trading year of the purchase or construction of the property. I.A.2 Amount of the subsidy
In 2011, the tax credit, estimated in terms of tax revenue forgone, is estimated at Ch$1,000 million (equivalent to US$2,137,992).6
I.A.3 Duration
This incentive became effective, retroactively, as from 1 January 1995. The period for eligibility is up to 31 December 2012.
The benefit will apply only in regard to assets incorporated in the investment project on any of the
above-mentioned dates on which the benefit is still effective, although the credit may be recovered up to the year 2034. I.A.4 Statistical data
No data available.
5 UTM at May 2011: $38,173. Source: Central Bank. Average exchange rate of the Chilean peso to the US dollar in May 2011: $467.73. Source: Central Bank. 6 Average exchange rate of the Chilean peso to the US dollar between January and July, $580.62. Source: Central Bank.
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II. EXEMPTION FROM FIRST-CATEGORY TAX UNDER THE INCOME TAX LAW ON FISCAL-YEAR PROFITS OF MANAGEMENT COMPANIES AND USERS IN THE FREE ZONES IN THE CITIES OF IQUIQUE (REGION I) AND PUNTA ARENAS (REGION XII)
II.A.1 Title
Exemption from first-category tax under the Income Tax Law on fiscal-year profits of management companies and users in the free zones in the cities of Iquique (Region I) and Punta Arenas (Region XII). II.A.2 Period
To July 2011. II.A.3 Objectives
To stimulate the economic development of Region I and Region XII, so as to form an attractive area for investment, economic activity, settlement, growth and sovereignty. II.A.4 Background and authority
Background: These areas, because of their location and geographical features, are at a disadvantage in relation to the development of the rest of the country.
Authority: The legal authority is contained in Ministry of Finance Decree No. 341, published in the
Official Journal of 8 June 1977, the revised, coordinated and consolidated text of which is set forth in Decree having Force of Law No. 2 of the Ministry of Finance, published in the Official Journal of 10 August 2001. II.A.5. Form of the subsidy
In practice, the subsidy is a temporary financial benefit. It is not equal to the overall amount of the tax exemption.
Indeed, the 1984 Income Tax Law provided for a first-category tax (on companies) and a second category tax (on natural persons). Accordingly, the owners of an enterprise may discount the amount of first-category tax paid (15 per cent on a company's annual profits) from the amount payable as second-category tax (a progressive tax that represents a percentage of withdrawn profits).7
Since the companies concerned benefit from first-category tax exemption, management companies and users in free zones have nothing to discount from their second-category tax and must therefore pay the full amount of this tax. The benefit of the exemption therefore amounts strictly to the financial cost not incurred for the period between the time when the first-category tax became payable and the time (or times) when profits are withdrawn and the corresponding second-category tax becomes payable. II.A.6 To whom and how is the subsidy provided
This incentive is for management companies and users (all legal persons) in the free zones of Iquique (Region I) and Punta Arenas (Region XII). They must meet the requirements established by the Ministry of Finance and the Ministry of the Economy, Development and Reconstruction, under contracts containing conditions freely agreed on with the interested party.
These benefits also apply to manufacturing companies already established or setting up in Arica and
manufacturing companies in the Alto Hospicio district in Iquique. Beneficiaries are exempt from the first-category tax under the Income Tax Law on fiscal-year
profits. II.A.7 Amount of the subsidy
There are no official calculations of tax revenue forgone. II.A.8 Duration
This incentive took effect on 25 June 1975 for Iquique and Punta Arenas and on 10 December 1976
7 The level of income considered for the second-category tax includes income other than withdrawn profits, such as salaries, etc.
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for Arica. In both cases it is of indefinite duration.
II.A.9 Statistical data
No statistical calculation has been made to assess the trade effects of the subsidy. III. FUND FOR THE PROMOTION AND DEVELOPMENT OF REMOTE AREAS
III.A.1 Title
Fund for the Promotion and Development of Remote Areas. III.A.2 Period
To July 2011. III.A.3 Objectives
To contribute to the development of the disadvantaged regions of Tarapacá, Aysén, Presidente Carlos Ibáñez del Campo, Magallanes and the Chilean Antarctic territories and the provinces of Chiloé and Palena, by providing assistance to small and medium-sized investors wishing to invest or reinvest in production in these remote regions. III.A.4 Background and authority
Background: Being in outlying regions and provinces, these areas are at a disadvantage in relation to the development of the rest of the country.
Authority: This fund was created by virtue of Articles 38 and 39 of Decree Law No. 3.529 of the
Ministry of Finance, published in the Official Journal of 6 December 1980. Decree No. 15 of the Ministry of Finance, published in the Official Journal of 20 April 1981, lays down the terms and conditions of this fund.
Decree having Force of Law No. 15 entered into effect pursuant to a budgetary note
(No. 50-01-02-33-01-002) incorporated in the Public Sector Budget Law for 2011 (Law No. 20481). III.A.5 Form of the subsidy
Direct transfer. III.A.6 To whom and how is the subsidy provided
Funds may only be accorded for investments by small and medium-sized investors, and producers of goods and services in the sectors of construction, machinery, equipment, special animal feed and small-scale fishing. The annual amount of individual investment or reinvestment must not exceed 50,000 UF (unidades de fomento - Chilean inflation-indexed monetary units)8, equivalent to US$2,327,630. Funds granted under this programme may not be accepted together with any other benefit granted by the Government of Chile for the same goods or services.
This fund makes a contribution of 20 per cent of the cost of investment or reinvestment made up to 31 December 2011. The benefit is renewed from year to year under the Budget Law.
III.A.7 Amount of the subsidy
For 2011, the Budget Law has estimated the maximum amount to be paid out at Ch$1,500 million (equivalent to US$3,206,988). III.A.8 Duration
This facility is available until 31 December 2011. The benefit is renewed from year to year under the Budget Law. III.A.9 Statistical data
No data available.
8 Average value of the UF at May 2011: $21,774.
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NOTIFICATIONS OF INCONSISTENT SUBSIDIES
As discussed above, the SCM Agreement required developed Members and Members in the process of
transformation to market economies to notify their pre-existing subsidies inconsistent with the SCM Agreement
(i.e., export subsidies and import substitution subsidies), in order be able to use the applicable transition
periods for those subsidies. These transition periods have now expired.
Members' notifications of these types can be found in the document series G/SCM/N/2/… (for notifications by
developed Members) and G/SCM/N/9/… (for notifications by Members in transformation to market economies).
NOTIFICATION RULES APPLICABLE TO DEVELOPING MEMBERS:
New and full subsidy notifications
There is no special and differential treatment accorded to developing Members in respect of the requirement to
notify specific subsidies. All Members face uniform rules as to the content and frequency of such notifications.
Developing Members' export subsidies and import substitution subsidies, during the periods when they are or
were exempt from prohibition, were subject to notification by virtue of the "deemed" specificity of these
subsidies.
Export subsidy notifications related to extensions of the phase-out period
As discussed above, certain developing Members obtained extensions of the phase-out period for certain export
subsidies. Pursuant to the extension decisions, as part of the terms and conditions for annual renewal of these
extensions during the agreed period, the Members involved must submit annual notifications as to the legal
basis and operation of these subsidies, to ensure full transparency about the subsidies, as well as compliance
with the agreed standstill package). In addition, the Members in question have been required to submit
information confirming that the beneficiaries of the subsidies have been notified that export subsidies will cease
as of the end of 2015. They also have had to provide notifications as to their plans for bringing these export
subsidy programmes into conformity with the SCM Agreement by that date.
The 2011 notifications were circulated in the G/SCM/N/226/… series. Written questions and answers
concerning these notifications can be found in the G/SCM/Q3/… series.
Privatization subsidies
As discussed above, certain privatization subsidies of developing Members can be exempted from multilateral
adverse effects claims if certain conditions are met. One of these is that the subsidies in question must be
notified. Notifications made pursuant package). In addition, the Members in question have been required to
submit information confirming that the beneficiaries of the subsidies have been notified that export subsidies
will cease as of the end of 2015. They also have had to provide notifications as to their plans for bringing
these export subsidy programmes into conformity with the SCM Agreement by that date.
The 2011 notifications were circulated in the G/SCM/N/226/… series. Written questions and answers
concerning these notifications can be found in the G/SCM/Q3/… series.
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II.G.2. COUNTERVAILING MEASURES LEGISLATION AND ACTIONS
The SCM Agreement requires a number of notifications pertaining to countervailing measures. These include
legislative notifications as well as certain notifications relating to countervailing actions taken.
COUNTERVAILING DUTY LEGISLATION
Members are required to notify to the SCM Committee the full text of their domestic laws and regulations
relating to countervailing measures, and any changes to these laws and regulations. Members that have no
countervailing duty laws or regulations are required to make a nil notification to that effect. The legislative
notifications can be found in WTO document series G/SCM/N/1/... .
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Subsequent to the initial notification of a full legislative text, there may be further notifications, containing
corrections, amendments, revisions, supplements, or entirely new texts. Thus, getting a complete
understanding of a Member's legislation pertaining to countervailing measures may require a review of
several documents. Furthermore, where a completely new legislation and/or regulation entirely replaces
one that has previously been notified, a new document number is assigned. For example, Fiji's initial (nil)
legislative notification was circulated in document G/SCM/N/1/FJI/1. Subsequently, Fiji enacted and
notified countervailing measures legislation, and this was circulated in document G/SCM/N/1/FJI/2.
