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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by Peggy Clarke, Gary N. Horlick and Margaret Spicer
Executive Summary
There are several remedies available to companies that believe they are being harmed by imports:
Seizure at the border of imports that infringe intellectual property rights.
Anti-dumping duties, by far the most widely used form of import relief, are designed to offset the injurious effect of imports that are deemed to be priced below “normal value”, which is either the price at which they are sold in the home market (or, in the absence of home market sales, to third countries) or the cost of production. In making the price comparison, detailed adjustments are made to arrive at an ex-factory price, and to take account of differences that should be reflected in the price, such as terms of sale or warranty terms. The Uruguay Round Anti-dumping Agreement authorises the use of anti-dumping duties, but contains detailed provisions designed to prevent abuse, including requirements for determining whether dumping and injury are taking place, and procedural protection to ensure some degree of due process.
Countervailing Duties are aimed at offsetting the injurious effect of subsidised imports. In order to be subjected to countervailing duties, a subsidy must: (a) be a financial contribution (i.e., something of value) given by or on behalf of a government; (b) provide a benefit (i.e., be given at less than market value); and (c) be “specific”, i.e., provided to a limited number of industries rather than being generally available to many industries. The Uruguay Round Agreement on Subsidies and Countervailing Measures contains procedural provisions, as well as provisions on injury, that are almost identical to those in the Anti-dumping Agreement.
Safeguards are a form of “no-fault” import relief (in the form of duties or quotas) available where increased imports resulting from unforeseen developments cause or threaten serious injury to a domestic injury. No unfair act (such as dumping or subsidisation) is necessary, but the level of injury required is higher than in the case of anti-dumping or countervailing duties. In addition, the country imposing safeguards must offer countries affected by them compensation for the lost trade, in the form of lower tariffs on other products. In the absence of compensation, other countries can [Page150:] retaliate by raising duties on imports from the country imposing the safeguard. Safeguard relief is not designed to give industries permanent protection against imports, but simply to give them time to adjust. Safeguards may not be imposed for more than eight years (ten years in the case of developing countries).
National Security: Under Article XXI of the GATT a Member may take action, even if it violates a provision of the GATT, that “it considers necessary for the protection of its national security interests.” Under this authority, Section 232 of the US Trade Expansion Act allows the President to restrict imports that impair the national security of the United States. Until recently, the statute had been regarded as a virtual dead letter, as it had rarely been invoked in recent years, and had even more rarely resulted in import relief. However, in April 2017 the Trump Administration launched new Section 232 investigations into steel and aluminium imports. Other investigations could follow, involving strategic products such as vehicles and semiconductors.
Intellectual Property Infringement: The Uruguay Round Agreement on Trade-Related Aspects of Intellectual Property Rights authorises WTO Members to provide a remedy allowing the exclusion of imports that infringe intellectual property rights.
* Ms Clarke is the Principal at the Law Offices of Peggy A. Clarke, Mr Horlick is the Principal at the Law Offices of Gary N. Horlick, and Ms Spicer is an attorney with White & Case.
1.0 Introduction
In a global economy, a company must make numerous decisions concerning trade with other countries. The company may wish to sell its product overseas, or buy inputs from other countries. It will likely find itself competing for market share with foreign producers of comparable products. It may find itself unable to compete with low pricing from those imports. Trade remedy laws address concerns over the impact of imported goods on a competing domestic industry.
A company seeking to do business in the global economy needs to be aware of trade remedy laws in the relevant markets and to understand the implications and processes they involve. For example, a company may decide it wishes to bring a trade remedy action, or it may be the target of one. It may find that its inputs are subject to duties or quotas arising from such trade remedy applications.
This chapter discusses the most common forms of trade remedy laws in the more than 160 WTO Members (accounting for well over 90% of world GDP) and provides guidance to corporate counsel on when and how to use such laws. The aim is to provide critical information on key steps and practical tips on how to approach such situations.
1.1 Types of Trade Remedy Law
The purpose behind trade remedy laws is to enable domestic manufacturers to compete more effectively against imports. There are five main categories: (1) antidumping, designed to counteract the effect of imports sold at prices that are deemed to be unfairly low;1(2) countervailing duties, used to offset government subsidies provided to foreign manufacturers/exporters; (3) safeguards, used to provide temporary respite from a surge in imports to enable the domestic manufacturers to adjust to the import competition; (4) import relief designed to prevent harm to the National Security; and (5) protection from intellectual property infringement by imports. For many reasons the choice of which “remedy” to seek varies greatly by country and it may be possible to seek several of the forms of remedy simultaneously. As a result of a case brought under a country’s trade remedy laws, imports may face additional restrictions at the border in the form of extra duties or quotas, or even, in the case of intellectual property infringement, a ban on importation. Anti-dumping is by far the most frequently used of these laws. WTO members have launched nearly 5,000 anti-dumping investigations since 1995, compared with fewer than 400[Page151:]countervailing duty investigations and around 300 safeguard investigations2(probably because anti-dumping cases are the easiest to win).
The Uruguay Round produced agreements that establish the rules that must be followed by WTO members when applying trade remedies. The Agreement on Interpretation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-dumping Agreement) sets rules for the authorities of the importing countries to follow when conducting anti-dumping proceedings. The Agreement on Subsidies and Countervailing Measures (SCM Agreement) provides a similar set of rules for the authorities to follow when conducting countervailing duty proceedings. The Agreement on Safeguards (Safeguard Agreement) addresses the rules for the conduct and imposition of global safeguards. Finally, the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) requires that WTO Members provide holders of IP rights with some form of recourse against imports that infringe those rights The Anti-dumping and SCM Agreements have been among the most litigated of the Uruguay Round agreements in the WTO.3
Anti-dumping and countervailing duty proceedings, which have many procedural similarities, will be discussed together in this chapter, first in terms of the determination of dumping or subsidy, and injury, then in terms of important procedural issues. Next this chapter will discuss safeguard actions. We then describe the National Security remedy, and finally we briefly discuss intellectual property actions.
2.0 Anti-Dumping and Countervailing Duties
Businesses seeking to preserve their share of the domestic market against import competition often turn to the anti-dumping and/or countervailing duty laws for protection in the form of special duties.
Anti-dumping cases involve claims that: (1) foreign producers/exporters in a particular country are selling their goods in the local market at “less than normal value” (sometimes referred to as “less than fair value”), and (2) this is causing or threatening to cause material injury to an industry in the importing country that is producing the like product, or materially retarding the establishment of an industry. 4
Careful analysis of home market and export prices and production costs can help a producer assess its potential exposure to anti-dumping duties and may suggest ways in which that exposure can be reduced. Some major exporters continuously monitor their prices and costs to try to avoid dumping.
The focus of the investigation is on the prices and costs of individual manufacturers/ exporters in the exporting country. A common misperception is that imported goods sold at lower prices than their domestically produced counterparts are dumped. Underselling by imports may be (and often is) relevant to the question of injury (see Section 2.3 below), but whether or not there is dumping is determined purely by reference to the exporter’s prices in different markets and/or its costs.
Countervailing duty cases involve claims that: (1) the manufacturers/exporters in a particular foreign country directly or indirectly receive impermissible “specific” subsidies from a government or government-controlled entity of that country, and (2) the subsidised imports are causing or threatening to cause material injury to the domestic industry producing the like product. Unlike in an anti-dumping proceeding, here the focus is on the actions of the government of the exporting country and the assistance it provides to individual manufacturers/exporters in that country.
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When an anti-dumping or countervailing duty petition is filed, interested exporters and foreign producers should ask the following questions to determine whether to participate:
It is important to note that anti-dumping and countervailing duty cases can be filed simultaneously (and almost invariably are where China is the target). It should also be noted that subsidies, as government actions, can be challenged directly in the WTO as well as in a countervailing duty case, and that both cases may be brought at the same time.5Direct WTO action is discussed in Chapter Five.
