1. Regulating Import Competition and Unfair Trade
Chapter 11
© 2002 West/Thomson Learning

2. Free Trade & Protectionism
How do international rules serve to check competing national interests
Focus on laws that safeguard domestic industry from import competition
GATT / WTO & US law
Authorize “import relief” or “ adjusting imports”
“Safeguards” against injury from imports

3. GATT Escape Clause
GATT Article XlX allows escape from previous tariff concessions
GATT 1994 Agreement on Safeguards sets rules for safeguarding domestic industry and providing import relief
Is product being imported in such increased quantities and under such conditions as to cause or threaten to cause serious injury to domestic industry?
Country seeking to apply safeguard must first undertake administrative investigation
Safeguards only temporary – 4 years, subject to extension to 8 years
Safeguards must be non-discriminatory, and lifted gradually as conditions warrant

4. GATT 1994 Agt. on Safeguards
Countries imposing safeguards must notify WTO Safeguards Committee – monitors compliance
Tariffs preferred “safeguard” mechanism
If use quotas, must allocate among supplying nations based on proportion of total imports and can’t reduce imports below average of last 3 years
Limits on imposing safeguards on developing countries
GATT encourages countries imposing safeguards to compensate supplying nations for burden
Reduce tariffs on other products
If no agreement on compensation, supplying nation can raise tariffs in retaliation

5. Argentina Safeguard Measures on Imports of Footwear (WTO App
Argentina Safeguard Measures on Imports of Footwear (WTO App. Body, 1999)
Argentina initiated safeguard investigation and determined that increased imports of footwear caused serious injury to domestic producers
Increased duty on imported footwear to 200%, except for imports from MERCOSUR nations
EU requested WTO panel, US joined as 3rd party
Must events leading to increased imports be “unforeseen developments” to justify imposition of safeguards?
Safeguards to be extraordinary measures – when member confronted with unexpected events
Art. 4.2 of Agt on Safeguards requires investigation to examine all relevant factors – included those listed
Argentina’s investigation didn’t examine 2 of listed factors – didn’t comply with Agt. on Safeguards – can’t justify excluding imports from non-MERCOSUR nations

6. US Law on Safeguards: Section 201 of Trade Act, as Amended
Allows import relief when“article being imported in such increased quantities as to be a substantial cause of serious injury or threat thereof to domestic industry producing an article like or directly competitive with the imported article”
President may “adjust” imports after ITC investigation if it will “facilitate efforts by domestic industry to make positive adjustment” and if provides greater economic and social benefits than costs

7. Enforcement of S. 201
Initiated by petition filed with ITC – or ITC can self-initiate
ITC holds public hearings
considers statutory list of factors
Prepares detailed analysis of affected market
ITC makes recommendation to the President
President decides whether to implement safeguards; temporary (4-8 yrs. maximum)
50% tariff increase
tariff rate quotas
absolute quotas
negotiated agreements

8. Trade Adjustment Assistance
Workers displaced by increased imports may file petition with the Dept. of Labor
Sec. of Labor must determine that imports have contributed to separation
Program administered through sate unemployment programs
Direct cash payments to workers
Job retraining for workers and relocation
Help for companies as well
Separate assistance program for workers losing jobs as result of NAFTA

9. US Steel Industry: Case Study
“Glut” of steel on world market – US firms face heavy competition
2002 – ITC finds imports “substantial cause of serious injury or threat”
Bush Admin. Imposes 30% tariff under S. 201 – some countries excepted – for 3 years
WTO complaint filed by many countries
WTO panel held not result of “unforeseen developments” and couldn’t show imports have increased, no showing of serious injury and violated non-discriminatory principle
2003 – WTO Appellate Body upholds panel
Japan and EU threaten $2 Bil in retaliatory tariffs
Bush Admin. removes tariffs in Dec. 2003

10. Unfair Imports
Dumping
Subsidies

11. Dumping
Dumping is the selling of products in a foreign country for less than the price charged in producer’s home market
Alleged price discrimination causing injury to domestic competitors
Controversy over economic effects of dumping
Anti-dumping provisions most commonly used trade laws in EU and US

12. GATT Provisions on Dumping
GATT Antidumping Agreement allows members to impose duties if dumped goods threaten or cause material injury to domestic industry
GATT says dumping is at less than normal value
US states dumping is a sale at less than “fair value”
Normal value - export price = dumping margin
Export price = price w/o shipping charges sold to unrelated buyer in importing country
Use “constructed price” if products from “non-market” country
GATT requires formal investigation to determine material injury before imposing duties

13. US Antidumping Provisions
Petition filed with government to initiate process
ITA determines if goods sold in US at less than fair value
ITC determines extent of material injury to US producers
If injury due to dumping, impose antidumping duties
US Customs Service collects antidumping duties