Members' written questions and answers pertaining to legislative notifications are circulated in the
G/SCM/Q1/... series.
SEMI-ANNUAL REPORTS OF COUNTERVAILING ACTIONS
The SCM Agreement requires each Member to notify twice per year all of its countervailing actions taken during
the reporting period, as well as a list of all of its countervailing measures in force. The format for these semi-
annual reports can be found in document G/SCM/2/Rev.1. Members that have taken no countervailing action
during the period in question are required to make a nil notification to that effect. Each group of semi-annual
reports pertaining to a given six-month period has its own document series, with each report identified by the
submitting Member's three-letter ISO country code. For example, the semi-annual reports for the first
semester of 2011 can be found in document series G/SCM/N/228, and the report of the United States is
document G/SCM/N/228/USA.
NOTIFICATIONS OF PRELIMINARY AND FINAL COUNTERVAILING ACTIONS
The SCM Agreement also requires Members to notify on an ad hoc basis as they take these actions all of their
preliminary and final countervailing actions, . The notifications can take the form either of the full text of a
Member's public notice of the action in question, or a summary following the format set forth in document
G/SCM/3/Rev.1.
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Rather than circulating the full texts of the notifications of preliminary and final actions, the WTO
Secretariat circulates on a monthly basis lists of such notifications received. The notifications themselves
are kept on file and can be consulted upon request by any Member.
NOTIFICATIONS OF COMPETENT AUTHORITIES
Finally, Members are required to notify to the SCM Committee the names and contact details of their
authorities that are competent to initiate and conduct countervailing investigations (if they have such
authorities). Lists of these notified authorities are periodically circulated to Members, in the document series
G/SCM/N/18.
II.H. DISPUTE SETTLEMENT
The SCM Agreement generally relies on the dispute settlement rules of the DSU. In addition, however, the
SCM Agreement contains a number of special or additional dispute settlement rules and procedures as
discussed above in the sections pertaining to multilateral subsidies disciplines. These special rules provide for,
among other things, expedited procedures relative to standard DSU procedures, particularly in the case of
prohibited subsidy allegations. The SCM Agreement also contains a special fact-gathering mechanism for
serious prejudice claims, which can be used by a panel, at the request of a party.
II.I. THE SCM COMMITTEE
The operation of the SCM Agreement is overseen by the Committee on Subsidies and Countervailing Measures,
which is composed of representatives of all WTO Members. The SCM Committee is tasked with reviewing all
notifications submitted by Members. It also provides a forum where Members can discuss any issue related to
the operation of the SCM Agreement.
The SCM Committee meets twice per year in regular session, and its meeting agendas tend to be similar to
those of the Anti-Dumping Committee (see example in Module 3). In fact, for the review of legislative
notifications, because many Members enact legislation and other legal instruments that regulate both anti-
dumping and countervailing measures, one of these Committees (usually the Anti-Dumping Committee)
generally conducts the primary review of these legislations, with the other Committee (usually the SCM
Committee) reviewing only those elements of legislative notifications that pertain specifically to its particular
subject matter. For example, where the AD Committee conducts the primary review of a given legislative
notification, that review will cover all of the anti-dumping-specific provisions as well as the provisions
applicable to both anti-dumping and countervailing measures. The SCM Committee will then finish the review
of this notification by taking up only the provisions of that notification that pertain exclusively to countervailing
measures.
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The SCM Committee of course conducts its own primary review of the subsidy notifications of various types,
and of the semi-annual reports and ad hoc notifications of countervailing actions taken.
II.J. THE PERMANENT GROUP OF EXPERTS
The SCM Agreements establishes a Permanent Group of Experts ("PGE"), the members of which are to be
elected by the SCM Committee, and one of whom is to be replaced each year.
The Permanent Group of Experts is charged with three responsibilities:
1. To assist a dispute settlement panel, at the panel's request, with regard to whether a measure before
the panel is a prohibited subsidy. The panel must accept without modification the conclusions reached
by the PGE.
2. To provide the SCM Committee, upon request of the Committee, advisory opinions as to the existence
and nature of any subsidy.
3. To consult with any Member and to provide confidential advisory opinions, upon request, as to the
nature of any subsidy proposed to be introduced or currently maintained by that Member.
When the PGE was first constituted, following the entry into force of the SCM Agreement, its original members
drafted a set of working procedures for how the PGE would carry out the above functions. The draft
procedures were debated by the SCM Committee, but the Committee failed to reach a consensus to adopt
them. The lack of working procedures almost certainly is a major reason why, in practice, the PGE has never
been called upon to perform any of its statutory tasks.
EXERCISES:
9. Do or did developing countries receive any special treatment under the SCM Agreement with respect to
prohibited subsidies?
10. Are developing countries that are exempt from the prohibition on export subsidies fully protected from
challenge with respect to such subsidies?
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III. SUMMARY
SUBSIDIES AND COUNTERVAILING MEASURES
The SCM Agreement does not prohibit Members from granting subsidies.
The SCM Agreement contains rules to determine which programmes, measures, etc. are subsidies covered
by it. The SCM Agreement disciplines the use of the subsidies it covers, and regulates the actions countries
can take to counter the effects of those subsidies.
The SCM Agreement is, in fact, "two agreements in one". Under its multilateral track, the SCM Agreement
gives Members the right to challenge certain subsidies of other Members under the Dispute Settlement
Understanding of the WTO. Under its national, or unilateral, track the SCM Agreement establishes that if
certain conditions are met, a Member may carry out an investigation and impose countervailing measures on
subsidized imports into its territory that are injuring its domestic industry.
For a measure to be considered a subsidy for the purposes of the SCM Agreement, it must be comprised of
three elements:
A financial contribution
By a government or public body
That confers a Benefit
In addition,
Only subsidies that are "specific" are subject to the SCM Agreement.
Although the SCM Agreement initially covered three types of subsidies, only two types remain:
Prohibited subsidies (presumed to distort international trade). These are subsidies contingent upon
export performance and subsidies contingent on the use of domestic goods
Actionable subsidies (they can be challenged if they cause certain kinds of harm to another Members
trade interests)
Recall that the non-actionable subsidy category expired at the end of 1999.
The SCM Agreement provides for three forms of countervailing measures:
Provisional countervailing duties
Definitive countervailing duties
Voluntary undertakings
The imposition of any countervailing measure must fulfil the substantive and procedural requirements set
forth in the SCM Agreement. Many of these requirements are similar to those contained in the Anti-Dumping
Agreement. This module therefore refers to the module on the Anti-Dumping Agreement where there is
overlap, and explains the differences where relevant.
Countervailing measures are subject to five-year sunsetting provisions, but can be extended on the basis of
a review. They also can be subject to review to determine whether they remain necessary to prevent or
remedy injury, and whether their level could be modified.
The SCM Agreement recognizes that subsidies may play an important role in economic development
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programmes of developing countries. The Agreement therefore contains less strict rules and disciplines on
the subsidies of developing Members than those that apply to developed Members. Finally, the SCM
Agreement requires Members to submit a variety of notifications to the SCM Committee. Except where a
notifying Member has specifically requested otherwise, all notifications are issued as unrestricted documents
and are fully accessible to the public.
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PROPOSED ANSWERS:
1. Does there have to be a monetary payment for a subsidy to exist?
No. The definition of the term "subsidy" in the SCM Agreement contains three basic elements:
(i) a financial contribution.
(ii) by a government or any public body within the territory of a Member.
(iii) which confers a benefit.
The financial contribution can take various forms, not all of them monetary. The SCM Agreement
contains an exhaustive list of the type of measures that represent a financial contribution: direct
transfers of funds (e.g. grants, loans, or equity infusions), potential direct transfers of funds or liabilities
(e.g. loan guarantees), government revenue that is foregone (e.g. through fiscal incentives such as tax
credits), the provision of goods or services, and the purchase of goods. Additionally, certain income or
price support also can be a subsidy if it confers a benefit.
2. Does the SCM Agreement cover subsidies given at a sub-national level?
Yes. The Agreement refers to a financial contribution by a government or any public body within the
territory of a Member, and therefore applies not only to subsidies provided by national governments, but
also those provided by sub-national governments such as state or local governments, and by public
bodies, which may include various types of entities that are not governments but that have or fulfil a
public policy role. It should be noted, in this regard, that when assessing whether a subsidy is specific on
a regional basis, the territory over which the granting authority has jurisdiction is the point of departure,
at whatever level of government. a For instance, if the granting entity is a state government, regional
specificity would exist if the subsidy were granted only to firms located in a certain part of the territory of
that state, but not if it were granted to firms throughout the state.
3. Would a special three-year exemption for one industry from a pollution tax on all
manufacturing enterprises be a measure covered by the SCM Agreement?
Yes. As a special, temporarily exemption from tax that is in force and generally applies to all
manufacturers, the measure would be a financial contribution in the form of government revenue
foregone that was otherwise due. It would confer a benefit because it is essentially a grant - something
for nothing. And it would be specific because access to it is limited to a single industry.
4. Are subsidies on agricultural products subject to the SCM Agreement?
There is no general carve-out from the SCM Agreement for agricultural products.
However, the Agreement on Agriculture provides for a number of specific rules regarding subsidies on
agricultural products which override certain specific provisions of the SCM Agreement.
