 Safeguards and Exceptions Chapter 9 The Political Economy of The World Trading System Presented by Hang Nguyen

Agenda  Re-negotiation of Concessions  Waivers  Emergency Protection (Safeguards)  Antidumping Actions  Measures to Countervail Subsidized Imports  Trade Restrictions for BOP Purposes  Infant Industry Protection  General Exceptions  Conclusion

Source: WTO, Global Antidumping Database

9.1 Re-negotiation of Concessions Article XXVIII:1  Re-negotiation: centres on the compensation  ‘open season’: conducted every 3 years following a binding  ‘special circumstances re-negotiations’: approved by GATT contracting parties  ‘reserved right re-negotiations’: occur anytime during 3 years  The contracting party:  The country – initial negotiating rights – INRs  The country – ‘principal supplying interest’ (negotiation rights)/‘substantial interest’ (consultation rights)

9.1 Re-negotiation of Concessions The Uruguay Round Understanding on the Interpretation of Article XXVIII  Enhanced the opportunities of affected exporters to participate in tariff re-negotiations.  Before UR: over 30 GATT contracting parties utilized the re-negotiation option more than 200 times ( period)  After UR: implemented Harmonized System  24 re- negotiations ( )

9.2 Waivers  Tariff re-negotiations are limited: they only pertain to instances in which a country wants to raise tariffs above previously bound levels.  Article XXV:5 GATT allows a member to request a waiver from one or more other obligations  The most famous waiver: US in 1955 (inconsistent with Section 22 of the Agricultural Adjustment Act).  Waivers under WTO are time bound: are reviewed annually to determine if the exceptional circumstances requiring the waiver continue to exist.

9.3 Emergency Protection (Safeguards) Article XIX: permits governments to impose measures to protect domestic producers seriously injured by imports. Necessary conditions:  Unforeseen developments  Resulting from the effects of obligations incurred by a contracting party (e.g. tariff concessions made in a MTN)  Leading to increased imports  That cause or threaten serious injury to domestic producers

9.3 Emergency Protection (Safeguards)  Affected exporting countries were protected by a requirement of compensation  made Article XIX a substitute for Article XXVIII re-negotiation  By the time of UR: to constrain the use of AD and VERs and to reassert the dominance of Article XIX   Tighten the disciplines on the use of VERs and AD   Reduce the disincentives to use Articles XIX

9.3.1 The Uruguay Round Agreement on Safeguards  Major achievement: prohibition of VERs and similar measures on the export or the import side  SG measures: investigation demonstrates “serious injury”  considering factors  Protection is limited to what is necessary to prevent or remedy serious injury caused by imports  causal link  Article XIX – ‘Emergency Action’: in ‘critical circumstances the Agreement on SG allows Members to put in place SG immediately on a provisional basis.

9.3.2 The WTO experience with safeguards  SG measures: infrequently compared to other instruments i.e. antidumping  Key terms are not defined in the agreement.  ‘Unforeseen developments’ test to safeguard actions by Appellate Body (AB)  However, if SG conform to WTO rules, will be nondiscriminatory and thus affect all imports.

9.3.3 Special Safeguards Cases  The US Steel Safeguards  QRs: starting in 1970s, AD and CVD actions in 80s-90s  2001: imposing SG actions  fail to show a ‘causal link’  termination of SG actions in Dec, 2013  Special Safeguards (SSG)  WTO Agreements on Textiles and Clothing (ATC)  Agreement on Agriculture  China’s Protocol of Accession

9.4 Antidumping Actions  AD mechanism in US: replace a system in which specific industries lobbied the US Congress for specific tariffs with one where industries seeking protection had to go through an administrative system.  Increasing controversial during 1980s  1950: 37 cases  Since 1970s: over 4000 AD investigations initiated by WTO members  : 3200 investigations  2049 led to AD measures.  Main users: Australia, Canada, EU and US  Most frequent target: China, followed by US and EU.

9.4.1 A brief summary of GATT disciplines  Dumping (GATT): offering a product for sale in export markets at a price below normal value.  Article VI: not prohibit dumping, but actions to offset dumping  Actions against dumping: only if material injury is shown  Injury determinations:  Positive evidence  An objective examination of the volume of the dumped imports  Their effect on prices in the domestic market  Impact on domestic producers of like products

9.4.2 What’s wrong with dumping

 Discourage domestic firms from engaging in the development of a competing product by establishing a large market share  Predation: a foreign firm could deliberately price products low enough to drive the existing domestic firms out of business and establish a monopoly.   AD is unlikely to encourage.  The predation has very little to do with AD: US cases  Antidumping Act of 1916: very rarely invoked.  The Tariff Act of 1930: usually invoked by import-competing industries

9.4.3 What’s wrong with antidumping  AD is not about fair play. Its goal is to tilt the rules of the game in favour of import-competing industries.  AD is a useful safety valve that allows countries to implement and sustain more general trade liberalization  positive relationship between deterioration in macroeconomic conditions and the use of AD.  AD constitute an obstacle to free trade in developing countries: ‘retaliation’ – tit-for-tat responses by targeted countries  effect in restraining the use of AD by importing countries.

9.4.3 What’s wrong with antidumping  AD is costly for affected firms, consumers and third countries  Impact on affected exporters is significant  Discretion of investigating authorities: dumping margins can be inflated  Injury criteria may be manipulated by firms  By initiating and winning an AD action, upstream suppliers may be able to manipulate the health of downstream firms to the advantage of both  cascade along the chain of production.

9.4.3 What’s wrong with antidumping  Negotiating price undertakings with exporters that are subject to AD investigations  Exporters prefer undertakings to the alternative of paying AD duties  Undertaking are more detrimental to the national welfare of countries using them than duties are: due to transaction costs.

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