Trade Remedies 

MODULE

5

ESTIMATED TIME: 5 hours 

OBJECTIVES OF MODULE 5

Present an overview of the disciplines and conditions provided in the WTO Agreements

with regard to:

the application of anti-dumping measures;

the use of subsidies and the application of countervailing measures; and,

the application of safeguard measures.

I. INTRODUCTION

In Module 2, you studied the basic principles on non-discrimination applicable to trade between WTO Members:

The Most-Favoured-Nation (MFN) and National Treatment principles. In Module 3, you studied the WTO rules

regarding tariff and non-tariff barriers (NTBs). Regarding tariff barriers, you learned that WTO Members have

committed to maximum bound tariff rates. In addition, you now know that there is a general prohibition on

quantitative restrictions (QRs) (such as quotas).

The WTO Agreements include provisions which allow Members to depart from the rules mentioned above,

subject to certain conditions. You will study most of these provisions in Module 8 (Exceptions). In this Module,

you will study only those provisions concerned with:

The application of anti-dumping measures taken against injurious dumping;

the use of subsidies and the application of countervailing measures to counteract injurious

subsidization; and,

the application of safeguard measures in case of a surge of imports that causes, or threatens to

cause, serious injury.

World Trade Organization (WTO) Members have retained their right to impose trade remedies, such as

anti-dumping and countervailing duties, to correct the competitive imbalances created by unfair trade practices

- dumping and subsidies -,when these cause injury. They have also agreed on multilateral disciplines

governing the granting of subsidies. Members are also allowed to apply safeguard measures in case of a surge

of imports that causes, or threatens to cause, serious injury. Unlike anti-dumping and countervailing

measures, the application of safeguard measures does not depend on unfair trade practices.

This Module will present an overview of the WTO disciplines and conditions for the application of anti-dumping

measures; subsidies and countervailing measures; and safeguard measures. The Specialized Course on Trade

Remedies will develop further the rules applicable to these mechanisms.

Disputes arising regarding the granting of subsidies and the application of anti-dumping, countervailing and

safeguard measures are subject to the Understanding on Rules and Procedures Governing the Settlement of

Disputes (DSU), which will be introduced in Module 10. The Agreement on Subsidies and Countervailing

Measures (SCM Agreement) also contains some special rules that apply to disputes involving subsidies.

Rationale behind trade remedies – A policy perspective

At first sight, it might seem that trade remedies "go against" trade liberalization. One may ask: Why have

Members agreed on rules that provide them the right to restrict trade temporarily? What role do trade

contingency measures -in the form of trade remedies- play in trade agreements?

Trade liberalization around the world has reduced tariff rates to low levels, producing "winners" and "losers"

in each country. However, countries typically do not have identifiable mechanisms for extracting part of the

income gains from the "winners" in order to compensate the "losers" from trade liberalization. Furthermore,

economic circumstances may evolve in a way which makes the maintenance of policies in favour of trade

liberalization untenable because of large adjustment costs.

Rationale behind trade remedies – A policy perspective

In light of these considerations, trade agreements may provide governments with a means to depart

temporarily from certain core obligations contained therein under well defined conditions. Safeguard,

anti-dumping and countervailing measures are alike to the extent that they can be used temporarily to

"shield" vulnerable sectors from the consequences of lower tariff protection in certain circumstances.

Without the possibility of applying these measures, political pressures may build up to a point where

protectionist forces would be able to engineer a permanent reversal of trade liberalization. Accordingly,

trade remedies may be considered as a pragmatic –- and temporary -- tool to deal with the costs

of adjustment resulting from trade liberalization as well as to deflate the build-up of domestic

pressures against liberalization.

Based on: World Trade Organization (WTO), World Trade Report 2007, Geneva: WTO p. 152-153.

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II. ANTI-DUMPING

IN BRIEF

Article VI of the General Agreement on Tariffs and Trade (GATT) 1994 and the Agreement on the

Implementation of Article VI of GATT 1994 – the "Anti-Dumping Agreement" - explicitly authorize the

imposition of anti-dumping measures by WTO Members, under certain conditions.

Anti-dumping measures are unilateral remedies which may be applied by a Member after conducting an

investigation where it has been determined that an imported product is being "dumped" and that

dumped imports are causing or threatening to cause "material injury" to a domestic industry

producing like products (or would materially retard the establishment of a domestic industry).

Anti-dumping measures normally are applied in the form of customs duties on imports of the product

concerned from a particular source in excess of bound rates. Anti-dumping measures may also take

the form of a price undertaking.

The identification of dumping involves a price comparison between a product's "normal value" and its

"export price". A product is to be considered as being "dumped" (introduced into the commerce of another

country at less than its "normal value"), if the "export price" of the product when sold in the importing

country is less than its "normal value", that is, the comparable price, in the ordinary course of trade, for the

like product in the market of the exporting country.

The Anti-Dumping Agreement sets forth certain substantive requirements that must be fulfilled in order

to impose an anti-dumping measure, as well as detailed procedural requirements regarding the conduct

of anti-dumping investigations, the imposition of anti-dumping measures and the review of the measures. A

failure to respect the substantive or procedural requirements can be taken by the exporting Member to the

WTO dispute settlement mechanism.

The Agreement does not condemn the practice of dumping unless it causes injury to the domestic

industry in the importing country.

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II.A. SUBSTANTIVE REQUIREMENTS FOR THE APPLICATION OF ANTI-DUMPING MEASURES

Conditions for the Application of Anti-dumping Measures

The Anti-Dumping Agreement provides that an anti-dumping measure shall be applied only after

determining, pursuant to an investigation initiated and conducted in conformity with the provisions of the

Agreement, the three following cumulative conditions:

Dumped imports;

injury to the domestic industry producing the like product; and,

causal link between the dumped imports and the injury.

Figure 1: Conditions for the Application of Anti-Dumping Measures

a. Determination of Dumping

1. WHAT IS DUMPING?

What is Dumping?

Dumping is a form of price discrimination, which takes place when the price of a product when exported to

another country is less than the price of that same product when sold in the market of the exporting country

(Article VI of the GATT and Article 2.1 of the Anti-Dumping Agreement).

In the simplest of cases, one identifies dumping simply by comparing prices in two markets. However, the

situation is rarely that simple. According to the Anti-Dumping Agreement, dumping is calculated on the

basis of a fair comparison between the normal value (the price of the imported product in the “ordinary

course of trade” in the country of origin or export) and the export price (the price of the product in the

importing country). Article 2 contains detailed provisions governing the calculation of normal value and export

price and elements of the fair comparison that must be made.

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In order to make such a comparison, the investigating authority will have to determine the "like product" in

the domestic market of the exporter. Article 2.6 of the Anti-Dumping Agreement provides a definition of "like

product", which will be developed later on to explain the concept of "like product" in the context of the injury

analysis.

2. NORMAL VALUE

2.1 GENERAL RULE

The normal value is generally the price, in the ordinary course of trade, for the like product at issue

when destined for consumption in the exporting country market (Article 2 of the Anti-Dumping

Agreement).

A complicated question in anti-dumping investigations is the determination whether sales in the exporting

country market are made in "the ordinary course of trade". The Agreement defines the specific

circumstances in which home market sales at prices below the cost of production may be considered as not

made in the "ordinary course of trade" and thus may be disregarded in the determination of normal value

(Article 2.2.1).

When there are no sales of the like product in the ordinary course of trade in the domestic market of the

exporting country, or the sales are so low in volume that they do not permit a proper comparison of home

market prices and export prices, it may not be possible to determine the normal value on this basis.

The Anti-Dumping Agreement provides alternative methods for the determination of normal value in such

cases.

2.2 ALTERNATIVE METHODS

Article 2.2 provides two alternatives for the determination of normal value. According to them, the margin of

dumping shall be determined by comparison with:

(i) the comparable price of the like product when exported to an appropriate third country

(provided that this price is representative); or,

(ii) the constructed normal value of the product, which is calculated on the basis of the cost of

production, plus a reasonable amount for administrative, selling and general costs and profits.