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WTO CHALLENGES VS. COUNTERVAILING DUTY CASES
Because the relief available in direct WTO challenges is less certain and takes longer than in countervailing duty cases, it would normally only make sense to mount a direct WTO challenge where the principal competition between the complaining industry and the subsidised industry is in third countries, where countervailing duties would provide no relief. The crosschallenges in the WTO between the United States and the European Union on subsidies to civilian aircraft are a good example of this situation. See United States – Large Civil Aircraft and EC – Large Civil Aircraft.6
2.1 The Anti-dumping Determination and the Margin Calculation
Article 2 of the Anti-dumping Agreement provides substantial guidance on the calculation to be made in order to determine whether dumping has occurred. Article 2.4 requires the authority to make a “fair” comparison at the same level of trade (normally ex-factory) of sales as contemporaneous as possible. Adjustments are made to address differences that affect price comparability such as differences in the terms of sale, levels of trade, quantities, physical characteristics and any other differences that can be demonstrated to affect price comparability, such as differences in warranty terms. Many countries employ different methods of making this comparison depending whether the country at issue is considered to be operating under market principles (a market economy country) or not (non-market economy or “NME”). Sections 2.1.1 to 2.1.4 discuss the calculations with respect to a market economy country. Section 2.1.5 discusses the calculations made where the exporting country is considered to be a non-market economy (at the present time only China and Vietnam are treated as NMEs).
2.1.1 Normal Value
The term “normal value” refers to the value against which export prices are compared to determine the margin of dumping. Usually normal value is the manufacturer’s at- or above-cost price in its home market to its first unaffiliated customers, minus logistic costs (freight, brokerage, handling, etc.), direct selling expenses (such as commissions and credit and warranty expenses), discounts/rebates, and the cost of packing for the home market, plus the cost of packing for the export market. These adjustments are made to bring the price more or less back to the preferred ex-factory level of trade as provided for in the Anti-Dumping Agreement. If home market sales cannot be used as the basis for normal value (if for example, there are too few of them or they are below cost, see Section 2.1.1.1 below), the authority may use sales to third countries or constructed value. In almost every such case it will use constructed value.
2.1.1.1 Sales Below Cost
When calculating the normal value the authorities will generally ignore prices in the home market (or third country market) that are below the fully allocated cost of production of any particular product if 20% or more of the sales of that product are below cost. In this situation, the sales that are found to be below cost will generally be excluded in the calculation of normal value, which raises normal value and hence the anti-dumping margin. If all home market sales are below cost, the authorities will normally use constructed value as the basis for normal value. For these purposes, the cost of production is considered the cost of manufacturing plus general and administrative expenses and any selling expenses not deducted from the export price (but not profit).
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SALES BELOW COST RULE
The sales below cost rule effectively means that in order to avoid dumping, a manufacturer must set its export sales at prices at or above home market (or third country) sales, and at or above fully allocated cost. This is a harsh requirement, since it is perfectly normal and accepted business behaviour to sell below fully allocated cost, at least in the short-run, so long as prices exceed variable cost.7
2.1.1.2 Constructed Value
There may be reasons why no prices are available for normal value purposes. This is most common when a significant number of sales in the home market are at prices below cost. In that instance the authority may construct the value of the product sold to the importing country based on the cost of producing it. To do this, the authority typically sums the cost of manufacturing (raw materials, labour, energy and factory overhead) and adds a value for general, selling and administrative expenses as well as a value for profit to determine the normal value.8The costs used must be based on the company’s normal books and records. The Anti-dumping Agreement provides a hierarchy to be considered in selecting the appropriate amount to be included for profit.
In order to provide the information requested respondents may need to allocate costs over different product categories than are kept in the normal course of business. All such costs should be allocated on a reasonable basis that can be explained and supported by the company’s books and records. For example, for some products it may make sense to allocate raw materials by the weight of the finished good, but this would not make sense for other products. All allocations made and the assumptions/support underlying them should be maintained in a file for demonstration at verification (see Section 2.4.5 below).
2.1.2 Export Price
The term “export price” refers to the value of the relevant imported product that is compared to normal value in order to determine whether dumping has occurred when the importer is not affiliated with the exporter. The starting point is the price paid by the importer, with deductions for logistics expenses paid for by the exporter (such as ocean freight, delivery to customer, brokerage and handling, and normal duties), discounts/rebates, and direct selling expenses, as necessary, in order to bring the price back more or less to an ex-factory basis.
2.1.2.1 Constructed Export Price
The term “constructed export price” refers to the value used for comparison to normal value if exports are sold through an affiliated entity in the importing market. The Anti-dumping Agreement calls for the export price to be constructed beginning with the price to the first unaffiliated customer in the importing country, minus logistic expenses, rebates/discounts, direct selling expenses incurred in the export market, indirect selling expenses, profit and whatever other adjustments are reasonable and necessary to bring it back to an ex-factory basis. Examples of Export Price and Constructed Export Price calculations are provided in the Appendix.
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2.1.3 Non-Market Economy Calculation
There are few, if any, restrictions in the Anti-dumping Agreement concerning the normal value calculation to be employed when the exporting country is a non-market economy (NME). China and Vietnam are the only significant countries that are still treated as NMEs. The concept is that because the domestic market of the exporting country does not operate on market principles, the regular rules for determining normal value may not result in a valid comparison. The authorities therefore have considerable leeway in how they determine normal value in such situations. Some authorities assume that once a country has been designated “non-market,” all its domestic transactions are suspect. Other authorities make a case-by-case determination whether the domestic economy for that particular product is marketbased or not. There is also considerable variation in the calculation once non-market economy status has been invoked in a particular investigation. The authorities of some countries use the relevant exporter’s prices to a market-based third country as the basis for normal value. Others, such as the United States, use surrogates to determine normal value.
US FACTORS OF PRODUCTION APPROACH
Under the US system, the authority develops a form of constructed value using the manufacturer’s quantities of raw materials, labour and energy consumed to produce a given quantity of the export product. It then seeks a market-based economy at a comparable level of economic development that is a significant producer of a comparable product. Having selected the surrogate country (or countries) the United States then uses values from that country, either domestic prices or import prices depending on the information available, to value the various inputs into cost of manufacturing (raw materials, labour and energy). It will then take the financial statement(s) of significant producers of the comparable product in the surrogate country to determine what are referred to as financial ratios: ratios for overhead, general, selling and administrative expenses, and for profit. The authority applies those ratios to the cost of manufacturing it has constructed in order to determine a surrogate normal value to be compared with the export price or constructed export price. This is referred to as the “factors of production” approach.
In any given NME case in the United States, the factor-of-production approach results in considerable litigation over whether the surrogate country is appropriately comparable, what the term “significant producer” of the comparable merchandise means, the determination of what is a comparable product and the specific surrogate factor values selected. It is also an imprecise measure of value, dependent on the quality of data available, and can lead to high and unpredictable margins.
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NON-MARKET ECONOMY STATUS
Under WTO rules, Members are given wide discretion to ignore the many rules on the calculation of dumping in the cases of imports from countries where the state controls “all” prices.9That probably occurs in no current or likely WTO Members today. But most WTO Members claimed during the final negotiations of China’s accession to the WTO in 1999-2001 that China was “different,” even though it did not control all prices. The price of admission for China (and later Vietnam) was to agree in Article 15 of its Protocol of Accession to be treated as an NME. At the time of China’s accession, there were many statements by the negotiators that the waiver would end in 15 years, i.e., in December 2016. Some now claim that the language of Article 15 suggests that NME status for China could continue indefinitely, at least to some degree, after 2016 (2019 in the case of Vietnam). The United States Department of Commerce and the Office of the United States Trade Representative – and protectionist lobbies in the United States – are pushing this interpretation hard. A number of large US companies oppose the claim, apparently out of concern for likely Chinese retaliation of some sort. On 12 December 2016, China requested consultations with the United States on this issue as a prelude to WTO action.10One question is whether China will limit itself to the WTO challenge, or will also retaliate against US economic interests in some way. (China has shown itself willing to retaliate in the past. For example, when the United States imposed safeguard tariffs on Chinese tyres in 2009, China promptly initiated anti-dumping and countervailing duties on US automobiles and chicken meat in an equivalent dollar value). Another question is whether the possibility of Chinese retaliation will lead to opposition at higher levels of the US Administration to continuing NME status. The EU, which has also received a request for consultations,11faces similar questions, plus the temptation to let the United States face retaliation alone.