For example, during a nine-year implementation period, from 1995 through the end of 2003, domestic
support measures covered by the "green box" of the Agriculture Agreement were, subject to certain
conditions, non-actionable for purposes of countervailing duties as well as on a multilateral basis. During
the same period, domestic support measures and export subsidies that conformed fully to a Member's
reduction commitments under the Agriculture Agreement, or were exempt from such commitments, were
exempt from multilateral challenge under the SCM Agreement.
Other than the "green box" subsidies, however, subsidized agricultural products remained potentially
countervailable during the implementation period.
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Since the expiry of the implementation period, agricultural subsidies are subject to the SCM Agreement
(although with some modulation in some cases) and are countervailable.
In addition, agricultural subsidies are notifiable under the SCM Agreement (as well as under the
Agreement on Agriculture).
5. At present, how many categories of subsidies are there under the SCM Agreement, and what
are they?
When it first entered into force, the SCM Agreement subdivided the subsidies that it covers (i.e., specific
subsidies) into three categories: Prohibited (red light); actionable (amber light); and non-actionable
(green light). The non-actionable category was in effect for a period of five years, through the end of
1999, at which point it lapsed. The SCM Committee could have renewed the non-actionable subsidy
provisions for a further period, with or without modifications, if it had been able to reach a consensus to
do so before the end of 1999. No such consensus was reached, however. Thus, as of 1 January 2000,
the previously non-actionable subsidies reverted to the actionable category, leaving the SCM Agreement
with two covered categories of subsidies: prohibited and actionable.
6. What can a Member do it if believes that its interests are being harmed by subsidies of another
Member?
A WTO Member that believes its interests are being harmed by another Member's subsidies has two
possible options under the Agreement, depending on what kind(s) of harm it is experiencing, in which
market(s):
a countervailing duty investigation; or
a multilateral dispute settlement challenge.
If the Member believes that a domestic industry in its territory is suffering material injury as a result of
subsidized imports, it may initiate a countervailing duty investigation, or seek WTO dispute settlement, as
to subsidization, injury and causation. While countervailing measures are a unilateral instrument, the
Member may apply them only after an investigation and a determination that the substantive criteria set
forth in the SCM Agreement - the existence of subsidized imports, injury to the domestic industry, and a
causal link between the two - are satisfied. A dispute settlement panel confronted with a claim of "injury"
would have to conduct an identical analysis.
If, however, the harm is being felt by the Member's exporters, either in the subsidizing Member's market
or in a third country market, then the only available option is WTO dispute settlement, to consider
whether the subsidies are causing serious prejudice or nullification or impairments of benefits to the
complaining Member. Should the panel (and/or the Appellate Body) uphold the allegations of
subsidization and adverse effects, the subsidizing Member would have to withdraw the subsidy or remove
its adverse effects.
7. What three determinations does a Member need to make in order to be able to apply a
countervailing measure?
To have the legal basis to apply a countervailing measure on imports of a given product from a given
country, a Member must determine that the imports are subsidized, that the domestic industry of the
importing Member that produces the product that is "like" the imported product is injured, and that there
is a causal link between the subsidized imports and the injury.
8. If a company that produces 20 products receives a general subsidy to its overall operations,
can a Member importing one of those products, and conducting a countervailing duty
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investigation on that product, treat the entire subsidy as a subsidy to the imported product
that it is investigating?
No. The importing Member can countervail only that portion of the subsidy amount that can reasonably
be attributed to the investigated imported product. Because the company produces 20 products, and the
subsidy is for its overall operations (not any particular product or subset of products), notionally the
subsidy must be apportioned over all of those products (i.e., over the company's entire operations) on
some sort of proportional basis reflective of the actual performance of the company. Then only that
portion that has been apportioned to the investigated product could be considered a subsidy to that
product.
9. Do or did developing Members receive any special and differential treatment under the SCM
Agreement with respect to prohibited subsidies?
Yes. The Agreement establishes different obligations for developing Members at different levels of
development, in respect of the two kinds of prohibited subsidies.
Export subsidies:
In respect of export subsidies, the SCM Agreement accords differentiated treatment to three categories of
developing Members:
(i) least-developed country Members ("LDCs") (Annex VII(a) of the SCM Agreement) - exempt from the
prohibition on export subsidies so long as they remain classified as LDC by the United Nations,
(ii) certain Members listed in Annex VII(b) of the Agreement - exempt from the prohibition on export
subsidies until their GNP per capita reaches USD 1,000 in constant 1990 dollars for three
consecutive years. (The constant dollar clause was introduced via Ministerial Decision at Doha in
2001); and
(iii) All other developing Members - were exempt from the prohibition on export subsidies for eight years
following the entry into force of the SCM Agreement. Pursuant to an extension clause, some of
these Members have obtained extensions of time for the phase -out of their export subsidies. The
last of these phase-out periods will terminate at the end of 2015.
Import substitution subsidies:
LDC Members had eight years from the date of entry into force of the SCM Agreement (through the end
of 2002) to eliminate their subsidies contingent on the use of domestic over imported goods. All other
developing Members had five years (through the end of 1999).
There was no extension clause for these transition periods, and developing Members (as all other
Members) have no further right to use such subsidies.
10. Are developing Members that are exempt from the prohibition on export subsidies fully
protected from challenge with respect to such subsidies?
No. Subsidies contingent upon export performance are prohibited by the Agreement because they are
designed (and presumed) to distort trade and thus harm the interests of other Members. These subsidies
thus remain fully actionable (both subject to multilateral challenge in respect of their adverse effects, and
countervailable) even for those developing Members that continue to have the right to provide them.
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Safeguard Measures ESTIMATED TIME: 3 hours
OBJECTIVES OF MODULE 5
Understand the basic WTO disciplines related to general safeguards; and
Get acquainted with the different procedures and investigations connected to
general safeguards.
MODULE
5
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I. INTRODUCTION
As we've seen in Module 2, some basic market access disciplines oblige WTO Members:
Not to discriminate (MFN and National Treatment);
Not to roll back the "liberalization commitments / concessions" that they had made (bindings); and
Not to ban imports or limit the access of foreign products or services into their domestic market
(prohibition of quantitative restrictions).
These obligations are, however, modulated by the conditional right of WTO Members under certain
circumstances to derogate from these principles and the related commitments they have undertaken. The
applicable conditions are intended to ensure that the right to make use of derogations does not undermine
the basic market access disciplines central to the WTO system.
As discussed in Module 2, the multilateral trade rules provide for a number of such derogations, including
general safeguards, certain sectoral safeguards (notably on agricultural products), balance of payments
measures, and safeguards in respect of trade in services. The provisions on balance of payments measures
are contained in Articles XVII and XVIII(B) of GATT 1994; the Special Safeguard Mechanism on agricultural
products is found in Article 5 of the Agreement on Agriculture; and the services safeguard provisions are found
in Article X of GATS. This module focuses exclusively on general safeguards as covered by Article XIX of GATT
1994 and the Agreement on Safeguards (the "SG Agreement"). As one of the goods agreements under GATT
1994, the SG Agreement is applicable only in respect of trade in goods.
IN BRIEF
A WTO member may take a "safeguard" action in the sense of Article XIX of GATT 1994 and the SG
Agreement (i.e., temporarily suspend multilateral concessions) to protect a specific domestic industry from
an increase in imports of any product which is causing, or which is threatening to cause, serious injury to the
industry.
Safeguard measures were always available under the GATT (Article XIX). However, prior to the entry into
force of the SG Agreement, Article XIX safeguards were relatively little used, with many governments
preferring to protect their industries through "grey area" measures, because there were no clear multilateral
rules on those measures. In particular, there was no requirement to pay compensation to affected trading
partners, as was the rule for Article XIX measures. (Grey area measures included "voluntary" export
restraint arrangements, minimum pricing arrangements and other sorts of measures. These were frequently
employed on products subject to chronic trade frictions, such as cars, steel and semiconductors).
The WTO Safeguards Agreement broke new ground in prohibiting "grey area" measures and setting time
limits ("sunset clause") on all safeguard actions.
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IN DETAIL
Pursuant to the basic safeguard rule in Article XIX of GATT 1994, a WTO Member may temporarily suspend
multilateral concessions on its imports of a given product (i.e., increase the tariff above the bound rate, apply a
quantitative restriction, or take other trade restrictive action that otherwise would be prohibited), if its
domestic industry is seriously injured or threatened with serious injury caused by a surge in imports.
Prohibition of Grey Area Measures
While Article XIX of GATT 1947 also permitted the use of safeguard measures (in fact, the texts of Article XIX
of GATT 1947 and of GATT 1994 are identical), in practice such measures were infrequently used prior to the
entry into force of the Uruguay Round Agreements. Pre-Uruguay Round, there were no multilateral disciplines
on the use of bilateral or unilaterally-imposed "grey area" measures aimed at resolving trade frictions. Typical
grey area measures included "voluntary" export and/or import restrictions, orderly marketing arrangements,
export or import pricing measures or surveillance, suspension of import licensing, application of special import
licensing, and the like.
Grey area measures were applied to a broad range of widely-traded products for which international
competition is perennially strong, including motor vehicles, textiles and clothing, footwear, steel products,
televisions, and agricultural products, among others. The application of a large number of grey area measures,
while to a certain extent reducing the bilateral frictions directly involved, nevertheless gave rise to important
concerns under the multilateral trading system for a number of reasons. One was the trade diverting effects of
such measures. In particular, the concern was that if a country voluntarily restricted its exports of a given
product to a given export market, then it was likely to increase its exports of that product to other export
markets that were not subject to restrictions, which in turn could create problems in those other export
markets. Related to this was a concern over the actual and potential proliferation of grey area measures from
one market to another to another, as such trade diversion effects cascaded through a series of export markets.