In relation to the determination of a constructed normal value, the Anti-Dumping Agreement contains rules

governing the information to be used in determining the amounts for costs, expenses, and profits, the

allocation of these elements of constructed value to the specific product in question and adjustments for

particular situations such as start-up costs and non-recurring cost items.

2.3 SPECIAL SITUATIONS

Where products are not imported directly from the country of origin, but are exported to the importing

Member from an intermediate country, Article 2.5 of the Anti-Dumping Agreement provides that the normal

value shall normally be determined on the basis of sales in the market of the exporting country. However,

comparison may be made with the price in the country of origin if, for example, the product is not produced in

the exporting country, there is no comparable price for the product in the exporting country or the product is

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merely transhipped through the exporting country. In such cases, the normal value may be determined on the

basis of the price of the product in the country of origin and not the price in the exporting country.

In the situation where a product is imported from a non-market economy (economy where the government

has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the

State), the Anti-Dumping Agreement recognizes, through a reference in Article 2.7, that a strict comparison

with home market prices may not be appropriate.

3. EXPORT PRICE

3.1 GENERAL RULE

The export price will normally be based on the transaction price at which the foreign producer sells the

product to an importer in the importing country. However, the Agreement recognizes that this transaction

price may not be appropriate for purposes of comparison in certain cases.

Article 2.3 of the Agreement allows the use of an alternative method for determining an appropriate export

price where: (i) there is no export price for a given product, for instance, if the export transaction is an internal

transfer, or if the product is given in exchange for another product (barter transaction); or, (ii) the transaction

price at which the exporter sells the product to the importing country is unreliable because of an association

or a compensatory arrangement between the exporter and the importer or a third party.

3.2 ALTERNATIVE METHOD

When the transaction price cannot be used, the export price can be based on a constructed export price

determined on the basis of the price at which the imported product is first resold to an independent buyer. If

the imported product is not resold to an independent buyer, or is not resold as imported, the authorities may

determine a reasonable basis on which to calculate the export price.

4. FAIR COMPARISON BETWEEN NORMAL VALUE AND EXPORT PRICE

The basic requirements for a fair comparison are that the prices being compared are those of sales made at the

same level of trade, normally the ex-factory level (to avoid the distorting effect of factors such as transport,

insurance, etc), and of sales made at as nearly as possible the same time (Article 2.4).

To ensure that prices are comparable, the Anti-Dumping Agreement requires that adjustments be made to

either the normal value, or the export price, or both, to account for differences in the product, or in the

circumstances of sale, in the importing and exporting markets. What sorts of factors require an adjustment?

Due allowance must be made in each case, on its merits, for differences in conditions and terms of sale,

taxation, quantities, physical characteristics and other differences affecting price comparability.

Example: Adjustment to the Export Price

A producer may sell "on sight" in its domestic market, while on its export market it may give 30 days credit.

In this case, the investigating authority could adjust the export price by deducting from it the cost relating to

the credit given by the exporter. In this example, no adjustment would be made to the normal value

because selling "on sight" implies no cost to the producer.

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The Agreement also provides specific rules on the adjustment to be made if the comparison of normal value is

to a constructed export price. In those cases, allowances for costs, including duties and taxes, incurred

between importation and resale, and for profits accruing, should also be made. Where the comparison of

normal value and export price requires conversion of currency, the Agreement provides specific rules governing

that conversion (Article 2.4.1).

Investigating authorities shall inform the parties of the information needed to ensure a fair comparison, for

instance, information regarding adjustments, allowances and currency conversion, and may not impose an

"unreasonable burden of proof" on parties.

5. CALCULATION OF THE MARGIN OF DUMPING

The Agreement contains rules governing the calculation of dumping margins. The existence of margins of

dumping during the investigation phase shall normally be established on the basis of: (i) a comparison of a

weighted average normal value with a weighted average of prices of all comparable export

transactions; or, (ii) a comparison of normal value and export prices on a transaction-to-transaction

basis (Article 2.4.2). A different basis can be used if a pattern exists of export prices differing significantly

among different purchasers, regions or time periods, and if the investigating authorities provide an explanation

as to why such difference cannot be taken into account appropriately by the use of a weighted

average-to-weighted average or transaction-to-transaction comparison. In such a situation, the weighted

average normal value can be compared to the export prices on individual transactions.

Example: Formula for Calculating the Margin of Dumping - Comparison of a weighted average

normal value with a weighted average of prices of all comparable export transactions

Normally, the margin of dumping is expressed as a percentage of the adjusted weighted average export

price. Thus, the difference between the "adjusted weighted average normal value" and the "adjusted

weighted average export price" is divided by the "adjusted weighted average export price".

Example: Assume the adjusted weighted average normal value is US$ 4.50/kg and the adjusted weighted

average export price is US$ 4.15/kg. According to the formula, the margin of dumping would be:

4.50 - 4. 15 _____________ = 8.43% Margin of Dumping

4.15

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The Agreement requires that a dumping margin be calculated for each exporter. However, it is

recognized that this may not be possible in all cases, and thus the Agreement allows investigating

authorities to limit the number of exporters, importers, or products individually considered and impose an

anti-dumping duty on sources not investigated on the basis of the weighted average dumping margin actually

established for the exporters or producers actually examined. The investigating authorities are precluded from

including in the calculation any dumping margins that are de minimis, zero or based on the facts available

rather than a full investigation, and must calculate an individual margin for any exporter or producer who

provides the necessary information during the course of the investigation.

The Agreement also makes provision for the assessment of anti-dumping duties on exports from producers or

exporters who were not sources of imports considered during the period of investigation. In this case, the

investigating authorities are required to conduct an expedited review to determine a specific margin of

dumping attributable to the exports of such a "new shipper".

TO KNOW MORE... PERIOD OF DATA COLLECTION FOR DUMPING

INVESTIGATIONS

Although the Anti-dumping Agreement refers to the period of data collection for dumping investigations

("period of investigation"), it does not establish any specific period of investigation, nor does it establish

guidelines for determining an appropriate period of investigation for the examination of either dumping or

injury. The document "Recommendation Concerning the Periods of Data Collection for Anti-Dumping

Investigations" (G/ADP/6), adopted by the Committee on Anti-Dumping, provides that this period normally

should be twelve months, and in any case no less than six months, ending as close to the date of initiation

as is practicable.

EXERCISES

1. What is dumping? How is it calculated?

2. Summarize the methods available for calculating the normal value.

3. Summarize the methods available for calculating the export price.

4. What main requirement does the Anti-Dumping Agreement impose for the comparison between normal

value and export price?

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b. Determination of Material Injury and Causal Link

Determination of Material Injury and Causal Link

After determining the existence of dumping and before imposing anti-dumping measures, the Anti-Dumping

Agreement requires WTO Members to determine:

Material injury to the domestic industry producing the like product; and,

Causal link between the dumped imports and the injury.

1. SOME IMPORTANT CONCEPTS

1.1. LIKE PRODUCTS

The concept of "like product" is defined in Article 2.6 of the Anti-Dumping Agreement as a product which is

identical, i.e. alike in all respects to the product under consideration, or, in the absence of such a

product, another product which, although not alike in all respects, has characteristics closely

resembling those of the product under consideration.

The determination of "like products" in the context of the injury analysis involves examining the imported

product or products that are alleged to be dumped, and then establishing what domestically produced product

or products are the appropriate "like products". This determination is important because it forms the basis of

determining which companies constitute the domestic industry, which will be the basis of the investigation and

determination of injury and causal link.

As we saw in the previous section, the definition of "like product" is also relevant to the determination of

dumping. However, it is worth noting that when referred to the determination of dumping, the product under

consideration is the good produced in the exporting country.

1.2 DOMESTIC INDUSTRY

Article 4 of the Anti-Dumping Agreement defines the term "domestic industry" to mean the domestic

producers as a whole of the like products or those of them whose collective output of the products

constitutes a major proportion of the total domestic production of those products.

The Agreement recognizes that, in certain circumstances, it may not be appropriate to include all producers of

the like product in the domestic industry. Thus, Members are permitted to exclude from the domestic industry

producers related to the exporters or importers under investigation, and producers who are themselves

importers of the allegedly dumped product (Article 4.1(i)).