2.1.4 Product Comparisons
In order to compare prices in a market-economy case, the authority must establish what constitutes appropriate comparison products. For example, should a 35-inch high-definition television with smart technology be compared to an 80-centimeter (32-inch) ultra-high-definition television with smart technology, or is it more comparable to a 90-centimeter (35-inch) high-definition television without smart technology? The authority must determine a method of assuring that it has appropriate comparisons. For example, in the United States the Department of Commerce takes comments early in the investigation to determine which mix of product characteristics, including packaging, are relevant to the price and cost of the product for comparison purposes. It then develops a hierarchical computer code for each such characteristic, which is combined to develop the comparison code. That comparison code is used to identify comparable products.
The product comparison can have a huge impact on the size of the margin. Both the petitioning companies and potential respondents should therefore consider what the key physical characteristics are that affect the price and cost to produce the individual products subject to investigation. They should then determine the relative importance of each characteristic and be prepared to discuss it with the authorities. This must be done at an early stage of the investigation, before questionnaires are sent out.
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When the products sold in the two comparison markets are not identical, the authorities need to determine how to adjust for differences in the products. In the United States, the Department of Commerce will adjust for differences in the cost of manufacture of the two products that are related to the physical differences. Such an adjustment may increase or decrease the normal value and therefore the dumping margin, depending on whether the imported product costs more or less to produce than the product sold in the home or third country market.
2.2 The Subsidy Determination
A subsidy is defined as a financial contribution given (or directed) by a government that provides a benefit to the recipient. These terms are discussed in more detail in Section 2 of Chapter Five. In addition, before it may be countervailed, the subsidy must be “specific”, as defined in the SCM Agreement.
2.2.1 Financial Contribution and Benefit
The term “financial contribution” is defined by the SCM agreement as a direct transfer of funds such as grants, loans, loan guarantees, or equity investments; the provision of goods or services or purchase of goods; or the foregoing of revenue otherwise due, such as a tax rebate).12The financial contribution must come from a government or public body, or indirectly through a private entity that has been entrusted or directed by a government or public body to provide the financial contribution.13
A benefit exists when the recipient of the financial contribution receives it at less than what it would have paid on the market, e.g., a loan at interest rates below the rates available from private banks.
DETERMINING A BENEFIT
The WTO Appellate Body has held that whether a benefit exists must be determined in relation to the recipient, not the cost to the government. For example, even if a loan programme imposes no cost to the government because it is able to borrow money at lower rates than charged under the programme, it will still be providing a benefit if the rate charged is below market rates.14
2.2.2 Specificity
The SCM Agreement also provides that to be countervailable, a subsidy programme must be “specific” to an industry or enterprise or group of industries or enterprises. This is a difficult and complicated concept, whose principal purpose is to prevent countervailing duties being applied to government actions that are “generally available” to wide segments of the economy (e.g., public roads, police protection) and are therefore unlikely to distort investment decisions. A programme is specific if it is either by law (de jure) or by application (de facto) limited to a particular industry, enterprise, or group. A programme is, by definition, also specific if receipt of the subsidy is contingent either upon export performance or upon the use of domestic goods over imported goods, or if the programme is limited to enterprises or industries located in a particular region of the country.
SCM Agreement Article 2.1(b) provides that if the law or regulation establishes objective criteria for the eligibility and for the amount of subsidy provided, the programme is not specific as long as the eligibility is automatic and the criteria are adhered to strictly. The issue is what constitutes objective criteria? For example: “All manufacturers that employ at least 10,000 persons” is an objective criterion, but if only one or two manufacturers in the whole country meet that criterion, then the programme may be specific. [Page158:]
De facto specificity is quite subjective. In determining whether a programme that is not specific on its face is de facto specific, the SCM Agreement advises authorities to consider the following factors: the level of discretion applied in determining recipients of the relevant financial contribution; whether the programme is used by a limited number of enterprises, whether certain enterprises are the predominant users of the programme, and whether certain enterprises receive a disproportionately large share of the financial contribution relative to their contribution to the economy. On this latter issue, the SCM Agreement cautions parties to take into account the degree of diversification of the economy and on the length of time the programme has been in existence. The question of whether a subsidy is limited to certain enterprises or industries or groups thereof can be controversial. The WTO Appellate Body and certain Panels have found that a subsidy is limited to “certain enterprises” when it is restricted to “a limited group of producers of certain products”15and if “the recipients of the subsidy constitute no more than a ‘discrete segment of the economy of the Member granting the subsidy.’”16
2.2.3 Calculating the Amount of the Subsidy
A subsidy calculation is substantially different than a dumping calculation. In a countervailing duty case, the authority is determining the benefit received by a company from the specific financial contribution received. In short, the benefit is the difference between the financial contribution received and a benchmark that reflects the commercial cost of a similar contribution. Article 14 of the SCM Agreement addresses how different types of financial contribution are to be treated.
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ADEQUATE REMUNERATION
Article 14 of the SCM Agreement directs that the adequacy of remuneration “shall be determined in relation to prevailing market conditions for the good or service in question in the country of provision or purchase.” Although this language suggests that “adequate remuneration” should only be measured in relation to prices in the exporting country, in United States – Softwood Lumber (CVD), WT/DS257/AB/R (2000), the WTO Appellate Body ruled that under some circumstances it was permissible to look at prices in another country (“cross-border”). The United States promptly took advantage of this ruling to create often fictitious or implausible cross-border comparison benchmarks to determine the benefit in cases against China. The Appellate Body upheld the cross-border approach in United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, WT/DS379/AB/R (2011) (United States – China AD and CVD).
Practical Implications: A business importing from China (or Vietnam) needs to move fast if a CVD case is filed against those goods to limit its exposure, including by finding a source of supply in another country. This should be done in consultation with experienced counsel to avoid follow-on complications. Exporters to China and Vietnam should be alert to try to ensure that their exports are not the subject of the highly likely retaliation by China.
There are numerous factors that come into play in determining the values to be used in the subsidy calculation. For example, there is general agreement that some benefits, such as sizeable grants, extend beyond the year of receipt, while others should be attributed to the year in which they were received. Different countries use different methods to determine the length of time over which to spread the benefit and different methods of spreading the benefit over time. For example, the United States spreads such long-term benefits over the average useful life of equipment in the industry using a declining balance approach, while others spread it over the useful life of the equipment purchased with the subsidy received using an annuity approach, or may have a fixed period over which they spread the benefit. Another variant is determining the sales used as the denominator in the equation. Generally, if the subsidy is considered to be tied to exportation, the benefit will be divided by the company’s export sales revenue to determine the level of subsidisation. This of course will raise the subsidy rate. If it is not tied to specific sales, it will be divided by the company’s total sales revenue.
It is therefore to the petitioners’ advantage to have the subsidy treated as an export subsidy, and to the respondents’ advantage to have it treated as a domestic subsidy.
