Subsidies and Anti Dumping Safeguards Presented By: Arshpreet Kaur MBA-IB

Dumping 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. Dumping occurs when Normal Value in Export market > Export Price The WTO agreement does not pass judgement on whether it is unfair competition. Its focus is on how governments can or cannot react to dumping — it disciplines anti-dumping actions, and it is often called the “Anti-Dumping Agreement”

Causes of Dumping Producers in one country are trying to stay competitive with producers in another country. Producers in one country are trying to eliminate the producers in another country and gain a larger share of the world market Producers are trying to get rid of excess stuff that they can't sell in their own country. Producers can make more profit by dividing sales into domestic and foreign markets, then charging each market whatever price the buyers are willing to pay.

Anti-dumping proceeding WTO agreement allows governments to act against dumping where there is genuine (“material”) injury to the competing domestic industry. In order to do that the government has to be able to –show that dumping is taking place, –calculate the extent of dumping (how much lower the export price is compared to the exporter’s home market price), and – show that the dumping is causing injury or threatening to do so.

Anti Dumping Proceeding- contd.. GATT (Article 6) allows countries to take action against dumping. The Anti-Dumping Agreement clarifies and expands Article 6, and the two operate together. They allow countries to act in a way that would normally break the GATT principles of binding a tariff and not discriminating between trading partners. Typically anti-dumping action means charging extra import duty from the particular exporting country in order to bring its price closer to the “normal value” or to remove the injury to domestic industry in the importing country.

Investigation A detailed investigation has to be conducted that must evaluate all relevant economic factors having a bearing on the state of the industry in question. The exporting company can undertake to raise its price to an agreed level in order to avoid anti-dumping import duty. Anti-dumping measures must expire five years after the date of imposition, unless an investigation shows that ending the measure would lead to injury. Anti-dumping investigations are to end immediately in cases where the authorities determine that the margin of dumping is insignificantly small (defined as less than 2% of the export price of the product).

Agreement and Dispute Settlement The agreement says member countries must inform the Committee on Anti-Dumping Practices about all preliminary and final anti-dumping actions, promptly and in detail. They must also report on all investigations twice a year. When differences arise, members can also use the WTO’s dispute settlement procedure

Impact Of Dumping On Indian Economy 1 Actual or potential decline in sales Loss of profits Decrease in market share 2 Reduction in capacity utilization Reduction in wages Cut down in manpower 3 Inability to raise capital Loss in contracts Shutdown of plant

Anti-dumping Legislation in India Sections 9, 9 A, 9 B and 9 C of the Customs Tariff Act, 1975 as amended in 1995 and the Customs Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 framed there under form the legal basis for anti-dumping and anti subsidy investigations and for the levy of anti-dumping and countervailing duties. These laws are in consonance with the WTO Agreements on Anti Dumping and Anti Subsidy countervailing measures.

Anti-Dumping Probes on China Glossy PaperSilica Bricks Galvanized SteelSolar Panels

Dumping Cases Filed By India 272 cases against other nations. Out of which 149 are against China Cases are filed under various products and profiles as follows: –Chemicals & Petrochemicals –Pharmaceuticals –Textiles/Fibres/Yarns –Steel & Other Metals –Consumer Goods –Other Products

Subsidy Subsidy: government confers a benefit on a domestic firm and provides income, price support or financial contribution (not collecting a tax, providing grant or loan at favorable rate) in order to achieve a social or economic objective

Subsidies and countervailing measures 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 charge extra duty (“countervailing duty”) on subsidized imports that are found to be hurting domestic producers.

Types of Subsidies The agreement defines two categories of subsidies: prohibited and actionable. Prohibited subsidies: subsidies that require recipients to meet certain export targets, or to use domestic goods instead of imported goods. Actionable subsidies: in this category the complaining country has to show that the subsidy has an adverse effect on its interests. Otherwise the subsidy is permitted.

Anti-subsidy proceeding Countervailing duty (the parallel of anti-dumping duty) can only be charged after the importing country has conducted a detailed investigation similar to that required for anti-dumping action. There are detailed rules for deciding whether a product is being subsidized, criteria for determining whether imports of subsidized products are hurting (“causing injury to”) domestic industry, procedures for initiating and conducting investigations, and rules on the implementation and duration (normally five years) of countervailing measures. The subsidized exporter can also agree to raise its export prices as an alternative to its exports being charged countervailing duty.

Bali Negotiations WTO agreed to allow countries to provide subsidy on staple food crops without any threat of punitive action The 159-member World Trade Organization (WTO) reached a historic agreement that will boost global trade by USD 1 trillion. The deal allows nations such as India to fix a Minimum Support Price (MSP) for farm produce and to sell staple grains to the poor at subsidised rates. It also permits countries to store food grains to meet contingency requirements.

Safeguards: emergency protection from imports A safeguard is a temporary import restriction (for example a quota or a tariff increase) that a country is allowed to impose on a product if imports of that product are increasing so as to cause, or threaten to cause, serious injury to a domestic industry that produces a similar or directly competitive product.

Agreement on Safeguards The Agreement on Safeguards of the WTO establishes rules for the application of safeguard measures by WTO member countries. All members of the WTO are parties to this Agreement. The Agreement went into effect on January 1, It prohibits “grey-area” measures, and it sets time limits (a “sunset clause”) on all safeguard actions. The agreement says members must not seek, take or maintain any voluntary export restraints, orderly marketing arrangements or any other similar measures on the export or the import side.

Safeguards proceeding As per the agreement, WTO member countries must conduct an investigation before they can apply a safeguard measure. They must make a formal determination that imports of the product are significantly impairing or threatening to impair a domestic industry. The agreement sets out criteria for assessing whether “serious injury” is being caused or threatened, and the factors which must be considered in determining the impact of imports on the domestic industry. The WTO’s Safeguards Committee oversees the operation of the agreement and is responsible for the surveillance of members’ commitments.

Safeguard Investigation A safeguard investigation seeks to determine whether increased imports of a product are causing, or is threatening to cause, serious injury to a domestic industry. During a safeguard investigation, importers, exporters and other interested parties may present evidence and views and respond to the presentations of other parties. A WTO member may take a safeguard action (i.e. restrict imports of a product temporarily) only if the increased imports of the product are found to be causing, or threatening to cause, serious injury. On 23 January 2014, Indonesia notified the WTO’s Committee on Safeguards that it initiated on 17 January 2014 a safeguard investigation on certain hot-rolled bars and rods.

References m_e.htm#lAgreementhttp:// m_e.htm#lAgreement india.asp?id=2http://commerce.nic.in/traderemedies/ad_casesin india.asp?id=2 rs_Guides/List_All_Guides/exp_ asphttp://tcc.export.gov/Trade_Agreements/Exporte rs_Guides/List_All_Guides/exp_ asp