The Agreement also contains special rules that allow, in exceptional circumstances, consideration of injury to

producers comprising a "regional industry". The territory of a Member may, for the production in question,

be divided into two or more competitive markets and the producers within each market may be regarded as a

separate industry if the producers within that market sell all or almost all of their production of the like product

in that market, and demand for the like product in that market is not to any substantial degree supplied by

producers of the like product located outside that market. Articles 4.1(ii) and 4.2 contain special rules

applicable to such cases.

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2. DETERMINATION OF INJURY

The Anti-Dumping Agreement provides that, in order to impose anti-dumping measures, the investigating

authorities of the importing Member must make a determination of "injury". Footnote 9 of the Anti-Dumping

Agreement specifies three types of "injury": (i) material injury to a domestic industry, (ii) threat of

material injury to a domestic industry, or, (iii) material retardation of the establishment of a domestic

industry. This section will focus mainly on the first one (material injury). The Agreement does not

provide guidance on the third one (material retardation), which has rarely been invoked.

2.1 MATERIAL INJURY

Article 3.1 of the Anti-Dumping Agreement requires that a determination of injury must be based on positive

evidence and involve an objective examination of both: (a) the volume of dumped imports and the effect

of the dumped imports on prices in the domestic market for like products; and, (b) the consequent impact of

the dumped imports on domestic producers of the like products.

In US Hot-Rolled Steel, the Appellate Body stated that the term "positive evidence" relates to the quality of the

evidence that authorities may rely upon in order to justify an injury determination. It further explained that

the word "positive" means that the evidence must be of an affirmative, objective and verifiable character

and that it must be credible (US Hot-Rolled Steel, Appellate Body Report, para. 192).

a) Dumped Imports

Article 3.2 requires investigating authorities to consider whether there has been a significant increase in

dumped imports, either in absolute terms or relative to production or consumption in the domestic industry.

The Agreement also requires investigating authorities to consider whether there has been significant price

undercutting by the dumped imports as compared with the price of the like product of the importing

Member; or whether the effect of dumped imports is "otherwise" to depress prices to a significant degree, or to

prevent price increases which otherwise would have occurred, to a significant degree.

The Anti-Dumping Agreement does not specify comprehensively or precisely how the investigating authorities

are to evaluate the volume and price effects of dumped imports. Thus, investigating authorities have to

develop analytical methods for undertaking the consideration of these factors, according to the particular

circumstances of each case.

b) Impact of Dumped Imports

Article 3.4 provides that, in examining the impact of dumped imports on the domestic industry, the authorities

are to evaluate all relevant economic factors having a bearing upon the state of the domestic

industry. It includes a list of factors which must be considered, such as: actual or potential declines in sales,

profits, output, market share, productivity, return on investments, utilization of capacity; factors affecting

domestic prices; the magnitude of the margin of dumping; actual and potential negative effects on cash flow,

inventories, employment, wages, growth, ability to raise capital or investments.

The list is not exhaustive and no one or several of these factors can necessarily give decisive guidance.

Other factors may be deemed relevant in a given situation. In this regard, in US - Hot Rolled Steel, the

Appellate Body opined that the obligation of evaluation of Article 3.4 imposed on investigating authorities is not

confined to the listed factors, but extends to all relevant economic factors (US - Hot Rolled Steel, Appellate

Body Report, para. 194). The Agreement expressly provides that no single factor or combination of factors will

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necessarily lead to either an affirmative or negative determination. Thus, investigating authorities have to

evaluate which factors are relevant, and which are important, in light of the circumstances of the particular

case at issue.

2.2 THREAT OF MATERIAL INJURY

The Anti-Dumping Agreement provides that a determination of threat of material injury shall be based on

facts, and not merely on allegation, conjecture, or remote possibility. Furthermore, the change in

circumstances which would create a situation where dumped imports would cause material injury must be

clearly foreseen and imminent (Article 3.7).

The Agreement sets forth factors to be considered in the evaluation of threat of material injury including: a

significant rate of increase of dumped imports into the domestic market, the capacity of the exporter(s), the

likely effects of prices of dumped imports on domestic prices and inventories of the product being investigated.

Article 3.8 also provides that, with respect to cases where injury is threatened by dumped imports, the

application of anti-dumping measures shall be considered and decided with special care.

3. CAUSAL LINK BETWEEN DUMPED IMPORTS AND INJURY

Article 3.5 requires a demonstration that there is a causal relationship between the dumped imports and

the injury to the domestic industry producing the like product. It must be demonstrated that the

dumped imports, through the effects of dumping, are causing injury. This demonstration must be based on an

examination of all relevant evidence before the investigating authority.

This provision requires investigating authorities to examine any known factors other than dumped

imports which may be causing injury to the domestic industry at the same time. The Anti-Dumping

Agreement provides examples of such "other" factors (contraction in demand, changes in the patterns of

consumption, developments in technology, export performance and productivity of the domestic industry),

which may be relevant, and specifies that injury caused by these other factors must not be attributed to

dumped imports (non-attribution requirement). As held by the Appellate Body in US-Hot Rolled Steel, this

requires separating and distinguishing the injurious effects of the other factors from the injurious effects of

dumped imports. Investigating authorities must determine what evidence is, or may be, relevant in a particular

case in their evaluation of causation (US-Hot Rolled Steel , Appellate Body Report, paras. 222-223).

4. CUMULATIVE ANALYSIS

Cumulative analysis refers to the consideration of dumped imports from more than one country on a combined

basis in assessing whether dumped imports are causing injury to the domestic industry. Since such analysis

will increase the volume of imports whose impact is being considered, there is a greater possibility of an

affirmative determination in a case involving cumulative analysis. Article 3.3 establishes the conditions in

which a cumulative evaluation of the effects of dumped imports from more than one country may be

undertaken.

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TO KNOW MORE... INJURY INVESTIGATION PERIOD

As in the case of dumped imports, the determination of material injury requires an analysis over a period of

time which is often called injury investigation period. The Anti-Dumping Agreement contains no rules on this

period although the "Recommendation Concerning The Periods of Data Collection for Anti-Dumping

Investigations" (G/ADP/6) calls on Members to use for the injury investigation a data collection period of at

least three years, which should include the entirety of the period of data collection for the dumping

investigation.

EXERCISES

5. Explain briefly the three substantive conditions to be met before the application of an anti-dumping

measure.

6. How is "material injury" determined in anti-dumping investigations?

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II.B. PROCEDURAL REQUIREMENTS FOR THE APPLICATION OF ANTI-DUMPING MEASURES

The Anti-Dumping Agreement establishes: detailed requirements for the initiation and conduct of

investigations; the application and duration of provisional and definitive anti-dumping measures; and the

review of anti-dumping measures.

a. General Requirements

INITIATION OF INVESTIGATION AT THE REQUEST OF THE DOMESTIC INDUSTRY: the

Anti-Dumping Agreement specifies that investigations should generally be initiated on the basis of a

written request submitted "by or on behalf of a domestic industry". This requirement includes

numerical limits to guide investigating authorities in determining whether there is sufficient support

by domestic producers to conclude that the request is made by or on behalf of the domestic industry

(the so-called "standing" requirement). For example, the application shall be considered to have

been made "by or on behalf of the domestic industry" if it is supported by those domestic producers

whose collective output constitutes more than 50 per cent of the total production of the like product

produced by that portion of the domestic industry expressing either support for or opposition to the

application. No investigation shall be initiated when domestic producers expressly supporting the

request account for less than 25 per cent of total production (Article 5.4). In addition, "in special

circumstances", investigating authorities may initiate an investigation ex officio, without a written

application by or on behalf of a domestic industry.

EVIDENTIARY REQUIREMENTS FOR INITIATION: in respect of initiation, the Anti-Dumping

Agreement provides requirements for the contents of an application, in terms of evidence of

dumping, injury and causation, as well as other information regarding the product, price, industry,

importers, exporters, etc (Article 5.2). The investigating authorities shall examine the evidence to

determine whether it is sufficient to justify the initiation of an investigation. An application shall be

rejected and an investigation terminated promptly as soon as the authorities concerned are satisfied

that there is not sufficient evidence of either dumping or of injury to justify proceeding with the case.