2.2.4 Countervailing Duty Cases and Non-Market Economies
Nothing in the SCM Agreement provides for different rules to be applied to the imposition of countervailing duties to non-market economies. Nevertheless, until 2007 the United States (the largest user of countervailing duties at that time) chose not to apply countervailing duties to non-market economy countries. The United States considered that because the means of production was presumptively owned by the government and because the markets did not operate freely in such countries, in reality the government would just be shifting money from one pocket to another, and the impact on the competitive market could not be measured (since there was no[Page160:]competitive market). In 2007, however, the US authorities adopted a new interpretation of the country’s countervailing duty laws and determined that there was enough of a market situation in China (later extended to include Vietnam) to enable the authorities to address countervailing duties. Nevertheless, in applying the countervailing duty law, the United States typically looks outside the non-market economy for benchmarks on the contradictory grounds that there is too much government control within the country to determine market-based benchmarks (the United States also continues to claim that China is not a market economy for purposes of its anti-dumping law). The choice of benchmark can be extremely controversial in such cases. Another controversial issue is the treatment of inputs produced and sold by government-owned manufacturers. The WTO Appellate Body has ruled in United States – China AD and CVD that mere government ownership of a company is insufficient to make a manufacturer a “public body” capable of providing a financial contribution, but the exact standard for determining when such a manufacturer becomes a “public body” is unclear.
DOUBLE COUNTING
Concerns have been expressed that when both anti-dumping and countervailing duties are imposed on the same product in a non-market economy, particularly using the methodology employed by the United States, the result can be a double-counting of the impact of the subsidies. This is because in a market-economy where a company’s own pricing and costs are used for purposes of determining the margin of dumping, those prices and costs reflect the impact of subsidies to the company (thus, adjusting for that impact). In the non-market economy anti-dumping methodology employed by the United States, however, the normal value is calculated on a non-subsidised basis. Therefore, while the export price may be lowered by subsidies received, the normal value is not similarly affected – thus increasing the margin of dumping. When countervailing duties are then also imposed to offset those same subsidies, double-counting the effect of the subsidies can occur. In United States – China AD and CVD, the Panel ruled that the US Department of Commerce had acted improperly by failing to consider and take account of possible double remedies. The United States did not appeal this ruling.
2.3 Injury Analysis
Before a country may impose tariff measures to offset the dumping or subsidisation found, the authorities must also find that the dumped or subsidised imports are injuring the domestic industry producing a like product. As noted earlier, there are three types of injury that could be found: present material injury; threat of material injury; or the material retardation of the establishment of an industry.17The decision on injury in any form must be based on positive evidence. In making the determination, the authority must look at the impact of the dumped or subsidised imports on prices in the domestic market and the consequent impact on the domestic industry. It must consider the volume of imports, especially whether it has increased in real or relative terms. It must determine whether the imports have acted to suppress or depress prices in the importing country’s domestic market. Finally, it must look at the impact on the domestic industry, considering such factors as their profitability, capacity utilisation, and the actual and potential negative effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investments and any other relevant indicators of the condition of the domestic industry.
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The authority must find that the evidence demonstrates that imports are, through the effects of dumping or subsidisation, causing injury. This does not require a separate analysis beyond the examination of the factors discussed above, and does not require a specific showing of the effect of the dumping and subsidisation separate from the impact of the imports themselves. Moreover, while the authorities must be careful not to attribute to the dumped or subsidised imports injury caused by other factors, they do not need to segregate and enumerate the impact of each factor on the domestic industry – they merely need to consider in their analysis any other known factors that may be causing injury. It is important to note that the dumping or subsidisation does not have to be the sole cause, or even the major cause, of injury, so long as it is contributing to the injury.
Finally, if petitions are initiated to investigate both dumping and subsidisation, the effect of the dumping and subsidisation of the imports may be considered together in determining whether they cause injury. The authorities may also consider the cumulative impact of imports from several countries if they are simultaneously subject to anti-dumping or countervailing duty investigations, the margins of dumping or subsidisation are above de minimis,18and the conditions of competition between the imported product and the like domestic product make it appropriate. They may not, however, cross-cumulate the effects of dumping in one country with the effects of subsidisation in another country.19
The injury analysis is, in large part, an economic analysis and both petitioners and respondents often engage economists familiar with this area of law to assist them in arguing the injury case effectively.
Sales lost by the domestic industry to imports are often an important indicator of injury. Petitioners should therefore produce as much evidence as possible of sales lost to the imports as possible and of underselling of their products by the imports. Respondents should try to show that imports have sold for reasons other than price, e.g., availability, better service, and poor management decisions by domestic producers. If possible, Respondents should also try to show that imports from other countries have been the cause of any harm to the domestic industry.
The authorities of some countries, such as the United States, make a very quick preliminary determination of injury; therefore, any potential respondents must act quickly to determine whether to participate in this phase of the investigation. There is little time to prepare for participation, but a victory – not likely but not impossible – means that the entire investigation is terminated.
2.4 Procedures in Anti-dumping and Countervailing Duty Investigations
2.4.1 Petition
An anti-dumping or countervailing duty proceeding almost always begins with the filing of an adequate petition filed on behalf of the domestic industry.20
In deciding whether to bring a petition, the domestic producers should compare the costs of bringing a case (frequently in excess of US$1 million) to the likely return. A good trade attorney can provide the domestic producers with an assessment of the probability of success, the probable margin, and the tolerance level of that potential margin (e.g., a 20% margin with a tolerance of +/- 10). With that information, the domestic producers can then make an informed decision of whether to invest in bringing a petition.
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The petition must be filed either by the domestic producers of the like product as a whole or a major portion of the domestic industry filing on behalf of the industry as a whole, or by the production workers (e.g., the unions) on behalf of the industry as a whole. The Anti-dumping Agreement and the SCM Agreement specify that to constitute a “major portion,” producers accounting for at least 25% of the importing country’s domestic production must file such a petition. In addition to this minimum, they must account for at least 50% of the domesticproduction that takes a position on the petition (in other words, if the domestic industry has five companies that each account for 20% of the domestic production, at least two companies must file the petition to meet the 25% minimum, and if all five companies state an opinion on the petition, at least three must support the petition to meet the additional 50% requirement).
Preparation of the petition will require aggregation of sensitive data, including sales and pricing information, from the petitioning companies. To protect confidential information and to avoid possible antitrust problems, petitioners often retain an independent consultant to collect and consolidate the data.
Petitions must contain detailed information, to the extent reasonably available to the petitioner, concerning their standing to file the petition, the injury caused by the dumped or subsidised imports, and about the alleged dumping or subsidisation. The petition must contain evidence to support the allegations; simple assertion is insufficient. The authorities of the importing county must determine, based on the information in the petition and any other information available to them, whether there is sufficient evidence to justify the initiation of an investigation.
WHEN NOT TO INITIATE
In Guatemala – Cement II, WT/DS156/R (2000), a WTO panel held that Guatemala should not have initiated an investigation where the only evidence of dumping was prices of two shipments of thousands of sacks of cement as the basis for export value, and two retail sales of individual bags of cement to establish home market value. The authorities had made no attempt to take account of the effect on price of the huge volume differences.
2.4.2 Investigation
A preliminary decision is normally made six to twelve months after the initiation of an investigation. Some countries (e.g., the United States and Canada) have different agencies or offices within the same agency conducting the dumping/subsidisation and injury investigations; in most countries, however, the same authorities conduct both investigations. If the authorities have made affirmative preliminary findings of injury and either dumping or subsidisation, as appropriate, they may impose provisional measures (duties or bonds to guarantee the later payment of antidumping or countervailing duties). The final decision is normally made within 12 to 18 months of the initiation of the investigation (eighteen months being the outside limit). If there are final affirmative findings of injury and dumping or subsidisation, as appropriate, then the authority may impose final measures (duties) on all imports on which provisional measures were imposed as well as on all future imports. If either finding is negative, the provisional duties are refunded or the bonds released.