There also were big concerns over the lack of transparency regarding grey area measures. Not being regulated
as such by any particular set of GATT disciplines, grey area measures generally were not notified to the GATT
Contracting Parties, and in some cases, where measures were applied on the import side, even the affected
exporters did not have complete information about the measures being applied to them. Resolving the many
issues and concerns over the use of these unregulated grey area measures thus was a major focus of the
safeguards negotiations in the Uruguay Round. The outcome of that part of the negotiations, as reflected in
the SG Agreement, it was the prohibition of all "grey-area" measures going forward, as well as transparency
and phase-out provisions for the grey area measures that were in force at the time. In addition, as the
measures taken under Article XIX of GATT 1947 (i.e., true safeguard measures) which were in force during the
Uruguay Round obviously did not and could not comply with the provisions of the (new) SG Agreement and
Article XIX of GATT 1994, the SG Agreement the phase-out of those measures as well. In other words, trade
restrictive measures to address injury to a domestic industry caused by increased total imports of a given
product must now follow the rules and procedures set forth in the SG Agreement, including non-discrimination
and transparency.
The preamble to the SG Agreement reflects these objectives. In particular, it "recogniz[es] the need to clarify
and reinforce the disciplines of GATT 1994, and specifically those of its Article XIX […], [and] to re-establish
multilateral control over safeguards and eliminate measures that escape such control", i.e., grey area
measures and pre-existing Article XIX measures.
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New rules and procedures for the use of safeguard measures
In addition to prohibiting grey area measures, and thus redirecting the problems addressed thereby back to
the multilateral system, the SG Agreement also established new rules and procedures for the use of safeguard
measures, that is, for the implementation of Article XIX of GATT 1994. In short, to use a safeguard measure, a
Member must have previously published domestic legislation or regulations for doing so, it must conduct an
investigation in which the interested parties have the right to participate, including to present evidence and
arguments, and it must provide extensive transparency as to each step of an investigation and application of a
measure. Furthermore, the duration of safeguard measures is strictly time limited (although subject to
extension on the basis of certain conditions). To reduce the disincentive on using safeguards that is created by
the requirement in Article XIX to provide trade compensation to Members affected by a safeguard measure, the
SG Agreement effectively suspends the compensation requirement for the first three years of application of a
measure, subject to conditions.
Let's examine in more detail, the text of GATT Art. XIX, which contains the relevant general provisions on
safeguards, and of the SG Agreement, which clarifies and reinforces the provisions of Article XIX.
GATT ARTICLE XIX AND THE AGREEMENT ON SAFEGUARDS
Article XIX, GATT 1994: Emergency Action on Imports of Particular Products
1.(a) If, as a result of unforeseen developments and of the effect of the obligations incurred by a Member
under this Agreement, including tariff concessions, any product is being imported into the territory of
that Member in such increased quantities and under such conditions as to cause or threaten serious
injury to domestic producers in that territory of like or directly competitive products, the Member shall
be free, in respect of such product, and to the extent and for such time as may be necessary to
prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify
the concession.
The SG Agreement contains additional elaboration of the principles set forth in Article XIX:
Agreement on Safeguards
Article 2 (Conditions)
1. A Member may apply a safeguard measure to a product only if that Member has determined, pursuant
to the provisions set out below, that such product is being imported into its territory in such increased
quantities, absolute or relative to domestic production, and under such conditions as to cause or
threaten to cause serious injury to the domestic industry that produces like or directly competitive
products.
2. Safeguard measures shall be applied to a product being imported irrespective of its source.
Article 3 (Investigation)
1. A Member may apply a safeguard measure only following an investigation by the competent authorities
of that Member, pursuant to procedures previously established and made public…
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The core principle, stated fairly simply in the SG Agreement and Article XIX of GATT 1994, is that Members
have the right to apply safeguard measures, which, as we know from Article XIX, consist of the temporary
suspension of negotiated multilateral concessions. In practice, this means that Members have the right to
derogate from the basic disciplines of the GATT system, in particular in respect of tariff bindings and
quantitative restrictions (contained in GATT Art. II and GATT Art. XI, respectively, under the conditions
identified.
EXERCISES:
1. Why did the Uruguay Round negotiators consider that Article XIX of GATT, by itself, was insufficient to
regulate the use of safeguard measures (i.e., why did they consider it necessary to create an Agreement
on Safeguards?
2. How did the SG Agreement address the grey area measures and Article XIX safeguard measures that
were in effect when the SG Agreement entered into force?
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II. CONDITIONS FOR THE APPLICATION OF A
SAFEGUARD MEASURE
The provisions of both Article XIX and the SG Agreement must be followed in applying a safeguard measure.
UNFORESEEN DEVELOPMENTS
GATT Art. XIX
"If, as a result of unforeseen developments and of the effect of the obligations incurred by a Member under
this Agreement, including tariff concessions …"
In the first instance, pursuant to Article XIX, the increase in imports that is the basic underlying condition for
application of a safeguard measure must have occurred as the result of "unforeseen developments", and the
Member in question must have made tariff and/or other multilateral trade concessions
As interpreted by the Appellate Body, the reference in Article XIX of GATT 1994 to unforeseen developments
means, operationally, that an investigating authority must demonstrate, as a factual circumstance, the
existence of "unforeseen developments", i.e., a situation that was not expected at the time the Member in
question incurred its multilateral obligations on the product in question (for example when it bound its tariff on
that product).
INCREASED IMPORTS / CONDITIONS OF COMPETITION
GATT Art. XIX
"… if[…] any product is being imported […] in such increased quantities and under such conditions …"
Agreement on Safeguards Art. 2.1
"… if[…] [a] product is being imported […] in such increased quantities, absolute or relative to domestic
production, and under such conditions …"
The reference in both Article XIX and the SG Agreement to "such" increased quantities of imports of a product
means that there must have been a surge in imports. Furthermore, the SG Agreement clarifies that such a
surge can be determined either in absolute or relative terms. To determine if an import surge has taken place,
an investigating authority must examine:
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DATA ON THE QUANTITY OF IMPORTS OF THE PRODUCT IN QUESTION
Over a recent past period (to examine the changes and trends, in particular whether there has been an
increase)
In absolute terms, and
As measured against total domestic production of that product.
There is no quantitative threshold for when a given increase in imports is sufficient to satisfy the requirements
of Article XIX and the SG Agreement. Each case thus needs to be examined on its own merits. This does not
mean that just any increase in imports can be sufficient. To the contrary, the Appellate Body has stated in this
context that to qualify, an increase in imports must be "sudden, recent and sharp", as measured either in
absolute terms or in relation to domestic production. (In the latter case, imports might be increasing while
domestic production declined or stagnated, or imports might be increasing faster than domestic production.)
GATT Art. XIX and Agreement on Safeguards Art. 2.1
"… and under such conditions …"
The mere increase in imports, even if large, is not by itself enough, however, to fulfil the relevant
conditionalities for application of a safeguard measure. Rather, the import increase also must be "under such
conditions" as to cause or threaten to cause serious injury to the domestic industry. What this means in
practice is that the conditions of competition between the domestic and imported products must be examined.
It must be established that there is sufficient direct competition between them, and that the imports are
outcompeting the domestic products.
GATT Art. XIX and Agreement on Safeguards Art. 2.1
… as to cause or threaten to cause serious injury to the domestic industry that produces like or directly
competitive products…
Once it has been established that the imports have increased sufficiently and are directly competing with the
domestic products, the next issue is their impact on the domestic industry. In particular, are the imports
causing or threatening to cause serious injury to that industry?
SERIOUS INJURY
The concept of "serious injury" is central to the use of safeguard measures, and is generally understood to
mean something more severe than the "material injury" required for imposition of an anti-dumping or
countervailing measure. The SG Agreement defines serious injury as "a significant overall impairment in the
position of the domestic industry". It defines threat of serious injury as "serious injury that is imminent", and
requires that a determination of a threat of serious injury "be based on facts, and not merely on allegation,
conjecture or remote possibility". To make a finding of serious injury or threat thereof, the investigating
authority must conduct a detailed examination of all relevant indicators pertaining to the state of the domestic
industry (such as production, sales, employment, capacity utilization, and financial performance). The
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examination should cover a sufficiently long period for the investigating authority to be able to discern trends
in the data. Furthermore, because the serious injury must be present or imminent for there to be a basis to
apply a safeguard measure, the end of the period examined must be very recent.
DOMESTIC INDUSTRY
The "domestic industry" is defined as the domestic producers of products that are like, or directly competitive
with, the imported product in question. Given that for purposes of safeguards the domestic industry is not
limited to producers only of "like" products, but also can encompass producers of products that are directly
competitive with the imported products, the admissible competitive effects for the application of a safeguard
measure can be broader than those for application of an anti-dumping or countervailing measure. For
purposes of the injury and causation analysis, the domestic industry can be defined as the producers as a
whole of the like or directly competitive products, or those producers collectively accounting for a major
proportion of the total domestic production of those products.