When authorities initiate without a written application from a domestic industry (ex officio), they shall

proceed only if they have sufficient evidence of dumping, injury and causal link to justify initiation

(Article 5.3 and Article 5.6).

DUE PROCESS, TRANSPARENCY AND PUBLIC NOTICE: interested parties shall have an adequate

opportunity to defend their interests and to participate in the investigation (Article 6). In addition,

authorities are required to ensure the transparency of proceedings. The Agreement includes

requirements for public notice by investigating authorities of the initiation of investigation,

preliminary and final determinations and undertakings. This includes disclosing information regarding

the product, the margin of dumping and the basis for the determinations (Article 12). Article 6 of the

Anti-Dumping Agreement also contains provisions to protect the confidentiality of certain information.

MAXIMUM DURATION OF THE INVESTIGATION: as a general rule, investigations should be

completed within one year, and in no case more than 18 months, after initiation (Article 5.10).

JUDICIAL REVIEW: the Anti-Dumping Agreement requires Members to provide for judicial review of

final determinations relating to the application of anti-dumping measures (Article 13).

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Further guidance on the conduct of investigations is contained in two Annexes to the Agreement, which set

forth rules for the on-the-spot investigations and for the use of best information available in the event a party

refuses access to, or does not provide, requested information, or significantly impedes the investigation.

b. Termination of Investigation without Merit

Article 5.8 of the Anti-Dumping Agreement provides for immediate termination of investigations in the event

there is not sufficient evidence of either dumping or injury, the margin of dumping is de minimis (less

than two per cent, expressed as a percentage of the export price) or the volume of imports is negligible

(the volume of dumped imports from a particular country is found to be less than three per cent of total

imports of the like product; unless imports which individually account for less than three per cent collectively

account for more than seven per cent of imports of the like product in the importing country).

c. Undertakings

Article 8 of the Anti-Dumping Agreement contains rules on the offering and acceptance of undertakings from

any exporter to revise its prices or to cease exports at dumped prices, in lieu of the imposition of

anti-dumping duties. It establishes the principle that undertakings between any exporter and the importing

Member may be entered into, but only after a preliminary affirmative determination of dumping, injury and

causation has been made. It also establishes that the acceptance of price undertakings is voluntary on the

part of both exporters and investigating authorities. In addition, an exporter may request that the

investigation be continued after an undertaking has been accepted. If a final determination of no dumping, no

injury or no causation results, the undertaking shall automatically lapse, except in cases where such a

determination is due in large part to the existence of a price undertaking.

d. Provisional Measures

Article 7 of the Anti-Dumping Agreement provides rules for the imposition of provisional measures. These

rules include the requirement that authorities make a preliminary affirmative determination of dumping, injury,

and causation before applying provisional measures, as well as the requirement that no provisional measures

may be applied sooner than 60 days after initiation of an investigation. Provisional measures may take the

form of a provisional duty or, preferably, a security by cash deposit or bond equal to the amount of the

preliminarily determined margin of dumping. The Anti-Dumping Agreement also contains time limits for the

imposition of provisional measures — generally four months, with a possible extension to six months at

the request of the exporter (when authorities examine whether a duty lower than the margin of dumping would

be sufficient to remove injury, these periods may be six and nine months, respectively).

e. Application of Anti-dumping Duties

Anti-dumping measures take the form of customs duties, which may be in excess of the bound tariff provided

in the Schedule of concessions of the Member applying the measure. The Anti-Dumping Agreement provides

that it is desirable that the imposition of the duty be permissive and that the duty be less than the margin of

dumping if such "lesser duty" would be adequate to remove the injury to the domestic industry. In any case,

anti-dumping duties cannot exceed the margin of dumping calculated during the investigation

(Article 9.3). The Agreement provides specific ways to ensure that excessive duties are not collected.

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The Anti-Dumping Agreement sets forth the general principle that both provisional and final anti-dumping

duties may be applied only as of the date on which the determinations of dumping, injury and causation have

been made. However, recognizing that injury may have occurred during the period of investigation, or that

exporters may have taken actions to avoid the imposition of an anti-dumping duty, Article 10 contains rules for

the retroactive imposition of anti-dumping duties in specified circumstances.

f. Duration and Review of Anti-dumping Measures

Article 11 of the Anti-Dumping Agreement establishes rules for the duration of anti-dumping measures and

requirements for periodic review of the continuing need, if any, for the imposition of the measures.

As a general principle, an anti-dumping measure shall remain in force only as long as and to the

extent necessary to counteract dumping which is causing injury (Article 11.1). Investigating authorities

are required to review the need for continued imposition of anti-dumping measures, on their own initiative or,

provided that a reasonable period of time has elapsed since the imposition of the measure, upon request by

any interested party which submits positive information substantiating the need for a review.

Article 11.3 (known as the "sunset clause") provides that anti-dumping measures shall normally terminate no

later than five years after first being applied, unless a review initiated prior to that date establishes that the

expiry of the duty would be likely to lead to continuation or recurrence of dumping and injury. The duty may

remain in force pending the outcome of such a review. This five-year "sunset" provision also applies to price

undertakings.

g. Special and Differential Treatment

Article 15 of the Anti-Dumping Agreement recognizes that special regard must be given by developed country

Members to the special situation of developing country Members when considering the application of

anti-dumping measures under the Anti-Dumping Agreement. Possibilities of constructive remedies provided for

by the Anti-Dumping Agreement shall be explored before applying anti-dumping duties where they would affect

the essential interests of developing country Members. Discussing what might be encompassed by the phrase

"constructive remedies provided for by this Agreement", the Panel in EC - Bed Linen mentioned the examples

of the imposition of a "lesser duty" or a price undertaking (EC - Bed Linen, Panel Report, para. 6.229).

EXERCISES

7. Assuming that all the substantive requirements for the application of anti-dumping measures are met,

what is the maximum level of anti-dumping duty that a Member can impose on dumped imports?

8. What is the maximum duration of anti-dumping measures?

9. Enumerate the steps of an anti-dumping investigation (use the chart presented in the next page as a

guide).

16

The chart shows the different stages in an anti-dumping investigation. This chart also applies to the

investigation conducted for the application of countervailing measures and, to a lesser extent, to

the investigation for the application of safeguard measures (explained in the following sections of this

Module).

Reference: Czako, J., Human, J. and Miranda, J. (2003), A Handbook on Anti-Dumping Investigations, World

Trade Organization, Cambridge: Cambridge University Press, p. 10.

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III. SUBSIDIES & COUNTERVAILING MEASURES (SCM)

IN BRIEF

The SCM Agreement - addresses two separate but closely related matters: (i) the multilateral disciplines

on the use of subsidies; and, (ii) the conditions under which Members may apply countervailing

measures. The SCM Agreement contains a definition of "subsidy", which applies in both of these

areas.

The multilateral disciplines govern whether, and what kind of, a subsidy may be granted by a

Member. The SCM Agreement currently classifies subsidies into two categories: prohibited and

actionable.

Countervailing measures are unilateral tools, which may be applied by a Member after conducting a

domestic investigation in which it has been determined that subsidized imports are causing or

threatening to cause injury to the domestic industry producing the like products. As in the case of

anti-dumping, countervailing measures are normally applied in the form of customs duties in excess of

bound rates. An exporting Member affected by the measures may challenge a failure to comply with any of

the requirements for the imposition of countervailing measures by using the WTO dispute settlement

mechanism.

The SCM Agreement applies to all goods, that is both agricultural and industrial products. As you

learned in Module 4, the Agreement on Agriculture provides disciplines on trade-distorting subsidies relating

to agricultural products. As we will see, there are specific provisions regulating the interaction

between the SCM Agreement and the Agreement on Agriculture when referring to agricultural goods.

III.A. THE SUBSIDIES AND COUNTERVAILING MEASURES (SCM) AGREEMENT: TWO TRACKS

The main object and purpose of the SCM Agreement is to increase and improve GATT disciplines relating to

the use of both subsidies and countervailing measures (US - Carbon Steel, Appellate Body Report,

para. 73). Therefore, the SCM Agreement can be seen as "two agreements in one".