2.4.3 Respondent Selection
WTO rules contemplate that the margin of dumping or subsidisation is determined for each individual exporter. If the number of foreign producers that export to the investigating country is small enough, the authorities will investigate the export prices[Page163:]and volume of each one. However, where there are more than three or four exporters, the normal practice is to investigate either the two to four largest exporters (determined by the relative volume of exports) or to select a statistically valid sample of two to four exporters. These are the so-called mandatory respondents that must answer detailed questionnaires and pass verification of the questionnaire responses in order to receive a duty rate based on their individual experience (either their pricing or costs in an anti-dumping proceeding, or the extent of the subsidies received in a countervailing duty proceeding).21Failure by a respondent to cooperate to submit information in the manner and time required, or to pass verification, can result in the use of “facts available” to determine the applicable duty rate. In practice, authorities have wide latitude in selecting the facts available to use and it is frequently the margin of dumping or subsidisation alleged in the petition or something close to it, which may be high enough to keep the respondent out of the market.
Those exporters that are not selected as mandatory respondents will be subject to an “all others” rate. The “all others” rate margin is calculated as an average of the mandatory respondents’ duty rates, excluding those that are at de minimis levels or are based on adverse facts available. Companies that are not selected as mandatory respondents may submit voluntary responses, but most authorities rarely extend the pool of investigated companies to include voluntary responses.
Mandatory respondents have the option of not participating and accepting a margin based on adverse facts. In determining whether to participate, the exporter should determine, among other considerations: the likelihood of success of the injury challenge – how likely is there to be a no-injury finding; the potential margin if the company participates and whether that margin allows the company continued access to the import market; whether the possible adverse facts margin is sufficient to exclude the company from the import market; the importance of that market to the company’s profitability; and the cost of participation (which can be significant).
Importers unaffiliated with the exporter need not participate in investigations in most countries, although they may receive questionnaires as part of the injury investigation. Nevertheless, the importers may find it useful or necessary to participate if they wish to continue to purchase from a particular supplier. In determining whether to participate, the importer should consider the following: whether the importer can bring insight into why it buys from the foreign supplier instead of the domestic producers for reasons other than lower prices from the foreign supplier, thus increasing the chance of a no-injury finding; how important this particular supplier is to the importer’s business, i.e., can they change suppliers to a country that is not subject to anti-dumping or countervailing duties, or is there a substitutable product that is not subject to the investigation that they can switch to; and do the costs of participating in the investigation outweigh the costs of switching suppliers/products?
2.4.4 Questionnaires
Following initiation of an investigation, the local authority will issue questionnaires to the selected respondents. WTO rules require that selected respondents be given at least 30 days (plus seven days for delivery) to respond to the initial questionnaire. Most countries provide the questionnaire in their official language (or in the case of the United States which does not have an official language, in English) and require that the answer also be provided in that language. This can cause delays and difficulties when translations are needed.
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The anti-dumping questionnaire is an extremely detailed review of the respondent’s sales operations, production, products, and costs. Among other things, respondents must usually report:
Some countries use separate questionnaires for information on which to make the injury and dumping determinations. Other countries include all questions in a single questionnaire. The questionnaires are frequently divided into sections and each section may have a different due date. The questionnaire is provided to the individual companies identified as mandatory respondents and may be available to others who wish to participate as voluntary respondents.
A countervailing duty questionnaire, in contrast, is sent to the government of the exporting country. The authority may also send questionnaires directly to the selected respondent companies or, more commonly, will request the exporting country government to transmit the company-specific questions to the selected exporters. These questionnaires do not typically seek the same detailed transaction data of an anti-dumping questionnaire, nor do they ask for production costs. Instead, they will request general company information, as well as overall sales information (domestic and export), and details on all benefits received by a respondent company under the alleged subsidy programmes. The questionnaire will also seek information on the nature of the programmes alleged to provide subsidies, the criteria for selecting recipients, and the total benefits received. Again, the questionnaire may also include a section seeking information for injury analysis purposes, or a separate questionnaire may be issued.
Questionnaires are the primary means for obtaining all data necessary for the antidumping and countervailing duty analysis, and the questionnaire process is therefore an essential and time-consuming aspect of the investigation. The burden on respondents is very heavy, since they must provide a great deal of information in the requested format in a short period of time or face the prospect of being found “uncooperative” and receiving a high margin.22
The authority will routinely issue one or more supplemental questionnaires, often based on comments by petitioners. These supplemental questionnaires explore areas of any responses that may be incomplete or unclear. The time allotted to respond to the supplemental questionnaires may well be less than the 30 days provided for the initial questionnaire. Failure to respond to these supplemental questionnaires will again be detrimental to the respondent’s case. In most instances, officials from the authority will travel to the respondent company to verify the accuracy of the responses provided. Verification is discussed in the next section.
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In responding to a questionnaire, the potential respondent companies or government agencies should, as early in the process as possible, even before the questionnaire is issued, identify individuals within the organisation responsible for gathering the data and confirming its accuracy and completeness. It is useful to task one person with overall charge for responding, and then assign specific responsibilities to other individuals. Translators should be identified as well, if necessary. The respondents should keep files of all data used to determine the information in the response. The financial data gathered must tie into the company’s or government agency’s accounts. These files should be maintained throughout the investigation to facilitate verification.
2.4.5 Verification
After questionnaire responses have been submitted, there is usually a verification of the responding company’s or government’s data (both abroad and at any local affiliate’s facilities, as well as possibly at the customers’ offices) to establish whether the data in the responses are accurate. A verification can be similar to a targeted audit of the company’s books and records. Individual items in the response, such as individual selected home market and export sales, and cost elements, will be traced downwards to source documents, such as invoices and bank records (as proof of payment), and upwards through the company’s financial records to its audited financial statement.
Verification is a critical stage in the investigation process. Verifications are time intensive and require massive preparation by the respondent. Failure to verify particular items will result in use of “facts available” for those items, which may be adverse. If a large number of items cannot be verified, or the verifiers believe that the company is not cooperating, the entire margin will be based on “facts available”, which may be the margin alleged in the petition, which is likely to be high.
Prior to the verification, the company or government agency to be verified should assemble the team that helped respond to the questionnaire. At this time, the files used to prepare the response to the questionnaire should be reviewed, any revisions noted, and the resources (personnel and supplies) needed for the verification prepared. Ideally, the responding party’s counsel will review the materials in advance with the responding party and any additional support gathered at that time.
2.4.6 Price Undertakings/Suspension Agreements
Once affirmative preliminary findings of injury on the one hand and dumping or subsidisation on the other have been made, it is possible for the authorities and the responding parties to enter into an agreement to suspend the investigation and resume importing without the application of anti-dumping or countervailing measures. In an anti-dumping proceeding, a price undertaking can be accepted where the exporters who account for essentially all of the exports agree to cease exports, to revise prices to eliminate the dumping completely, or to revise prices to eliminate completely the injurious effect of the imports. In a countervailing duty proceeding, suspension agreements may be entered into either with the exporting country government or with the exporters accounting for substantially all of the exports based on the elimination or complete offset of the subsidies. The parties may also enter into an agreement to cease exports. Finally, in certain rare instances, the parties may agree to quantitative restrictions (quotas).
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Usually the time frame for entering such agreements is short. Therefore, prior to the preliminary findings the responding parties should discuss among themselves whether such an agreement is preferred, with consideration of the practice of the importing country with respect to such agreements. In many cases, it may be necessary to apply political pressure in order to obtain such an undertaking or agreement; other countries enter them regularly and willingly.
2.4.7 Collection of Duties
Once there have been affirmative preliminary findings of both injury and dumping or subsidisation, the authorities may impose provisional measures – offsetting duties or bonds to guarantee the payment of duties in the event of final affirmative findings.23These provisional measures must be refunded (or the bonds released) if the final finding of either dumping/subsidisation or injury is negative. If there are final affirmative findings of both injury and dumping/subsidisation, final duties may be imposed on the imports that were subject to provisional measures and on all future imports. In most countries, upon the issuance of a final determination, final duties are imposed at that time and entries are liquidated24 upon payment of the duty. In countries with a retroactive system, such as the United States, the customs authority will require a cash deposit until such time as the final duty is determined upon review of the entries.