CAUSATION AND NON-ATTRIBUTION
Finally, even if the imports have increased sufficiently and are competing with the domestic products, and even
if the domestic industry appears to be in such a negative condition that it could be characterized as
experiencing "serious" injury, this is still not enough. Most importantly, an affirmative causal link must be
established between the increased imports and their competitive conditions, and the poor condition of the
industry. In this context, care must be exercised not to attribute to increased imports any injury caused by
"other factors".
The Appellate Body has ruled on the nature of the required causal link and of the so-called "non-attribution"
analysis. In particular, the Appellate Body has clarified that the increased imports need not be the sole or even
the most important cause of the serious injury or threat. There must, however, be "a real and substantial
relationship of cause and effect" (in the words of the Appellate Body) between the imports and the injury.
Furthermore, to ensure that this relationship is indeed present, the effects on the domestic industry of other
factors (for example, force majeure, technological changes, etc.) must be separated and distinguished from the
effects of the increased imports. There is no single methodology either for establishing the affirmative causal
link or for separating and distinguishing other causes of injury.
In examining the question of whether increased imports have caused serious injury or threat, the authorities
must evaluate all relevant factors of an objective and quantifiable nature having a bearing on the situation of
the industry. The SG Agreement lists the following factors in this context: the rate and amount of the
increase in imports, in absolute and relative terms, the share of the domestic market taken by increased
imports, changes in the level of sales, production, productivity, capacity utilization, profits and losses, and
employment.
As indicated by all of the foregoing, therefore, the analysis of whether a safeguard measure can be applied is a
fact-intensive and case-specific exercise.
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THE INVESTIGATION
Agreement on Safeguards Art. 3
"… A Member may apply a safeguard measure only following an investigation …"
How are the necessary facts to be gathered and analysed, and the required conclusions to be reached? The
SG Agreement requires the conduct of an investigation, by authorities of the importing Member, on the basis of
domestic procedures that have been published previously. These procedures in turn must comport with the
procedural requirements of the SG Agreement; and the conclusions reached in the investigation must reflect
the substantive requirements of that Agreement. Typically, an investigation will be started on the basis of a
request by the domestic industry. Unlike the case of anti-dumping and countervail, however, there are no
requirements as to either the content of an application for a safeguard investigation or the standing
(representativeness) of the applicant(s).
Investigations must include public notice of hearings and other appropriate means for interested parties to
present evidence and their views, including in response to the representations of other interested parties.
Inter alia, there must be opportunities for interested parties to express their views on whether application of a
measure would be in the public interest.
CONFIDENTIAL INFORMATION
While interested parties must have access to the evidence and arguments submitted by other interested
parties, in order to be able to formulate their responses, investigating authorities also have an obligation to
protect confidential information, unless the authorities find that a request for confidential treatment is not
justified. Parties submitting confidential information are supposed to provide non-confidential summaries
thereof, or explanations why summarization is not possible.
PUBLISHED REPORTS
In addition to complying with the SG Agreement's substantive and procedural requirements on the conduct of
an investigation, a Member must publish a detailed report or reports setting forth the findings and reasoned
conclusions on all pertinent issues of fact and law, which must include a demonstration of the relevance of the
factors examined. In particular, the report or reports must demonstrate on the basis of the evidence on the
record that imports have increased in amounts and conditions that have injured the domestic industry, and
must justify the relevance of the information on which the conclusions have been reached. The report or
reports also should address why it is considered that a safeguard measure is needed, as well as the nature,
operation and duration of the proposed measure and how this relates to the injury and the industry's prospects
for adjustment.
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EXERCISES:
3. What are the basic conditions and underlying factual circumstances for a Member to be able to apply a
safeguard measure?
4. What is "serious injury", and what sorts of factors need to be examined to determine if the domestic
industry is serious injured or threated with serious injury?
APPLICATION OF PROVISIONAL AND DEFINITIVE SAFEGUARD
MEASURES
Agreement on Safeguards Art. 2.1 (Most-favoured nation)
"Safeguard measures shall be applied to a product being imported irrespective of its source."
A safeguard measure is, as stated in Article XIX of GATT 1994, a temporary suspension of multilateral
concessions or obligations. This implies that it affects all imports subject to those concessions or obligations,
i.e., that it, like the concessions from which it derogates, should apply on a most-favoured-nation basis. While
this was always the case in theory, recall that most grey area measures were applied on a bilateral or other
limited basis, rather than multilaterally. To ensure that the intrinsic multilateral, most-favoured-nation nature
of safeguard measures is respected, the SG Agreement makes this requirement explicit. Thus, subject to
certain exceptions (related to allocation of quotas and to developing Members' exports), the SG Agreement
requires that safeguard measures be applied to an imported product irrespective of its source.
PROVISIONAL SAFEGUARD MEASURES
Agreement on Safeguards Art. 6 - Provisional measures
"In critical circumstances where delay would cause damage which it would be difficult to repair, a Member
may take a provisional safeguard measure…"
The SG Agreement allows for the application of a provisional safeguard measure, based on a preliminary
determination that there is clear evidence that increased imports have caused or are threatening to cause
serious injury. Provisional measures are only allowed in critical circumstances, where delay in applying a
measure would cause harm that would be difficult to repair.
Provisional measures can only take the form of tariff increases (that is, not quantitative restrictions or any
other form), and any such increased tariffs are to be promptly refunded if the final determination of injury and
causation is negative. Provisional measures can be in place for no more than 200 days, and the period of
application of any provisional measure has to be counted toward the total maximum duration of any ensuing
definitive measure.
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DEFINITIVE SAFEGUARD MEASURES
Unlike provisional measures, definitive safeguard measures are not limited by the SG Agreement to any
particular forms. The most common forms of safeguard measures are increased tariffs (customs duties) to a
level above the bound rate agreed at the WTO, quotas (quantitative restrictions), and tariff-rate quotas (where
imports up to a certain volume are subject to one rate of duty, and imports beyond that level are subject to a
different, higher rate of duty). Other sorts of measures also sometimes are used, including minimum-price
based measures and various types of import licensing measures.
LEVEL OF A DEFINITIVE SAFEGUARD MEASURE
Agreement on Safeguards Art. 5.1 – level of the safeguard measure
"A Member shall apply safeguard measures only to the extent necessary to prevent or remedy serious injury
and to facilitate adjustment …"
Agreement on Safeguards Art. 7.4 - progressive liberalization
"In order to facilitate adjustment in a situation where the expected duration of a safeguard measure […] is
over one year, the Member applying [it] shall progressively liberalize it at regular intervals during the period
of application … "
The level of the safeguard measure is to be calibrated in some way to the degree of serious injury or threat
thereof, and to the need to assist the domestic industry in adjusting to the new conditions of competition (in
particular, the increased level of imports). Furthermore, if it exceeds one year in duration, it must be
progressively liberalized. In this sense, these provisions, and indeed the entire SG Agreement, are premised
on the notion that the types of import increases addressed by that Agreement tend to be structural, rather
than temporary, in nature. The preamble of the SG Agreement reflects this, by "recognizing the importance of
structural adjustment and the need to enhance rather than limit competition in international markets". Seen
from this perspective, the idea of a safeguard measure is to afford a calibrated and declining degree of
protection to a domestic industry, for a limited period. The industry is expected to use that period of
(diminishing) protection to take whatever steps are necessary to adjust to the new competitive situation.
How to determine the "extent necessary to prevent or remedy serious injury", and the appropriate duration
and liberalization schedule of a measure, clearly are not simple matters. Moreover, the SG Agreement
contains only limited guidance in this regard, and only in respect of one particular possible form of safeguard
measure, namely quantitative restrictions. For other forms of safeguard measures, the most important
requirement is for the authorities of the importing Member to publish a properly motivated explanation of the
form, level, duration, and liberalization schedule of the measure to be applied, relating that measure to the
particular situation of the domestic industry in question.
QUANTITATIVE RESTRICTIONS
Where a quantitative restriction is applied, the SG Agreement requires that its level normally should not reduce
the quantities of imports below the annual average for the last three representative years for which statistics
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are available. If a different level is considered necessary to prevent or remedy serious injury, the authorities
must provide clear justification for that level.
The SG Agreement also contains rules on apportioning shares of quantitative restrictions to exporting
countries, generally requiring that historical shares be respected, except where particular exporting Members
are disproportionately responsible for the increased total level of imports. In all cases, however, quota
allocations must be equitable to all export suppliers.
PROGRESSIVE LIBERALIZATION
A further element of the SG Agreement that prevents safeguard measures from becoming a "blank wall" of
protection is the requirement of progressive liberalization for any measure of more than one year's duration.
In practice, this means that quota levels must increase, or tariff levels decrease, over the duration of the
measure (or that measures of other forms be made progressively less restrictive during their period of
application). In addition, measures of more than three years duration must be reviewed mid-term and, if
appropriate based on the results of the review, must be eliminated or liberalized more quickly than originally
planned.
Furthermore, no "snap-back" is permitted in the level of protection if and when a measure is extended beyond
its initial period of application (see below). To the contrary, the extended measure cannot be more restrictive
than it was at the end of the initial period, and should continue to be liberalized during the period of extension.
DURATION OF A DEFINITIVE SAFEGUARD MEASURE
Agreement on Safeguards Art. 7 – duration of the safeguard measure.
A Member shall apply safeguard measures only for such period of time as may be necessary to prevent or
remedy serious injury and to facilitate adjustment [maximum four years unless extended, up to a maximum
total of eight years including the period of application of any provisional measure].