III.A.1. MULTILATERAL DISCIPLINES ON SUBSIDIES

The SCM Agreement provides multilateral disciplines governing whether, and what kind of, a subsidy may

be provided by a Member. Certain subsidies are prohibited and all other specific subsidies may be challenged if

they cause adverse effects to the interests of other Members.

These rules are enforced through the WTO dispute settlement mechanism, in accordance with the

Dispute Settlement Understanding (DSU) – see Module 10. This is also called the "multilateral track". In

18

this regard, the SCM Agreement contains special or additional rules and procedures that supplement or replace

the rules of the dispute settlement mechanism provided in the DSU. The invocation of the multilateral track

may end with the withdrawal of the subsidy or the removal of its adverse effects, depending on the

case.

III.A.2. COUNTERVAILING MEASURES

The SCM Agreement also allows Members to apply countervailing measures after conducting a domestic

investigation according to the criteria set forth in the SCM Agreement (also called "unilateral" or

"domestic" track). As we will see below, countervailing duties can only be applied when subsidized imports

are causing injury or threatening to cause injury to the domestic industry producing the like product. The

SCM Agreement also provides procedural requirements that regulate the conduct of countervailing

investigations. As in the case of anti-dumping, a failure to comply with any of the requirements for the

imposition of countervailing measures can be challenged by the exporting Member through the WTO

dispute settlement mechanism.

Figure 2: The SCM Agreement: Two tracks

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III.B. DISCIPLINES ON SUBSIDIES

III.B.1. DEFINITION OF "SUBSIDY"

For a measure to be covered by the SCM Agreement, it has to fall under the definition of subsidy provided in

Article 1 of the SCM Agreement and meet the "specificity" requirement provided in Article 2.

Definition of "Subsidy"

The definition of "subsidy" contains three elements which must be satisfied for a subsidy to be covered by

the SCM Agreement (Article 1). There must be:

A financial contribution;

By a government or any public body within the territory of a Member;

Which confers a benefit.

All three elements must be satisfied in order for a subsidy to exist.

Specificity Requirement

The disciplines in the SCM Agreement only apply to "specific" subsidies (Article 2)— i.e. a subsidy

available only to an enterprise, industry, group of enterprises, or group of industries within the jurisdiction of

the granting authority.

a. Financial Contribution

Under the SCM Agreement, a subsidy may only exist where a measure takes the form of a "financial

contribution", or where there is any form of income or price support in the sense of Article XVI of

GATT 1994. Article 1 contains a list of measures that are deemed to provide a financial contribution.

These include direct transfers of funds (e.g. grants, loans, and equity infusion) and potential direct transfers of

funds or liabilities (e.g. loan guarantees). A financial contribution also exists where government revenue that

is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits); where a government

provides goods or services other than general infrastructure, or purchases goods; or, where a government

entrusts or directs a private body to carry out these functions.

If a measure confers regulatory - but not financial - advantages, it would not constitute a subsidy. For

instance, assume that a government temporarily exempts a manufacturing facility in financial difficulties from

the obligation to observe anti-pollution laws. To the extent that there is no element of financial contribution,

this would not constitute a subsidy.

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b. By a government or any public body

In order for a financial contribution to be a subsidy, it must be made by - or with the entrustment or direction

of - a government or any public body within the territory of a Member. The SCM Agreement applies not

only to measures of national governments, but also to measures of sub-national governments and of such

public bodies as state-owned companies.

A financial contribution made by a private body may still fall under the definition provided in Article 1.1 of the

SCM Agreement if a government or public body entrusts or directs a private body, that is, if the contribution is

made pursuant to the government's instructions. For example, if a private non-governmental organization

(NGO) gives technical and financial assistance to coffee growers in certain WTO Members in Africa, it would be

a case of private, not governmental, assistance, presumably unless the financial contribution was made at the

direction of a government or public body within the territory of the WTO Member.

c. Confers a Benefit

A financial contribution by a government is not a subsidy unless it confers a "benefit". The word ''benefit'', as

used in Article 1.1 of the SCM Agreement, is concerned with the ''benefit to the recipient'' and not with the

''cost to government'' (Canada – Aircraft, Appellate Body Report, paras. 154-155.

In many cases, as in the case of a cash grant, the existence of a benefit and its value may be clear. In some

cases, however, the issue of benefit is more complex. For example, when does a loan, an equity infusion or

the purchase by a government of a good confer a benefit?

Although the SCM Agreement does not provide comprehensive guidance on these issues, the Appellate Body

has stated in Canada – Aircraft that the existence of a benefit is to be determined by comparison with

the market-place (i.e., whether the recipient has received a financial contribution on terms more favourable

than those available to the recipient in the marketplace) (Canada – Aircraft, Appellate Body Report, para. 157).

Thus, for example, if a government makes a loan to a manufacturer on conditions equivalent to those that the

manufacturer could obtain from private banks, there is a financial contribution but no benefit; under these

conditions, the loan would not constitute a subsidy.

In the context of countervailing duties, Article 14 of the SCM Agreement provides some guidance with respect

to determining whether certain types of measures confer a benefit. While that provision furnishes contextual

guidance for the meaning of "benefit", as regards multilateral disciplines, the meaning of "benefit" is not fully

resolved.

d. Specificity

Even if a measure is a subsidy within the meaning of the SCM Agreement, it nevertheless is not subject to the

SCM Agreement unless it has been "specifically" provided to an enterprise or industry or group of

enterprises or industries. The basic principle is that only a subsidy that distorts the allocation of

resources within an economy should be subject to disciplines. Where a subsidy is widely available within an

economy, such a distortion in the allocation of resources is presumed not to occur.

21

There are four types of "specificity" within the meaning of the SCM Agreement:

(i) Enterprise-specificity -a government targets a particular enterprise or enterprises for subsidization;

(ii) industry-specificity –a government targets a particular enterprise or enterprises for subsidization;

(iii) regional-specificity –a government targets producers in specified parts of its territory for

subsidization; and,

(iv) prohibited subsidies – i.e. export subsidies and domestic content subsidies are deemed to be specific.

The SCM Agreement covers not only subsidies which are de jure specific (their specific nature is derived from

an explicit limitation by the granting authority or the legislation pursuant to which the granting authority

operates), but also those that are de facto specific (the specific nature of the subsidy is derived from the

facts and circumstances surrounding its application; in other words, the subsidy is "in fact" specific). In this

regard, Article 2.1(c) of the SCM Agreement provides that if there are reasons to believe that the subsidy may,

in fact, be specific, other factors listed in the Agreement - such as the use of a subsidy programme by a limited

number of certain enterprises, predominant use by certain enterprises, and the manner in which discretion has

been exercised by the granting authority in the decision to grant a subsidy - may be considered. Information

on the frequency with which applications for a subsidy are refused or approved and the reasons for such

decisions are also to be considered. The extent of diversification of economic activities within the jurisdiction of

the granting authority, as well as the length of time during which the subsidy programme has been in

operation are to be taken into account.

III.B.2. CATEGORIES OF SUBSIDIES COVERED BY THE SUBSIDIES AND COUNTERVAILING MEASURES (SCM) AGREEMENT

Categories of Subsidies Covered by the SCM Agreement

The SCM Agreement defines two categories of subsidies *:

1. Prohibited; and,

2. Actionable.

All specific subsidies fall into one of these categories.

* The SCM Agreement originally contained a third category: non-actionable subsidies. This category existed

for five years, ending on 31 December 1999 (the possibility for its extension, originally envisaged in

Article 31 of the Agreement, did not occur).

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a. Prohibited Subsidies

Article 3 of the SCM Agreement includes two categories of prohibited ("red-light") subsidies:

Export Subsidies: subsidies contingent, in law or in fact, whether solely or as one of several other

conditions, upon export performance (a detailed illustrative list of export subsidies is contained in

Annex 1 of the SCM Agreement). The mere fact that a subsidy is granted to enterprises which export

shall not, for that reason alone, be considered to be an export subsidy within the meaning of this

provision (see footnote 4 of the SCM Agreement).

Import Substitution Subsidies: subsidies contingent, whether solely or as one of several other

conditions, upon the use of domestic over imported goods.