In some countries (such as the United States), there is no discretion in the imposition of duties reflecting the full amount of the dumping margin or countervailing duty rate found. In other Members (such as Canada and the European Union) a “lesser duty” that is sufficient to eliminate any injury may be imposed.
2.4.8 Reviews of the Duties
The authorities must provide an opportunity for parties to request that the need for the continued imposition of the duty (or the imposition at that rate) be reviewed. The authorities may undertake such reviews of their own initiative or upon request provided a reasonable period of time has elapsed. Some countries, such as the United States, provide for annual reviews (on request) of the margin of dumping or subsidisation (but not on the injury issue), others undertake reviews less regularly. Anti-dumping and countervailing duties may not remain in place for more than five years, unless, after review, it is determined that dumping or subsidisation, as appropriate, and injury are likely to continue or recur if the duties are removed. Some countries, such as the United States and the European Union have procedures in place to automatically initiate such reviews every five years. Other countries allow the duties to lapse unless the petitioner specifically requests that such a review be undertaken and demonstrates that continuation is necessary.
2.4.9 Appeals
In addition to reviews of the decisions by the authorities, WTO Members must permit the review of final determinations by an independent administrative or judicial tribunal. Some bilateral or regional trade agreements, such as NAFTA, provide for a review by special bi-national panels of determinations affecting signatories to the agreements. The specific terms of those special reviews vary by agreement. Finally, if the exporting and importing countries are WTO members, the exporting country’s government can challenge the decision through the WTO dispute settlement process.
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3.0 Safeguard Actions
There are four different types of safeguards. The first, global safeguard actions, involve claims that imports of a product from all countries are entering the local economy in such increased quantities as to cause or threaten to cause serious injury to the domestic industry producing the like or directly competitive goods. These are subject to the WTO Agreement on Safeguards. The second, bilateral or regional free trade agreement safeguards, are country-specific safeguards agreed to in connection with free trade agreements. The third, referred to as China-specific safeguards, involved claims that a product of the People’s Republic of China was being imported in such increased quantities or under such conditions as to cause or threaten to cause market disruption in the domestic producers of the like or directly competitive products. These China-specific safeguards lapsed near the end of 2016 (similar provisions for imports from the Socialist Republic of Vietnam will lapse at the end of 2018). The fourth are special safeguards applicable to certain agricultural products, authorised by the WTO Agreement on Agriculture. Unlike the other three, no showing of injury to a domestic industry is required; simply evidence that the level of imports has increased or the price of imports has fallen, in each case by a specified amount. Agricultural safeguards are discussed in Chapter Seven.
3.1 Global Safeguards
Global safeguard cases are intended to provide relief from increases in injurious imports in general. There is no need to demonstrate that the exporters are acting in an “unfair” manner or are receiving an “unfair” advantage; rather, the safeguards (quotas or increased duties) are intended to allow the local industry an opportunity to adjust to sudden, unexpected increases in imports. As with anti-dumping and countervailing duty investigations, a safeguard action can be self-initiated by the authorities or be requested by petition by the local producers of the like product. Unlike an antidumping or countervailing duty measure, safeguard investigations are not limited to imports from a specific country, but instead encompass all imports from every country (with certain exceptions for imports from developing countries).
Safeguard actions also differ from anti-dumping or countervailing measure actions in that they are global in nature, rather than country-by-country. The procedures by authorities, therefore, differ. In virtually all countries, the decision of whether to impose relief under a safeguard action is political in nature, whereas for anti-dumping and countervailing duty actions the decision may be political in some countries, but in others, such as the United States, it is an administrative, non-discretionary decision.
3.1.1 Injury
Because there is a presumption of fair trade, the injury standard in such safeguard cases is higher than the injury standard that governs anti-dumping or countervailing duty investigations. Specifically, in order to impose safeguard measures, the authorities must find that: (1) imports of the product into the importing country have increased in quantity in relative or absolute terms, and (2) that those increased imports have caused or threatened serious injury to the domestic producers of like or directly competitive product. Serious injury means “a significant overall impairment in the position of a domestic industry.”25This is a considerably higher degree of injury than the “material injury” standard applicable in anti-dumping and countervailing duty cases, which may be one reason that there are relatively few safeguard cases.
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INCREASED QUANTITIES
The WTO has established a high threshold for the imposition of safeguard actions. One key factor in this threshold is with respect to the nature of the necessary increase in imports. The Appellate Body has held that it is insufficient that there merely be some increase, the increase in imports “must have been recent enough, sharp enough, and significant enough, both quantitatively and qualitatively, to cause or threaten to cause ‘serious injury.’”26Nevertheless, it is not essential that the increase be ongoing at the time of the investigation.
Article XIX of the GATT, which authorised the use of safeguards, required the increased imports to have been the result of unforeseen developments. The Uruguay Round Agreement on Safeguards, which enlarged upon Article XIX, does not mention unforeseen developments, but the WTO Appellate Body has ruled that they are still required as a condition of imposing safeguards.27
3.1.2 Remedies
Unlike anti-dumping and countervailing measures, global safeguard relief is timelimited; it may not remain in effect for more than eight years (10 years in the case of developing countries). Relief may take the form of additional duties, quotas on importation, or a combination of the two. The amount of relief provided must decrease each year that the safeguard measure is in effect. Developing countries may be excluded from the safeguard measures if the volume of their imports is negligible.28
3.1.3 Compensation or Retaliation
In certain instances exporting countries affected by the relief have the right to compensation, in the form of tariff concessions, from the importing country. If they do not receive compensation, they are entitled to retaliate by raising duties on imports from the country imposing the safeguard measures. In most countries, the decision whether to impose safeguard relief is therefore ultimately a political one. Thus, the conditions for relief may be met, but the authorities may still decide not to impose safeguard measures for other reasons, such as the possibility of retaliation or the cost of import relief to users of the imported goods. Only 154 global safeguard measures were imposed by WTO Members between January 1995 and June 2016.29
When considering filing a petition, the petitioning industry should ensure, prior to filing, that the political will is there to impose a remedy. If a case is filed, exporters in affected countries should determine whether their country qualifies under the developing country exception; if it does, they should work with their government to raise this exception with the investigating authorities.
3.2 Regional Safeguards
Regional trade agreements generally permit the application of safeguard measures (often referred to as “snapbacks”) against parties to the agreement on similar terms as those applicable to global safeguards. However, the precise standards, e.g., the level of injury, may vary depending on the agreement. The relief is usually the raising of the tariff on the product in question to no more than the MFN rate at the time the agreement was entered into, or the current MFN rate, whichever is lower.
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3.3 China and Vietnam Safeguards
As noted above, country-specific safeguards could be applied to imports from China through 11 December 2016 and to imports from Vietnam through 31 December 2018. They may be applied where such imports cause “market disruption”, defined in the Protocols of Accession of the two countries as occurring when “imports of an article, like or directly competitive with an article produced by the domestic industry, are increasing rapidly, either absolutely or relatively, so as to be a significant cause of material injury, or threat of material injury to the domestic industry.” Despite the fact that “material injury” is a considerably lower standard than the “serious injury” required for the application of global safeguards, the United States has only once applied such a safeguard against China (on tyres), and never against Vietnam.30
4.0 National Security
4.1. Introduction
The trade community has paid little attention in recent years to Section 232 of the US Trade Expansion Act of 1962, which authorizes the President to take action, including imposition of quotas or increased tariffs, where imports are found to be impairing the national security of the United States. The provision has only been invoked 26 times in 55 years, and in only two cases – both involving petroleum – was import relief granted. The last time it was invoked (unsuccessfully) was in 2001.31Most trade experts regarded it as a dead letter because there were very few items for which domestic capacity was insufficient.