One major problem with safeguard measures taken under Article XIX of GATT 1947 was that their duration was
not subject to any specific limitation. In some cases, therefore, measures remained in force for many years,
even decades, effectively becoming near-permanent forms of protection.
Under the SG Agreement, this is no longer possible. To the contrary, there are strict limits on the initial
duration, extension, and reapplication of measures. In particular, any given measure can be applied for no
more than four years on the basis of an investigation. This period must take into account the period of
application of any provisional measure.
EXTENSION OF A DEFINITIVE SAFEGUARD MEASURE
It is possible to extend the duration of a safeguard measure beyond its initial period of application. Any such
extension, however, can only be made on the basis of a review in which the authorities determine that the
measure continues to be necessary to prevent or remedy serious injury, and that there is evidence that the
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industry is adjusting. The maximum allowable period of extension is four years, for a total maximum period of
application of eight years.
APPLICATION OF A NEW SAFEGUARD MEASURE
Once an initial safeguard measure lapses, a new safeguard measure cannot be reapplied immediately on the
same product based on a new investigation,. In other words, it is not possible to establish a continuous longer
period of protection via a series of consecutive safeguard measures. Instead, there is a mandatory waiting
period between measures on the same product. In particular (except for measures of very short duration), no
new safeguard measure can be applied again to a product until a period equal to the duration of the first
measure has elapsed. Thus, for example, if a four-year safeguard measure is applied, the importing country
must wait four years following the expiry of that measure before it can apply a new measure to the same
product.
COMPENSATION AND RETALIATION
GATT 1994 Art. XIX:3(a)
"If agreement among the interested Members with respect to [application of the measure] is not reached,
[…] the affected Member shall then be free […] to suspend […] substantially equivalent concessions…"
Agreement on Safeguards Art. 8 – level of concessions and other obligations
"A Member proposing to apply a safeguard measure or seeking an extension of a safeguard measure shall
endeavour to maintain a substantially equivalent level of concessions and other obligations to that existing
under GATT 1994 between it and the exporting Members which would be affected by such a measure…"
[including by agreeing on trade compensation, with a right of retaliation if no compensation can be agreed.
That right cannot be exercised during the first three years of application of a measure, however, subject to
certain conditions].
Recall that a safeguard measure is, as per Article XIX of GATT 1994, a temporary suspension of multilateral
concessions or obligations, and that it is to be applied irrespective of the source of the imports. Thus, it affects
all imports of the product in question, from all sources, that is, on an MFN basis. Under the general rules of
the GATT, and as provided for in Article XIX itself, when a Member reduces or eliminates a negotiated
concession, it must provide trade compensation to the exporting Members that would be affected, in order to
preserve the overall balance of rights and obligations among Members. Furthermore, where no agreement can
be reached on the level and other terms of compensation, the affected exporting Members have the right to
take trade retaliatory measures, i.e., themselves to suspend "substantially equivalent concessions" in respect
of the Member applying the safeguard measure, again with a view to preserving the overall balance of rights
and obligations among Members. Thus, in principle, all safeguard measures should give rise to the obligation
to pay compensation to, and the right of retaliation by, the affected exporters.
Experience under Article XIX of GATT 1947 proved, however, that the compensation/retaliation clause of
Article XIX was a major reason for GATT contracting parties' resort to grey area measures in lieu of Article XIX
safeguard measures. In the light of this experience, the Uruguay Round negotiators introduced provisions in
the SG Agreement to soften Article XIX's compensation/retaliation provisions. In particular, although a
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Member proposing to apply a safeguard measure must in every case consult with the exporting Members that
would be affected, in many cases the right to retaliate cannot be exercised immediately by the exporting
Members in the event no agreement is reached on compensation. In particular, where the finding of increased
imports is based on an absolute increase (i.e., it is not just relative to domestic production), the affected
exporting Members cannot exercise their right to retaliate for the first three years of application of the
measure.
EXERCISES:
5. Under what circumstances can a provisional safeguard measure be applied, and what are the applicable
rules for doing so?
6. Can a Member apply safeguards on a bilateral or selective basis under the Agreement?
7. How does the SG Agreement implement its objective of facilitating the domestic industry's structural
adjustment to new conditions of international competition?
8. Is a Member that applies a safeguard measure required in every case to pay trade compensation to the
exporting Members affected by the measure?
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III. SPECIAL AND DIFFERENTIAL TREATMENT
INTRODUCTION
Developing Members receive special and differential treatment under the SG Agreement in two modes. The
first is where developing Members are subject to other Members' safeguard measures: developing Members
receive a de minimis import volume exemption. The second is where developing Members themselves apply
safeguard measures: developing Members are allowed to apply a safeguard measure for longer than
developed Members, and are subject to a shorter waiting period between safeguard measures on a given
product.
PROVISIONS AFFECTING DEVELOPING MEMBERS SUBJECT TO
SAFEGUARD MEASURES - DE MINIMIS IMPORT EXEMPTION
Where developing Members' exports are below certain volume thresholds, those exports must be exempted
from a safeguard measure applied by another Member. In particular, where a developing Member's share of
the volume of total imports of the product concerned is not more than three per cent, in principle the measure
cannot be applied to that Member. There is an exception, however, namely that where the exports of all
developing Members whose exports are below the three per cent threshold cumulatively account for more than
9 per cent of the total imports, the measure will apply to all of those exports. The simple example below
illustrates how these provisions work. Assume in all of the scenarios below that there are four developing
Members exporting the product to the Member applying the safeguard:
SCENARIO 1:
Developing Member A: 2%; Developing Member B: 1%; Developing Member C: 3%; Developing Member
D: 2%
No developing Member has more than a 3% individual share. The total share of developing Members = 8%
(i.e., <9%). All of the developing Members must be exempted from the measure.
SCENARIO 2:
Developing Member A:_ 4%; Developing Member B: 1%; Developing Member C: 3%; Developing Member
D: 3%
Developing Member A has more than a 3% individual share, and thus must be subject to the measure. The
total share of Developing Members B, C and D = 7% (i.e., <9%). Developing Members B, C and D must be
exempted from the measure.
SCENARIO 3:
Developing Member A: 3%; Developing Member B: 3%; Developing Member C: 2%; Developing Member
D: 2%
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No developing Member has more than a 3% individual share. However, cumulatively the developing Members'
share of total imports is A+B+C+D = 10% (i.e., >9%). Thus all of these developing Members must be subject
to the measure.
PROVISIONS AFFECTING DEVELOPING MEMBERS APPLYING SAFEGUARD
MEASURES
DURATION OF EXTENSIONS OF MEASURES
Developing Members are subject to the same maximum duration (four years) as developed Members for the
initial period in which they can apply a safeguard measure. Developing Members however are given an
additional two years for any extension(s) of a measure beyond the period accorded to developed Members. In
particular, the maximum extension period available to a developing Member applying a measure is six years,
compared to four for developed Members. This means that, subject to the same procedural and substantive
requirements on investigations and reviews, a developing Member can keep a safeguard measure in place for a
total of 10 years (compared with the maximum eight available to developed Members).
RE-APPLICATION OF MEASURES
The rules for re-applying a safeguard measure on a given product also are relaxed for developing Members. In
particular, except in the case of measures of very short duration, the waiting period before a new measure can
be applied on a given product is one-half of the period of application of the original measure, provided that the
waiting period is at least two years.
REGIONAL TRADE ARRANGEMENTS, PARALLELISM AND MFN
TREATMENT
Questions frequently arise as to the application of safeguard measures among partners in regional trade
arrangements ("RTAs"). This question is closely linked with fundamental (to date, unresolved) questions of
interpretation under Article XXIV of GATT 1994. Among other questions are the threshold for determining
whether such an arrangement covers "substantially all trade" among its partners, and the resulting obligations
to eliminate various trade restrictive measures where this is the case. One particular question that arises is
whether the application of safeguard measures is prohibited (by Article XXIV) within an RTA, or instead is
required (by virtue of the MFN rule in Article XIX and the SG Agreement).
While these basic questions remain unresolved, not having been the subject of dispute settlement, the
question of "parallelism" has arisen in a number of WTO disputes over safeguard measures. The specific issue
is whether a Member can conduct a safeguard investigation (of increased imports, injury and causation) on the
basis of total imports of the investigated product from all sources (including its RTA partners), and then
exclude its RTA partners from application of the measure, on the basis of commitments under the RTA not to
apply safeguards within the RTA.
The Appellate Body has consistently ruled in this regard that such a lack of parallelism between the imports on
the basis of which the investigation was conducted and the conclusions in favour of applying a safeguard
measure were reached, on the one hand, and the imports to which the measure applies, on the other hand, is
not permitted. In order for the measure to be justified, it cannot exclude some portion of the imports that
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formed part of the increased imports that were found to exist, or that caused the injury that was found to
exist.
There is another question in this context, however, which to date remains unanswered. This is whether
Article XXIV of GATT 1994 would permit (or possibly require) a Member conducting a safeguard investigation
only to take into account in its investigation the imports from sources other than its RTA partners, and if it
found increased imports, injury and causation on that basis, only to apply the measure to the investigated
(i.e., extra-RTA) imports.
EXERCISES:
9. What special and differential treatment is provided under the SG Agreement for developing Members
when applying safeguard measures?
10. What special and differential treatment is provided under the SG Agreement for developing Members
subject to a safeguard measure of another Member?