Any subsidy falling under the provisions of Article 3 shall be deemed to be specific. These two categories are

prohibited because they are presumed to distort international trade, and are therefore most likely to have

adverse effects on the interest of other Members. They may be challenged through the WTO dispute

settlement mechanism (multilateral track) on the basis of special accelerated procedures and, if the

subsidy is found to be prohibited, it must be withdrawn without delay. Since these subsidies are most likely to

cause adverse effects, there is no need for the complaining Member to demonstrate the existence of any trade

effects. Rather, the main focus is on the nature of the subsidy itself. Prohibited subsidies may also be subject

to countervailing measures (unilateral or domestic track) if subsidized imports are causing injury to the

domestic industry.

b. Actionable Subsidies

Most subsidies, such as many production subsidies, fall in the category of "actionable subsidies" (so-called

"yellow-light" subsidies). Actionable subsidies are not prohibited. However, they are subject to

challenge, either through multilateral dispute settlement or through countervailing action, in the

event that they cause adverse effects to the interests of another Member. Thus, in addition to the

existence of a specific subsidy, the complaining Member has to show that this specific subsidy causes adverse

effects. The SCM Agreement defines three types of adverse effects these subsidies can cause:

INJURY: subsidized imports cause injury to a domestic industry in the territory of the complaining

Member. This type of adverse effect can be challenged both at the unilateral level through

countervailing action or at the multilateral level through the WTO's dispute settlement mechanism.

However, only one form of relief (either countervailing duty or an authorized countermeasure) is

applicable.

SERIOUS PREJUDICE: usually arises where the effect of a subsidy is (i) displacement or impedance

of the complaining Member's exports, either in the market of the subsidizing Member or in a third

country market; or, (ii) significant price undercutting, price suppression or depression or lost sales of

the complaining Member's product in a given market; or, (iii) an increase in the subsidizing Member's

world market share in a subsidized primary product or commodity.

Therefore, serious prejudice can serve as the basis for a complaint related to harm to a Member's

interests in its export markets. Accordingly, in the three instances of serious prejudice, the

subsidy can be challenged only through the multilateral track. The SCM Agreement sets out

situations where factors other than the subsidization appear to explain the displacement or impeding

of a complaining Member's exports and where serious prejudice therefore should not be found to

exist. Annex V sets out procedures for developing information concerning serious prejudice in a

dispute.

23

NULLIFICATION OR IMPAIRMENT OF BENEFITS (accruing under the GATT 1994): arises most

typically where the improved access to a market that is presumed to flow from a bound tariff

reduction is undercut by subsidization in that market. As with serious prejudice, nullification and

impairment can serve as the basis for a complaint related to harm to a Member's exporting interests,

in this case in respect of the importing country's market. Thus, the subsidy can only be challenged

through the multilateral track.

Relationship between the SCM Agreement and the Agreement on Agriculture

Article 21 of the Agreement on Agriculture establishes that the provisions of GATT 1994 and of other

Multilateral Trade Agreements in Annex 1A to the WTO Agreement – including the SCM Agreement - shall

apply subject to the provisions of the Agreement on Agriculture.

Article 3.1 of the SCM Agreement prohibits export and import-substitution subsidies "except as provided in

the Agreement on Agriculture". In US - Upland Cotton, the Appellate Body stated that agricultural subsidies

are subject to the SCM Agreement "except to the extent that the Agreement on Agriculture contains specific

provisions dealing specifically with the same matter" (US - Upland Cotton, Appellate Body Report, paras.

530-533). Thus, for example, agricultural export subsidies that are fully consistent with the

provisions of the Agreement on Agriculture are not prohibited under Article 3 of the SCM

Agreement. They can be countervailed.

Article 13 of the Agreement on Agriculture, known as the "Peace Clause", provided that during the

implementation period specified in that Agreement (until 2004), special rules regarding subsidies for

agricultural products were to be applied. Since the implementation period has already expired, the Peace

Clause is not applicable anymore.

EXERCISES

10. Why is the SCM Agreement considered "two agreements in one"?

11. Explain briefly the elements that must be satisfied for a subsidy to be covered by the SCM Agreement.

12. Describe the categories of subsidies covered by the SCM Agreement, indicating the tracks available to

challenge each one.

13. What happens in case of conflict between a provision of the SCM Agreement and a provision of the

Agreement on Agriculture?

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III.C. PROCEDURE FOR THE APPLICATION OF COUNTERVAILING MEASURES

The SCM Agreement provides substantive and procedural requirements for the application of

countervailing measures. These requirements are similar to those applicable to anti-dumping

investigations. To avoid repetition, we will focus only on those aspects that differ or only apply to

countervailing measures.

III.C.1. SUBSTANTIVE REQUIREMENTS

Conditions for the Application of Countervailing Measures

According to Part V of the SCM Agreement, a Member may impose a countervailing measure only after

determining, pursuant to an investigation, the existence of the three following cumulative requirements:

Subsidized imports;

Material injury to the domestic industry producing the like product, threat of material injury or

material retardation of the establishment of a domestic industry; and,

Causal link between the subsidized imports and the injury.

We have examined injury and causal link before, when explaining anti-dumping investigations. These concepts

have almost the same meaning in the countervailing context. The main difference is that in the case of

countervailing measures, the issue to be determined is whether there are "subsidized imports" (instead of

"dumped imports").

As explained above, the definition of a subsidy contains three basic elements: a financial contribution; by a

government or any public body within the territory of a Member; which confers a benefit. All three of these

elements must be satisfied in order for a subsidy to exist. In addition, the subsidy must be specific.

III.C.2. PROCEDURAL REQUIREMENTS

As in the case of the Anti-Dumping Agreement, the SCM Agreement contains detailed rules regarding the

initiation and conduct of countervailing investigations, the imposition of preliminary and final countervailing

measures, the use of price undertakings and the duration of the measures. A key objective of these rules is to

ensure the transparency of investigations, due process (e.g. that all interested parties have a full opportunity

to defend their interests); and that investigating authorities adequately explain the bases for their

determinations.

Most of the procedural rules that apply in the case of the Anti-Dumping Agreement apply also to the SCM

Agreement. Some notable differences particular to the SCM Agreement include: the de minimis

threshold (subsidy < one per cent ad valorem - when met, an investigation shall be terminated immediately –

Article 11.9); the period of time preliminary measures may remain in force (Article 17.4); and the types of

undertakings that may be entered into (Article 18).

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III.D. SPECIAL AND DIFFERENTIAL TREATMENT

The SCM Agreement recognizes that subsidies can play an important role in economic development

programmes of developing country Members, and thus, provides special and differential treatment to such

Members (Part VIII, Article 27). Differing levels of development among countries mean differing levels

of obligations and transition periods with regard to the SCM Agreement.

III.D.1. MULTILATERAL DISCIPLINES ON SUBSIDIES

The SCM Agreement recognizes three main categories of developing country Members:

(i) least-developed country Members (LDCs), (ii) certain Members identified in Annex VII(b) of the Agreement

until such time as their growth national product (GNP) per capita has reached US$ 1,000 per year, and

(iii) other developing countries. In addition, certain Members benefit from time-limited and

programme-specific special and differential treatment in respect of export subsidies, flowing from Article 27.4

of the Agreement to decisions taken at the Doha Ministerial Conference and related decisions adopted by the

SCM Committee.