However, President Trump surprised the business and legal community in April 2017 by announcing the initiation of Section 232 investigations into steel and aluminium. Although China has contributed heavily to the world over-capacity in both products, the Administration claims that the investigations are not “China-phobic”. 32In fact most imports of aluminium come from Canada, and China exports well under 1% of its total steel production to the United States. The fact that the Administration has self-initiated the investigations, rather than waiting for the domestic industries to file petitions, and has announced that the investigations will be carried out on an expedited basis, suggests that it will be much more sympathetic to the petitioners than past administrations in Section 232 cases. Section 232 must therefore be added to the list of weapons in the armoury of domestic industries seeking relief from import competition, at least those industries that have some strategic significance. Indeed, in his announcement of the steel investigation, President Trump identified other industries – vehicles, shipbuilding, and semiconductors – as critical to US national security.
4.2 Procedure
Section 232 investigations are conducted by the Department of Commerce. They can be initiated by the Department of Commerce itself, or upon request of the head of another department or agency, or a domestic industry. The Department must complete its investigation within 270 days (Commerce Secretary Ross has indicated that the current investigations will be carried out on a considerably faster timetable). If the Department finds that imports are threatening to impair the national security, the President must decide within 90 days whether to impose import relief.
The Department of Commerce is directed by the statute to consult with the Department of Defence with respect to methodological and policy questions. It will also work with other relevant agencies, which will invariably include the US Trade Representative and the Departments of the Treasury, State and Labor, the National Security Council, and the Council of Economic Advisers. The Department will receive submissions from private parties, including the domestic industry, importers, and foreign producers. It may hold a hearing, but is not required to do so.
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4.3 Issues
The statute directs the Department to consider, among other factors:
IMPORTS OF IRON ORE AND SEMI-FINISHED STEEL33
Until the investigations of iron and steel, announced in April 2017, the most recent Section 232 investigation had been into imports of iron ore and semifinished steel, requested by two members of the House of Representatives, in 2001. The Department of Commerce made a negative determination, based on the following findings:
4.4 Implications
As discussed in the Postscript to the Overview at the beginning of this book, the new Section 232 investigations may have important implications for the international trading system. Any relief in the form of quotas or tariffs, if granted, would undoubtedly be challenged in the WTO. However, the United States has taken the position that action taken by a government on national security grounds cannot be questioned in the WTO, because the national security exception in the GATT (Article XXI) authorizes a Member to take whatever action “it considers necessary” in the name of national security.34In one GATT case the United States only permitted a panel to be formed on condition that it not examine or consider the validity of an Article XXI claim.35As mentioned in the Postscript to the Overview, the United States refused to participate in the last case involving action that the United States claimed was based on national security – a 1996 challenge in the WTO to the Helms-Burton Act.36A US spokesman said “We would not show up [to the panel proceedings].” Acceptance of this position by a panel or the Appellate Body would open the way for Members to justify any protectionist action on the ground of national security without fear of challenge. On the other hand, a ruling against the United States, holding that such action is subject to review, would add fuel to the anti-WTO sentiments in the United States. One trade expert described use of the national security defence as “the nuclear option.”37
5.0 Protection From Imports Infringing Intellectual Property Rights
Under the Uruguay Round Agreement on Trade-Related Aspects of Intellectual[Page171:]Property Rights (TRIPS), WTO Members have national treatment rights that afford them the ability to access the same judicial and administrative remedies within a foreign Member to protect their intellectual property rights as are available to local entities (and TRIPS requires that certain remedies be available). In addition, TRIPS authorises WTO Members to take certain border measures to protect local intellectual property right holders from infringing imports. Specifically, right holders may apply to the relevant local authorities to take action to prevent the importation into commerce of goods that are counterfeiting trademarks, pirating copyrights, or otherwise infringing on the right holder’s intellectual property rights. Upon investigation, local authorities may prevent importation and may seize and destroy or require the reexportation of infringing goods. Nevertheless, only a few Members have enacted measures to enable them to take such action. Therefore, in most Members, intellectual property rights are only enforceable in the local courts, which may be predisposed to protect the domestic industry over the foreign right-holder.
5.1 United States
In the United States, Section 337 of the US Tariff Act of 1930, as amended (known simply as “Section 337”) protects against the import or sale of imported goods that infringe valid US intellectual property rights, including patents, trademarks, trade secrets, and copyrights. Remedies in Section 337 cases include exclusion orders blocking the importation of the infringing good and broader cease-and-desist orders preventing the sale of such goods. These investigations are conducted by the US International Trade Commission before an administrative law judge (ALJ). The ALJ conducts the investigation using an approach similar to a court’s, but much faster. Under Section 337, although there is no statutory deadline, the ALJs generally issue their decisions within 12 to 15 months after the filing of a complaint. The Commissioners may review the findings of the ALJ and remand the case back to the ALJ for further consideration, but rarely do so. The form of relief to be provided is decided by the Commissioners.
Complainants may file a Section 337 complaint with the US International Trade Commission and may also file a suit in the proper US court, although the respondent firms may then request that the court proceeding be stayed during the pendency of the Section 337 proceeding. The lax standing requirements (no domestic production required) means that many Section 337 cases can be brought by companies with no domestic production (or, indeed, no production at all). Moreover, if the complaint concerns potential violation of intellectual property rights (i.e., patents, trademarks, or copyrights), the complainant need not demonstrate injury. Section 337 has proven a popular remedy in recent years, with approximately 100 active investigations each year since 2010 (51 active investigations in the first quarter of 2016 alone).
5.2 European Union
In the European Union, intellectual property rights are primarily protected by national laws, but there are also supranational measures that provide a wide scope of protection. The European Patent Office, for example, offers a European patent that can be validated by the national patent office in whichever member state protection is sought, instead of forcing businesses and individuals to obtain a separate patent for each EU member. Similarly, the Office for Harmonisation in the Internal Market is the EU agency responsible for trademark and design protection and provides a central starting place for registration, documentation, and protection of creative works.
On a policy level, the EU has also taken a number of steps towards the enforcement of intellectual property rights, the most notable being Directive 2004/24/EC. This forms the basis of the EU’s approach and was one of the first attempts at a homogenous[Page172:]level of protection for intellectual property rights in the European market. While it does not specifically direct member states to take specific enforcement steps, it does serve as a unifying basis for the conversation among EU nations.
Appendix: Calculation of a Dumping Margin
The following provides a simple example of a calculation of the margin of dumping. Assumptions: Company A is the producer/exporter of the subject widgets. Company C is an unaffiliated buyer in the investigating country (export market). Company B is a trading company in the investigating country that is affiliated with Company A. Company A sells widgets in its home market for US$120 each. It incurs US$2 in logistics expenses to deliver the widget to the home market customer, offers a US$5 discount, incurs US$4 in direct selling expenses, and it costs it US$2 to pack it ready for shipment to the home market customer.
Company A sells widgets to Company C in the relevant export market. It also charges Company C US$120 per widget. Company A incurs US$10 in logistics expenses to deliver the widget to Company C, provides a discount of US$5, and incurs direct selling expenses of US$5. It costs Company A only US$1 to pack the widget for shipment to Company C. This is an export price transaction. The calculation of the normal value would be:
Company B also imports widgets from Company A and sells them to Company C for
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US$120 per widget. For these sales, Companies A & B combined incur US$10 in logistics expenses to deliver the widgets to Company C. Company B provides a US$5 discount, incurs direct selling expenses of US$5, and indirect selling expenses of US$3. Company B achieves a US$2 profit on each widget it sells Company C. It still costs US$1 to pack the widget for shipment to the unaffiliated US customer. In its home market, Company A incurs US$3 in indirect selling expenses as well. This is a constructed export price situation. The calculation of normal value would be:
1 It may be asked: What is the harm caused by dumping that benefits consumers in the importing country by providing them goods at low prices? The concern in the early part of the Twentieth Century, when countries started enacting anti-dumping laws (Canada being the first), was that cartelised industries would use their excess profits from their home market to support low-priced exports designed to drive local industries out of business, at which point they could charge high prices in the export market as well. While possibly a valid concern a century ago, such a scenario would be impossible in today’s globalised economy, as raised prices in the export market would attract imports from other sources, which would drive prices down again. The US Supreme Court made this point eloquently in Zenith v. Matsushita, 475 U.S. 574, 588-89 (1986).