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IV. MULTILATERAL SURVEILLANCE AND
INSTITUTIONS
Multilateral oversight of the use of safeguard measures is conducted through extensive notification
requirements, as well as through the operation of the Committee on Safeguards ("the SG Committee"), which
is charged with reviewing safeguard notifications and generally monitoring the implementation of the SG
Agreement.
Members are required to notify to the SG Committee their initiations of investigations into the existence of
serious injury or threat and the reasons therefore; findings of serious injury or threat caused by increased
imports; and decisions to apply or extend safeguard measures. Such notifications are required to contain the
relevant information on which the decisions are based. Importantly, however, Members are not obligated to
disclose confidential information in their notifications.
Members are required, before applying or extending a safeguard measure, to provide an adequate opportunity
for consultations with Members who have substantial interests as exporters of the product. The aims of such
consultations must include review of information as to the facts of the situation, exchanging views on the
proposed measures, and reaching an understanding as to maintaining a substantially equivalent level of
concessions and obligations.
Provisional measures must be notified before being applied, and consultations must be initiated immediately
after such measures are applied.
The results of consultations, mid-term reviews of measures, compensation, and/or suspension of concessions,
must be notified immediately to the Council for Trade in Goods through the SG Committee by the Member
concerned.
Members also are required to notify to the SG Committee their national legislation,, regulations and
administrative procedures for investigations and the application of safeguard measures. Members that have no
such legislation, regulations or procedures are required to submit a nil notification to that effect.
Members also are entitled to counter notify other Members' relevant laws and regulations, actions, or measures
in force.
Upon entry into force of the SG Agreement, Members also had a period in which they were required to notify
their then-existing Article XIX and grey area measures, as well as the timetables for phasing out those
measures. (The final date for the elimination of the last such measure was the end of 1999.)
The Committee's role generally is to monitor (and report to the Council for Trade in Goods on) the
implementation and operation of the Agreement, to review Members' notifications, and to make findings as to
Members' compliance with respect to the procedural provisions of the Agreement for the application of
safeguard measures, to assist with consultations, and to review proposed retaliation.
Consultations and disputes arising under the Agreement are subject to the horizontal dispute settlement rules
of the WTO as set forth in the Dispute Settlement Understanding. There are no special or additional dispute
settlement rules applicable in respect of safeguards.
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V. SUMMARY - GENERAL SAFEGUARDS
A safeguard measure can only be applied if it is determined in an investigation, conducted in accordance with
the rules set forth in Article XIX of GATT 1994 and the SG Agreement, that imports of a product have
increased to such an extent and under such conditions as to cause or threaten to cause serious injury to the
domestic industry producing like or directly competitive products. It also must be established as a matter of
fact that the increase in imports was unexpected.
In principle, safeguard measures, which consist of temporary suspension of multilateral concessions and
other obligations, must be applied to all imports of the products, regardless of source. That is, they must be
applied on an MFN basis. (This principle is subject, however, to the requirement to exclude developing
Members with small import shares from measures.)
The principle of parallelism must be respected. That is, a measure cannot be applied to only some imports
based on an investigation and conclusions taking into account all imports (except for the limited exemption
for developing Members with small shares of imports).
Safeguard measures can take a wide range of forms. The most common forms are tariff increases above
bound rates, quotas, and tariff-rate quotas. Other forms also are possible.
The level of a safeguard measure should not be more restrictive than necessary to prevent or remedy the
serious injury and facilitate adjustment. Specific rules pertain to the level and allocation of quotas. For
safeguard measures of all forms, the authorities of the importing Member should include in their published
reports and notifications regarding the measure, the justification for the form and level of measure to be
applied.
Safeguard measures longer than one year's duration must be progressively liberalized over their period of
application. If a measure is extended, it must not be more restrictive than at the end of the initial period of
application, and should continue to be liberalized over the extension period.
Safeguard measures are subject to numerical limits on duration. The initial period of application cannot
exceed four years. Any extension(s) cannot exceed, in total, an additional four years (six years in the case of
developing Members applying measures).
Other than for measures of very short duration, no safeguard measure can be reapplied to a given product
before a period equal to the duration of an earlier measure on that product has elapsed.
While in principle a Member applying a safeguard measure must provide trade compensation to affected
exporting Members or face trade retaliation by them, the right to retaliate in many cases cannot be exercised
for the first three years of application of a safeguard measure.
All Members must notify their domestic legislation, regulations and/or procedures for safeguard
investigations and measures. If they have no such legislation, etc., they must make a nil notification.
Members taking safeguard actions must notify: initiating an investigation; making a finding of serious injury
or threat caused by increased imports; taking a decision to apply a safeguard measure; the results of mid-
term reviews of measures; the results of consultations with affected exporting Members; and any proposed
compensation or retaliation.
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PROPOSED ANSWERS:
1. Why did the Uruguay Round negotiators consider that Article XIX of GATT, by itself, was
insufficient to regulate the use of safeguard measures (i.e., why did they consider it necessary
to create an Agreement on Safeguards?
Prior to the Uruguay Round, safeguard measures were regulated exclusively by Article XIX of GATT 1947.
This Article among other things required that safeguard measures be applied on a strict MFN basis and
that compensation be paid or retaliation faced in every case. In addition, Article XIX contained no
guidance on how Members were to establish that the required conditions were fulfilled for the application
of a safeguard measure, and there were no limits on the level of measures or on their duration. As a
result, "grey area" measures (bilateral or plurilateral trade restrictive measures) were frequently resorted
to, and these and the measures taken under Article XIX tended to stay in place for long periods (even
decades in some cases). The negotiators thus decided that additional rules were needed to re-establish
multilateral control over safeguard measures and to make sure that such measures were used to facilitate
industries' adjustment to, rather than to shelter them from, new conditions of international competition.
2. How did the SG Agreement address the grey area measures and Article XIX safeguard
measures that were in effect when the SG Agreement entered into force?
The SG Agreement required the phase-out of all grey area measures and Article XIX measures that were
in effect when the SG Agreement entered into force. Members were given a period within which they had
to notify all such measures that they maintained, as well as timetables for phasing them out. No such
pre-existing measures could be maintained beyond 31 December 1999. Furthermore, the SG Agreement
strictly prohibits the use of any such measures going forward.
3. What are the basic conditions and underlying factual circumstances for a Member to be able to
apply a safeguard measure?
For a Member to be able to apply a safeguard measure, there must be an increase in imports of a
product, the increase must be sudden, recent and sharp, and the imports must be occurring in such
conditions of competition as to cause or threaten to cause serious injury to the domestic industry
producing the like or directly competitive products. In addition, the increase in imports must not have
been foreseen at the time that the importing Member undertook its multilateral obligations (such as tariff
bindings) in respect of that product. The fulfilment of all of these conditions must be demonstrated
through an investigation conducted by the investigating authority of the importing Member.
4. What are "serious injury" and "threat of serious injury", and what sorts of factors need to be
examined to determine if the domestic industry is serious injured or threated with serious
injury?
Serious injury is defined as a "significant overall impairment in the position of the domestic industry.
Threat of serious injury is serious injury which has not yet occurred but which is clearly imminent, as
demonstrated by facts, rather than based on allegation, conjecture or remote possibility. To determine
whether the domestic industry is seriously injured or threatened with serious injury, the investigating
authority must examine all of the relevant factors pertaining to the condition of the industry. These
include production, sales, employment, capacity utilization, and financial performance. Data on these
indicators should be examined over a sufficiently long period that trends can be discerned, and the end of
the period examined should be very recent.
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5. Under what circumstances can a provisionial safeguard measure be applied, and what are the
applicable rules for doing so?
A provisional safeguard measure can only be applied in "critical circumstances" where delay in applying a
measure would cause damage that would be difficult to repair. Thus the threshold is relatively high. The
investigating authority must make a preliminary determination that there is clear evidence that increased
imports have caused or are threatening to cause serious injury. A provisional measure can only take the
form of a tariff increase, which must be promptly refunded if there is a negative determination of
increased imports, injury and causation. The maximum period of application for a provisional measure
200 days, which needs to be counted as part of the period of application of any definitive measure.
6. Can a Member apply safeguards on a bilateral or selective basis under the Agreement?
No. One of the major guiding principles of the Agreement is that such measures be applied on a non-
selective or most-favoured-nation (MFN) basis. (Article 2(2) states, "Safeguard measures shall be applied
to a product being imported irrespective of its source".) This principle is subject, however, to the
requirement to exempt developing Members with small shares of imports from the application of a
measure.
7. How does the SG Agreement implement its objective of facilitating the domestic industry's
structural adjustment to new conditions of international competition?
The SG Agreement contains a number of rules intended to ensure that industries receiving safeguard
protection adjust to the new conditions of competition. One element of this is the limitation on the length
of time that a safeguard measure can be in place. A second element is the requirement that any
safeguard measure of more than one year's duration be progressively liberalized over the period of
application. This ensures that the industry is increasingly exposed to international competition over the
duration of the measure. A third element is the requirement of a mid-term review of measures of more
than three years duration, with a view to seeing whether the measure remains necessary at all, or could
be liberalized faster than originally planned. A fourth element is the required waiting period between the
end of one safeguard measure and the application of a new measure on the same product. All of these
taken together are aimed at ensuring that the industry uses the time of protection to get ready to face
the full force of the import competition.