Generally, the lower a Member's level of development, the more favourable the treatment it receives with

respect to certain subsidies disciplines. For example, in respect of export subsidies:

Least-developed countries (LDCs) are exempt from the general prohibition on export subsidies;

Members with a GNP per capita of less than US$ 1000 per year listed in Annex VII are also exempt

from the general prohibition. Pursuant to the Doha Ministerial Declaration on Implementation-related

Issues and Concerns, Annex VII includes Members that are listed therein until their GNP per capita

reaches US $1,000 in constant 1990 dollars for three consecutive years, pursuant to a defined

methodology based on recent World Bank data (see G/SCM/38, Appendix 2). Since 2003, the WTO

Secretariat has circulated notes updating the GNP per capita of Members listed in Annex VII (see

G/SCM/110 documents); and,

Other developing country Members had an eight-year period (i.e. until 2003) to phase out their

export subsidies (they were subject to a "standstill" commitment – i.e. they could not increase the

level of their export subsidies during this period). However, as mentioned, certain Members who are

neither LDCs, nor among those Members listed in Annex VII, still benefit from programme-specific

and time-limited exemptions from the prohibition on export subsidies, flowing from Article 27.4 of the

SCM Agreement, decisions taken at the Doha Ministerial Conference and related decisions adopted by

the General Council and the SCM Committee. From 2007, this particular exemption related to certain

export subsidy programmes of the following Members: Antigua & Barbuda; Barbados; Belize; Costa

Rica; Dominica; Dominican Republic; El Salvador; Fiji; Grenada; Guatemala; Jamaica; Jordan;

Mauritius; Panama; Papua New Guinea; St. Kitts and Nevis; St. Lucia; St. Vincent & the Grenadines;

and, Uruguay. Such exemption from the prohibition is subject to a "standstill" obligation and annual

review by the SCM Committee, and may last no longer than 31 December 2015 (see General Council

Decision, WT/L/691).

A developing country Member otherwise exempt from the prohibition on export subsidies may nevertheless

become subject if it reaches export competitiveness in any product.

26

The prohibition on import substitution subsidies did not apply to LDCs for a period of eight years from the

date of entry into force of the WTO Agreement, while developing Members had a period of five years to phase

out their import substitution subsidies. Currently, the SCM Agreement does not provide for any exemption

from the general prohibition on import substitution subsidies.

There is also more favourable treatment with respect to actionable subsidies. For example, the invocation of

serious prejudice claims against developing country Members is more limited and certain subsidies related to

developing country Members' privatization programmes are not actionable multilaterally. Such special

treatment is subject to certain notification requirements. Members in the process of transformation from a

centrally-planned to a market, free-enterprise economy (economies in transition) were given a seven-year

period to phase out prohibited subsidies, if notified. These Members also received special and differential

treatment with respect to actionable subsidies.

III.D.2. COUNTERVAILING MEASURES

With respect to countervailing measures, Article 27 provides that developing country Members' exporters are

entitled to more favourable treatment with respect to the termination of investigations where:

(a) The overall level of subsidies granted upon a product does not exceed two per cent of the per-unit value of

the product (for other Members, the de minimis level is one per cent). Until 2003, for developing Members

that had eliminated their export subsidies before the end of the transition period and for Annex VII

Members, the de minimis level was three per cent; and,

(b) the volume of the subsidized imports of a developing country Member is less than four per cent of the total

imports, unless the imports from developing country Members whose individual share is less than four per

cent, collectively account for more than nine per cent of the total imports of the like product in the

importing Member.

TO KNOW MORE... DOHA NEGOTIATIONS

In the light of experience and of the increasing application of anti-dumping and countervailing measures by

Members, at the Doha Ministerial Conference, Members agreed to launch negotiations aimed at

clarifying and improving disciplines under the Anti-Dumping Agreement and the SCM Agreement,

while preserving the basic concepts, principles and effectiveness of these Agreements and their instruments

and objectives, and taking into account the needs of developing and least-developed participants

(Doha Declaration, para. 28). Participants shall also aim to clarify and improve WTO disciplines on fisheries

subsidies, taking into account the importance of this sector to developing countries (Doha Declaration,

para. 28). We note that fisheries subsidies are also referred to in paragraph 31 of the Doha Declaration on

trade and environment (see also Module 11). At the Hong Kong Ministerial Conference , Ministers reaffirmed

their commitment to the negotiations on rules (Hong Kong Declaration, para. 28). These negotiations take

place in the Rules Negotiating Group.

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EXERCISES

14. Explain briefly the provisions on special and differential treatment included in the SCM Agreement.

28

IV. SAFEGUARD MEASURES

IN BRIEF

Article XIX of the GATT 1994 and the Agreement on Safeguards (or "Safeguards Agreement") allow Members

to apply safeguard measures only after determining, pursuant to an investigation carried out in

accordance with such rules, that a product is being imported in such increased quantities and under

such conditions as to cause or threaten to cause serious injury to the domestic industry producing

like or directly competitive products. While the Safeguards Agreement does not expressly delimit the

possible form of a safeguard measure, it envisages that safeguard measures may take the form of tariffs

above the bound rate or quantitative restrictions.

Unlike anti-dumping and countervailing measures, the application of safeguard measures does not require

an unfair trade action. Instead, the objective of safeguard measures is to provide a temporary remedy

while facilitating structural adjustment of the industry adversely affected by increased imports,

thereby enhancing competition in international markets. An affected WTO Member may challenge another

Member's failure to comply with any of the requirements provided for the imposition of safeguard measures

through the WTO dispute settlement mechanism.

The provisions on safeguard measures apply to all products, including agricultural goods. As we

studied in Module 4, the Agreement on Agriculture also contains rules for the application of a special

safeguard for agricultural goods subject to certain requirements; this differs from the provisions

governing the application of the general safeguard mechanism studied in this Module.

IV.A. RELATIONSHIP BETWEEN ARTICLE XIX OF THE GATT 1994 AND THE AGREEMENT ON SAFEGUARDS

Safeguard measures were available under Article XIX of the GATT 1947 (the so-called "escape clause"). The

general provisions on safeguards contained in Article XIX of the GATT 1947 (superseded by Article XIX of the

GATT 1994) were clarified and reinforced by the Agreement on Safeguards adopted during the Uruguay

Round.

Some clarity about the relationship between Article XIX of the GATT 1994 and the Agreement on Safeguards is

provided in Articles 1 and 11.1(a) of the Agreement on Safeguards: the Safeguards Agreement establishes

rules for the application of safeguard measures (i.e. those measures provided for in Article XIX); and a Member

shall not take or seek any emergency action on imports of particular products as set forth in Article XIX of

GATT 1994 "unless such action conforms with the provisions of that Article applied in accordance with [the

Safeguards Agreement]".

Thus, any safeguard measure imposed after the entry into force of the WTO Agreements must

comply with the provisions of both the Agreement on Safeguards and Article XIX of the GATT 1994

(Korea - Dairy, Appellate Body Report, para. 77).

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As we will see, in addition to the conditions provided in the Agreement on Safeguards (explained below),

Article XIX of the GATT 1994 provides that the increase in imports has to occur as a result of unforeseen

developments and of the effect of the obligations incurred by a Member under the GATT 1994,

including tariff concessions.

IV.B. PROCEDURE FOR THE APPLICATION OF SAFEGUARD MEASURES

IV.B.1. SUBSTANTIVE REQUIREMENTS

Article 2.2 of the Agreement on Safeguards provides that safeguard measures shall be applied to a product

being imported irrespective of its source. Thus, safeguard measures must be applied, in principle, on an

MFN basis. Article 2 also sets forth the conditions under which safeguard measures may be applied.

Conditions for the Application of Safeguard Measures

Safeguard measure may only be applied as a result of unforeseen developments and of the effect of the

obligations incurred by a contracting party under the GATT (Article XIX of the GATT 1994). According to

Article 2 of the Agreement on Safeguards, a Member may apply a safeguard measure only after determining,

pursuant to an investigation, the existence of the following conditions:

Increased quantity of imports in absolute or relative terms;

Serious injury caused, or threatened to be caused, to the domestic industry producing the "like or

directly competitive" products; and,

Causal link between the increased imports and the injury.

a. Result of unforeseen developments and of the effect of the obligations incurred under the GATT 1994

According to Article XIX of the GATT 1994, a safeguard measure may only be applied as a result of unforeseen

developments and of the effect of the obligations incurred by a Member under the GATT, including tariff

concessions.

In this regard, the Appellate Body has stated that safeguard measures may only be taken in circumstances not

reasonably expected when the Member bound its tariff levels (Argentina- Footwear, Appellate Body

Report, paras. 91-96). According to the Appellate Body, the existence of unforeseen developments is a

"pertinent issue of fact and law" under Article 3.1 of the Safeguards Agreement; hence, the published report

of the competent authorities must contain a "finding" or "reasoned conclusion" on unforeseen

developments (US- Lamb, Appellate Body Report, para. 76).