2 For many years the United States was the most active user of anti-dumping law, but in the last few years it has been in second place, having been overtaken by India. Not surprisingly, China is by far the most frequent target of anti-dumping investigations, followed by Korea, Taiwan, Thailand and the United States. The United States has carried out by far the most countervailing duty investigations (156), followed, but not closely, by the EU and Canada. India has initiated the most number of safeguard investigations followed by Indonesia and Turkey
3 Out of a total of around 500 complaints filed in the WTO Dispute Settlement system, more than 100 have involved the Antidumping Agreement and roughly the same number were brought under the SCM Agreement.
4 For purposes of this chapter, unless otherwise stated, the term “material injury” refers to all three standards (1) present material injury, (2) threat of material injury; and (3) material retardation. Injury findings based on material retardation are rare. “Like product” generally refers to the domestically produced good that is identical in physical characteristics, or if not identical then most similar in characteristics and uses with the imported product that is subject to the complaint. See Article 2.6 of the Anti-dumping Agreement and Article 15.1 of the SCM Agreement.
5 No direct WTO challenge of dumping is possible, because dumping is the action of private companies rather than governments
6 United States – Large Civilian Aircraft, WT/DS353/AB/R (2012); EC – Large Civilian Aircraft, WT/DS316/AB/R (2011
7 To take a simple example, suppose that a manufacturer produces 100 units per month. Total fixed costs (rent, interest on loans, depreciation, etc.) are 1,000 per month, and variable costs (raw materials, energy, etc.) are 25 per unit. Total costs per month are 1,000 + (100 x 25) = 3500, or 35 per unit. If the unit price falls to 30, it still makes sense to continue producing and selling, as the manufacturer will lose only 500, whereas if it closes production, it will still have to bear the fixed cost of 1,000.
8 The specific formula is: COM (raw materials + factory labour + energy + factory overhead) + GS&A (general, selling, and administrativeexpense) + profit = constructed value
9 See GATT Ad. Article VI, para. 1.2.
10 United States – Measures Related to Price Comparison Methodology, DS515
11 European Union – Measures Related to Price Comparison Methodology, DS516
12 The SCM Agreement Article 1.1(a)(2) also includes income supports, but these have rarely been alleged or investigated in the context of a countervailing duty proceeding and are not specifically defined
13 The “entrusted or directed” provision was designed to prevent governments from avoiding countervailing duties by, for example, putting pressure on a private bank to make a low-interest loan to a manufacturer
14 Canada – Regional Aircraft, WT/DS70/AB/R (1999).
15 United States – Subsidies on Upland Cotton, WT/DS267/R (2005), Corr. 1 and Add.1 to Add.3, para. 7.1142, as modified by Appellate Body Report WT/DS267/AB/R (2005).
16 Id. para. 7.1151.
17 As noted above, injury determinations based on “material retardation” are rare
18 The Anti-dumping Agreement establishes that margins of dumping below 2% are to be considered de minimis, requiring a negative determination. The SCM Agreement establishes that for developed countries margins of subsidisation at or below 1% are de minimis, while for developing countries 2% is the de minimis level
19 United States – Countervailing Duty Measures on Certain Hot-Rolled, Carbon Steel Flat Products from India, WT/DS436/R, paras. 7.339 – 7.356 (2014).
20 Investigations can also be, but rarely are, self-initiated by the relevant authorities
21 21 In a countervailing duty proceeding, while the SCM Agreement establishes a preference for calculating individual margins of subsidisation for each exporter, in certain circumstances the authority may investigate the level of subsidisation in the aggregate and determine a single margin of subsidisation for all companies in the exporting country – although individual companies must have an opportunity to request individual rates
22 Members of the domestic industry will receive questionnaires in connection with the injury investigation, but these are not nearly as burdensome as the dumping/subsidisation questionnaires sent to the foreign producers.
23 The investigating authority may suspend liquidation of all entries back 90 days prior to the publication of the preliminary determination (but not less than 60 days after initiation) if critical circumstances exist. This provision is designed to discourage importers from bringing in large quantities of imports before the imposition of anti-dumping or countervailing duties. Liquidation of entries during that period will be suspended and those entries will be subject to anti-dumping or countervailing duties if the local authorities make a final determination that the necessary circumstances exist. Such findings are rare, at least in the United States.
24 The final duty is assessed and paid with no further adjustment
25 Safeguard Agreement, Article 4.1(a).
26 Argentina – Safeguard Measures on Imports of Footwear (EC), WT/DS121/AB/R, para. 131 (2000).
27 Id. at paras. 85-96.
28 If a developing country’s share of the imports is less than 3% of total imports and the total of such a small volume developing country’s entire share is less than 9% of total imports, that country’s imports must be excluded from the remedy
29 https://www.wto.org/english/tratop_e/safeg_e/SG-MeasuresByRepMember.pdf
30 The safeguard was upheld by the WTO Appellate Body. United States – Measures Affecting Import of Certain Passenger Vehicle and Light Truck Tyres from China, WT/DS399/AB/R (2011).
31 “The Effect of Imports of Iron Ore and Semi-Finished Steel on the National Security”, US Department of Commerce (October 2001). Import quotas were imposed [for purely domestic political reasons] in a case under the predecessor statute in 1959, limiting crude oil imports into the US from 1959. Two direct results were that the US pumped out its own reserves first in the name of national security, and the quotas caused the formation of OPEC.
32 http://in.reuters.com/article/us-usa-trade-aluminum-idINKBN17T044
33 See note 31
34 It would raise an interesting question: Could Members affected by the action bring a non-violation case claiming that its benefits had been “nullified or impaired” and that they therefore had the right to be compensated or to retaliate? Non-violation cases are authorised by GATT Article XXIII:1(b), and involve claims that actions by Members that nullify or impair other Members’ benefits (i.e., tariff concessions) even though the actions do not violate the GATT or any of the WTO Agreements. Such cases are extremely rare. The complainant would have to show that the action was not foreseeable. That might be possible if the Section 232 decision did not have a rational basis. The question came up in United States – Trade Measures Affecting Nicaragua, L/6053 (unadopted) (1986), but the Panel declined to rule on it because the United States had imposed a complete embargo on trade with Nicaragua, and the right to retaliate would therefore be meaningless.
35 Id.
36 United States – The Cuban Liberty and Democratic Solidarity Act, DS38 (suspended 1997).
37 See “Five Things to Know About Trump’s Steel Order”, http://thehill.com/policy/finance/330021-five-things-to-know-abouttrumps-steel-order
38 This simplified example is provided for illustrative purposes only. The exact manner in which the normal value and export price are calculated varies by country. Some might simply subtract packing expenses and direct selling expenses from each side, rather than the approach used here (which reflects US practice) of subtracting home market selling and packing expenses then adding export market selling and packing expenses in determining the normal value. Exactly which expenses are adjusted will also vary country-by-country. The goal is to have prices at a comparable level to compare in the two markets (in this instance roughly an ex-factory price for the good packed ready for shipment to the export market).
39 Again this is a simplified illustration to demonstrate the basic principle. It is based on US practice. Different countries will make different adjustments in different manners. The key in these examples is that in both instances, the adjustments are aimed at getting both the export market price and the home market (third country) price back to a more-or-less ex-factory price for the good packed ready for shipment to the export market.