14. Pesquera Mares Australes v. US (Fed. CA 2001)
Facts: PMA, Chilean salmon exporter accused of dumping
ITA based “normal value” on sales in Japan
Japanese sales of higher grade – ITA held was “like product”
ITA imposed duties; affirmed by Court of Int. Trade; PMA appeals
Issue: Were Japanese sales of “like product”?
Decision: Yes, affirm CIT decision
Reasons: distinctions btwn grades nominal
Commercial practice didn’t recognize grade above “superior”
ITA definition of “identical in physical characteristics” as not requiring products be exactly the same is permissible under statute

15. WTO Role in Anti-Dumping
WTO Committee on Antidumping Practices created in 1994
Dumping disputes may be submitted to WTO DSB for resolution
WTO panel may review final antidumping order of admin. Agency for consistency with GATT Antidumping Agt
If order violated GATT, panel can recommend measures to be taken against importing country
Limited scope of review:
Can’t reconsider determinations of fact from investigation
Can’t overturn interpretation of agreement made by investigating agency

16. Dumping and Non-Market Economies
US – specific rules for calculating dumping margins in NME countries
Define “surrogate normal value” by price of factors of production in market economy country at same level of development and significant producer of comparable merchandise
Market–oriented industries: inputs procured at free market prices, production due to market forces and producers mostly privately-owned
Bulk Aspirin from PRC (ITA 2000): R alleges that aspirin from PRC being dumped on US market
Only 2 Chinese firms responded to request for information – they weren’t subject to govt. control
Apply single PRC-wide rate to all other producers
Use India as surrogate – significant producer of comparable merchandise – use Indian figures for normal value

17. Subsidies
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)
Domestic subsidies are permitted as part of government’s responsibility to fund social programs and provide growth
Subsidies distort trade patterns, give unfair competitive advantage, and encourage activity unprofitable without subsidy

18. GATT and Subsidies GATT provides 3 types of subsidies:
Prohibited subsidies: Export or import substitution subsidies
Domestic or adverse subsidies: government programs as part of legitimate responsibility of government to direct industrial growth and fund social programs
Socially-beneficial subsidies: subsidies to expand knowledge through R & D; subsidies to poor or depressed regions, or subsidies to help firms meet one-time costs of environmental or antipollution requirements
Member nations should notify WTO Committee on Subsidies and Countervailing Measures in advance of granting subsidy

19. GATT and Subsidies
1994 Agreement on Subsidies and Countervailing Measures
WTO member can appeal to WTO for dispute resolution
WTO can recommend elimination of subsidy, elimination of harmful effects, or countermeasures
Adverse effects of subsidies actionable under WTO if:
Cause injury to domestic industry in another WTO member
Cause nullification and impairment of member rights under GATT
Cause “serious prejudice” to another member
Importing country may also initiate admin. proceedings to impose countervailing duties to eliminate subsidy advantage

20. US Procedure for Countervailing Duties
Complaint filed with ITA
ITA determines is subsidy exists
ITC then determines if subsidy causes material injury to domestic industry
“material injury” standard less than “serious injury” standard required for action under safeguard provisions
If injury exists, impose CVD’s to offset subsidy advantage
ITA and ITC decisions subject to judicial review in US Court of International Trade if final or negative determinations
Finding of material injury must be reviewed every 5 years if antidumping order in effect
NAFTA Arbitration Panel for dumping of Mexican or Canadian goods

21. Dumping and Subsidy Offset Act of 2000
Toughened CVD and Antidumping laws
Applied to CVD’s and antidumping duties assessed after Oct. 1, 2000
US Customs will now collect and distribute duties to injured parties
WTO held transfer payments was subsidy, affirmed on appeal
Aug – WTO approves retaliatory sanctions against US
US repeals provisions in Feb – but repeal not effective until Oct. 1, 2007

22. US-Countervailing Measures Concerning European Steel (WTO Appellate Body 2002)
Facts: Govt. support or ownership of European steel industry
US responded with countervailing duties
Later, govts. privatized industry – new private firms sell steel in US
ITA imposed countervailing duties on steel imports – held benefits from subsidies were “passed through” to new firms – used “same person” rule
EC – transfer was at arm’s length – fair market value – no govt. control
Issue: Did “same person” rule application violate GATT SCM Agt.?
Decision: Yes, “same person rule” impedes ITA from examining if benefit continues to exist after change in ownership
ITA must consider broad range of factors to determine if benefits “pass through”
ITA adopts new rule – rebuttable presumption

23. Section 301 Actions
Allows retaliation by USTR against countries violating US rights under international trade agts
S. 301 actions initiated by petition to USTR
Investigation of alleged violations
Commerce Dept. – investigate if CVD or subsidy – if so, negotiations
If no resolution, USTR can impose measures
Remedies include:
Suspend trade concessions
Impose duties
Import restrictions
Compensatory benefits to US

24. S. 337 of Tariff Act of 1930
Allows relief for unfair methods of competition in importation or sale of imported goods
Used to prevent infringement of IP rights – pirated or counterfeit goods
Investigation by ITC – petition by domestic producer or holder of IP rights
Remedy is exclusion of goods
Cease and desist order – permanent exclusion order
Penalty for violation is $100K fine or 2X domestic value of goods

25. Web Sites http://www.wto.org http://www.usitc.gov