8. Is a Member that applies a safeguard measure required in every case to pay trade
compensation to the exporting Members affected by the measure?
In practice no, because in many cases the right of affected Members to retaliate against a safeguard
measure of another Member is suspended for the first three years of application of the measure. In
particular the right of retaliation cannot be exercised during the first three of application of a measure
where the increase in imports was in absolute terms (rather than relative to domestic production), and
the measure is consistent with the provisions of the SG Agreement.
9. What special and differential treatment is provided under the SG Agreement for developing
Members when applying safeguard measures?
Developing Members applying safeguard measures face the same procedural rules as developed Members
in respect of investigations, initial application of measures, and reviews. Developing Members can
however, extend safeguard measures for up to two years longer than developed Members, such that the
overall period during which a developing Member's safeguard measure can be in effect is 10 years. In
addition, developing Members are subject to a shorter waiting period than developed Members between
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the end of one safeguard measure on a product and the re-application of a new safeguard measure on the
same product.
10. What special and differential treatment is provided under the SG Agreement for developing
Members subject to a safeguard measure of another Member?
An exporting developing Member must be excluded from the application of a safeguard measure by
another Member where the developing Member's share of the total imports of the importing Member is
not more than three per cent, except where cumulatively developing Members with such small shares
account for more than nine per cent of the total imports.
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Conclusion ESTIMATED TIME: 3 hours
MODULE
6
233
CONCLUSION
The WTO has established as a key requirement for achieving its objectives the elimination of discriminatory
practices in international trade relations among its Members. However, the WTO does recognise that Members
may need to take measures which derogate from the principles of non-discrimination in order to counteract the
effect that certain trade practices of other Members may have on their interests. Those derogations are
subject to limits and disciplines to ensure that they are applied in a fair manner.
The Course on Trade Remedies in the WTO has taken participants through the pertinent multilateral rules and
this module wraps up the core WTO principles and disciplines discussed therein.
This conclusion provides an overview of the course content:
MODULE 1: INTRODUCTION TO THE WTO
This module introduced the WTO as an organization and explained its historical background, objectives,
functions and organizational structure.
MODULE 2: INTRODUCTION TO WTO BASIC PRINCIPLES AND RULES
This module introduced the key principles which are present in all WTO Agreements and the specific exceptions
thereto.
MODULE 3: ANTI-DUMPING
This module presented the rules and disciplines that the WTO imposes on Members' actions to counteract
certain harmful effects to their domestic industries caused by dumped imports.
MODULE 4: SUBSIDIES AND COUNTERVAILING MEASURES
This module presented the rules and disciplines of the Agreement on Subsidies and Countervailing Measures,
on Members' subsidies, as well as on Members' actions to counter certain harmful effects to their interests
caused by other Members' subsidies.
MODULE 5: SAFEGUARD MEASURES
This module presented the rules in Article XIX of GATT 1994 and the Agreement on Safeguards regarding
safeguard measures, i.e., temporary measures to address certain harmful effects caused to Members' domestic
industries by import surges.
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I. MODULE 1 - INTRODUCTION TO THE WTO -
HISTORICAL BACKGROUND ON THE WTO
The WTO was established by the Marrakesh Agreement, which resulted from the Uruguay Round of multilateral
trade negotiations and entered into force in 1995.
I.A. THE OBJECTIVES OF THE WTO ARE
Raising living standards;
Ensuring full employment;
Increasing real income and demand;
Expanding production and trade;
Sustainable development.
I.B. THE FUNCTIONS OF THE WTO ARE
Facilitating the implementation, administration and operation, and furthering the objectives, of the
WTO Agreements (including the Plurilateral Agreements);
Serving as a forum for trade negotiations;
Administering the Dispute Settlement Understanding (DSU);
Administering the Trade Policy Review Mechanism (TPRM); and
Cooperating with the IMF and the IBRD (World Bank) to achieve coherence in global economic
policy/making
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I.C. ORGANIZATIONAL STRUCTURE OF THE WTO
Figure 1: WTO Organizational Structure
236
II. MODULE 2 - BASIC PRINCIPLES AND SPECIFIC
EXCEPTIONS
GENERAL GATT OBLIGATIONS AND RELEVANT PROVISIONS
Most-Favoured-Nation (MFN) principle: prohibits discrimination between imports irrespective of
their origin or destination;
National Treatment principle: prohibits discrimination between imported and locally produced
products;
Binding Principle: advocates adherence to the bound rates in Member's Schedules of Tariff
Concessions;
Quantitative Restriction Principle: prohibits the introduction or maintenance of quantitative
restrictions.
MFN – Art. I
National Treatment – Art. III
Bindings – Art. II and XXVIII, XXVIIIbis + Understanding on Art. XXVIII
Quantitative restrictions – Art. XI and XIII
Exceptions and derogations to these basic obligations are included in the Articles containing the principles and
other provisions
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III. MODULE 3 - ANTI-DUMPING
Anti-dumping refers to measures taken to offset injurious dumping. Dumping is a practice whereby a
company exports a product to a foreign market at a price lower than the normal value of the product,
generally, the price charged for the product in the exporter's own home market.
WTO rules do not pass judgement on the practice of dumping; they do however impose disciplines on anti-
dumping measures through GATT Art. VI and in the Anti-Dumping Agreement, which implements GATT Article
VI.
Accordingly, a Member can impose a specific anti-dumping duty on imports from a particular source, in
addition to its normal customs tariffs, when the necessary conditions are present, and the importing Member
fulfils the requisite substantive and procedural requirements.
On the substantive side, the following three elements must be demonstrated:
dumping is occurring;
the domestic industry producing the like product in the importing country is suffering material injury or
threat thereof, or establishment of an industry is being materially retarded; and
there is a causal link between the two.
The demonstration of these elements must be done through an investigation. The investigation also needs to
determine the margin or amount of dumping, which is necessary for setting the permissible level of the
eventual anti-dumping duty.
The AD Agreement contains detailed procedural requirements on a number of issues, applicable at different
stages of the anti-dumping proceeding. These procedural rules are aimed at ensuring transparency and
fairness in the conduct of investigations and application of measures.
The AD Agreement also requires a range of notifications relative to anti-dumping legislation and
actions.
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IV. MODULE 4 - SUBSIDIES AND COUNTERVAILING
MEASURES
The SCM Agreement does not prohibit the use of all or even most subsidies by WTO Members. Rather, in
general it establishes rules to regulate the provision of subsidies, and the actions that Members can take in
respect of harmful effects caused other Members' subsidies.
The SCM Agreement is, in fact, "two agreements in one". First is the multilateral track, which provides for the
right to challenge certain subsidies under the Dispute Settlement Understanding of the WTO.
Second is the national or unilateral track, governing the use by Members of countervailing measures in respect
of subsidized imports into their territories.
For a measure to be considered a subsidy for the purposes of the SCM Agreement, it must comprise three
elements:
A Financial Contribution;
By a Government or public body;
Conferring a Benefit.
However, only subsidies that are "specific" are subject to the disciplines set out in the SCM
Agreement.
The SCM Agreement establishes two categories of specific subsidies:
Prohibited ("red light")
contingent upon export performance or use of domestic goods.
(prohibited because they are presumed to distort international trade).
Actionable ("yellow or amber light")
Can be countervailed or subject to dispute settlement where causing certain harmful trade
effects.
The non-actionable ("green light") category expired at the end of 1999. The measures referred
to in the non-actionable subsidy provisions reverted to actionable status at that time.
The SCM Agreement provides for three kinds of countervailing measures:
Provisional countervailing duties;
Definitive countervailing duties
Voluntary undertakings;
The imposition of any countervailing measure must fulfil the substantive and procedural requirements set forth
in the SCM Agreement. Many of these requirements are similar to those applicable to anti-dumping measures.
The SCM Agreement recognizes that subsidies may play an important role in economic development
programmes of developing countries. Therefore, the SCM Agreement includes special and differential treatment
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provisions for developing Members, which are less strict than the general rules on subsidies and countervailing
measures.
The SCM Agreement requires Members to provide a variety of notifications. Except where a notifying Member
has specifically requested otherwise, all notifications are issued as unrestricted documents and are fully
accessible to the public.
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V. MODULE 5 - SAFEGUARD MEASURES
A safeguard measure is the temporary suspension of a multilateral concession or other obligation on a product
where imports of that product are increasing to such an extent and in such competitive conditions that they are
causing serious injury (or threat) to the domestic industry in the importing Member. The increase in imports
must have been unforeseen at the time the concession or obligation was negotiated.
The existence of increased imports, serious injury and causation are to be established on the basis of an
investigation conducted by the authorities of the importing Member, in accordance with the rules set forth in
the SG Agreement.
A safeguard measure can take the form of tariff increase above the bound rate, a quota, or other forms.
Subject to limited exceptions including in respect of exports from developing Members with small trade shares,
safeguard measures must be applied on an MFN basis, that is, to all imports regardless of their source.
To encourage the domestic industry to adjust to the new competitive conditions in its market, safeguard
measures are of limited duration and must be progressively liberalized during the period of application, and no
new safeguard can immediately be applied on a product following the termination of a measure on that same
product.
As a general matter, a Member imposing a safeguard measure must pay trade compensation to affected
exporting Members, or face trade retaliation by them. Under certain circumstances, the right to retaliation
cannot be exercised for the first three years of application of a measure, however.
The SG Agreement requires a range of notifications relative to safeguard legislation and actions.