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b. Increased Imports

As noted, the determination of increased quantity of imports that a Member must make before it may apply a

safeguard measure can be of either an absolute increase or an increase relative to domestic production.

In Argentina – Footwear, the Appellate Body stated that the increase in imports must have been recent,

sudden, sharp and significant enough, both quantitatively and qualitatively, to cause or threaten to

cause injury (Argentina – Footwear, Appellate Body Report, para. 131).

c. Serious Injury

Before a safeguard measure can be imposed, the WTO Member must have determined that serious injury is

caused or is threatened to be caused to the domestic industry producing the like or directly

competitive product. Article 4.1(a) of the Agreement on Safeguards defines serious injury as "a

significant overall impairment in the position of a domestic industry" and a "threat of serious injury" as

"serious injury that is clearly imminent", "based on facts, and not merely on allegation, conjecture or remote

possibility". If serious injury is not found, a safeguard measure nevertheless can be applied if a threat of

serious injury is found.

In determining injury or threat thereof, a "domestic industry" shall be understood to mean "the producers as a

whole of the like or directly competitive products operating within the territory of a Member, or those whose

collective output of the like or directly competitive products constitutes a major proportion of the total

domestic production of those products" (Article 4.1(c)). This definition is broader than the one provided for

the application of anti-dumping and countervailing measures, since it may include not only producers of "like

products" but also producers of "directly competitive products".

In determining whether serious injury is present, investigating authorities are to "evaluate all relevant

factors of an objective and quantifiable nature having a bearing on the situation of that industry"

(Article 4.2(a); see e.g. Argentina – Footwear, Appellate Body Report, paras. 136, 138). Article 4.2(a)

provides that competent authorities shall evaluate, in particular: the rate and amount of the increase in

imports of the product concerned in absolute and relative terms, the share of the domestic market taken by

increased imports, changes in the level of sales, production, productivity, capacity utilisation, profits and losses

and employment of the domestic industry.

The standard of "serious injury" required for the application of safeguard measures is higher than

the "material injury" envisaged in the Anti-Dumping Agreement and the SCM Agreement. According

to the Appellate Body, this accords with the object and purpose of the Agreement on Safeguards since the

application of a safeguard measure does not depend upon "unfair" trade actions, as is the case with

anti-dumping or countervailing measures (US – Lamb, Appellate Body Report, para. 124).

d. Causal link between the increased imports and injury

The determination of serious injury cannot be made unless there is objective evidence of the existence of a

causal link between increased imports of the product concerned and serious injury.

Further, when factors other than increased imports are causing injury to the domestic industry at the

same time, such injury must not be attributed to increased imports (the so-called "non-attribution

requirement") (Article 4.2(b)).

31

However, this does not require that increased imports be ''sufficient'' to cause, or threaten to cause, serious

injury. Nor does this require that increased imports ''alone'' be capable of causing, or threatening to cause,

serious injury. The causal link between increased imports and serious injury may exist, even though

other factors are also contributing, at the same time, to the situation of the domestic industry.

According to the Appellate Body, the non-attribution language in Article 4.2(b) means "that the effects of

increased imports, as separated and distinguished from the effects of other factors, must be examined to

determine whether the effects of those imports establish a "genuine and substantial relationship of cause and

effect" between the increased imports and serious injury" (US – Wheat Gluten Safeguard, Appellate Body

Report, para. 67; and, US – Lamb, Appellate Body Report, paras. 168-170).

IV.B.2. PROCEDURAL REQUIREMENTS

As mentioned above, as with the other trade remedy measures, a crucial pre-condition to be satisfied before a

safeguard measure can be imposed is that an investigation must be conducted by competent authorities in

accordance with established procedures (Article 3). The investigations under the Agreement on Safeguards

have to fulfil certain requirements, which are similar to those provided for the investigations on anti-dumping

and countervailing measures. The main rules applicable to safeguard investigations are the following:

TRANSPARENCY, DUE PROCESS PROVISIONS AND PUBLIC INTEREST: the Agreement on

Safeguards requires publication of a report on the case explaining the investigating authorities'

findings and reasoned conclusions on all pertinent issues of fact and law, including a demonstration of

the relevance of the factors examined. In addition, investigating authorities are required to provide

reasonable public notice of the investigation to all interested parties (importers, exporters,

producers, etc.) and hold public hearings or provide other appropriate means for interested parties

to present their views, including on the issue of whether or not the application of a safeguard

measure would be in the public interest (see Articles 3.1 and 4.2(c)).

PROVISIONAL MEASURES: in critical circumstances where delay would cause damage which it

would be difficult to repair, a provisional safeguard measure may be imposed if there is clear

evidence and a preliminary determination that increased imports have caused or are threatening

to cause serious injury. Such measures should take the form of tariff increases to be promptly

refunded if the subsequent investigation does not determine that increased imports have caused or

threatened to cause serious injury to the domestic industry. The duration of the provisional measure

shall not exceed 200 days. The period of application of any provisional measure must be included

in the total period of application of the safeguard measure (Article 6).

CONFIDENTIAL INFORMATION: the Agreement contains specific rules for the handling of

confidential information in the context of an investigation. In general, there is a basic obligation to

respect the confidentiality of any information which is by nature confidential or which is provided on a

confidential basis, upon good cause being shown (Article 3.2).

CONSULTATIONS: a Member proposing to apply or extend a safeguard measure shall provide

adequate opportunity for prior consultations with those WTO Members having a substantial

interest as exporters of the product concerned (Article 12.3).

32

APPLICATION OF SAFEGUARD MEASURES: other than the general requirement that safeguard

measures be applied only to the extent necessary to remedy or prevent serious injury to facilitate

adjustment, the Agreement provides no guidance as to how the level of safeguard measures in the

form of an increase in the tariff above the bound rate should be set. In the case of

quantitative restrictions, the level must not be below the actual import level of the most recent

three respresentative years for which statistics are available, unless there is clear justification that a

different level is necessary to prevent or remedy serious injury (Article 5.1). The Agreement governs

how quota shares are to be allocated among supplier countries based on past market shares

(Article 5.2(a)).

MAXIMUM DURATION: the maximum duration of any safeguard measure is four years, unless it is

extended in consistency with the Agreement's provisions. In particular, a measure may be extended

only if it is found, through a new investigation, that its continuation is necessary to prevent or

remedy serious injury, and only if evidence shows that industry is adjusting (Articles 7.1 and 7.2).

The total period generally cannot exceed eight years (Art. 7.3), although for developing countries

it may last a maximum of 10 years (Article 9.2). Safeguard measures in place for longer than

one year must be progressively liberalized at regular intervals during the period of application. Any

measure of more than three years duration must be reviewed at mid-term. If appropriate, based on

that review, the Member applying the measure must withdraw it or increase the pace of its

liberalization (Article 7.4).

PAYMENT OF COMPENSATION: a Member proposing to apply a safeguard measure must

endeavour to maintain a substantially equivalent level of concessions and other obligations with

respect to affected exporting Members. To do so, any adequate means of trade compensation may

be agreed among the affected Members through consultations. Absent such agreement on

compensation within 30 days, the affected exporting Members individually may suspend equivalent

concessions and other obligations, unless the Council for Trade in Goods disapproves (Articles 8.1

and 8.2). The right to suspend concessions cannot be exercised during the first three years of

application of a safeguard measure if the measure is taken based on an absolute increase in imports,

and otherwise conforms to the provisions of the Agreement (Article 8.3).

RE-APPLICATION OF SAFEGUARD MEASURES: special rules limit re-application of safeguard

measures to a given product (Articles 7.5 and 7.6).

IV.B.3. PROVISIONS ON SPECIAL AND DIFFERENTIAL TREATMENT

Developing country Members receive special and differential treatment with respect to other Members'

safeguard measures, in the form of a "de minimis" import exemption. That is, where imports from a single

developing country Member account for no more than three per cent of the total imports of the product

concerned, and provided that developing country Members below this threshold on an individual basis do not

collectively account for more than nine per cent of those imports, such imports shall be excluded from the

measure (Article 9.1).

As Members applying these measures, developing country Members also receive special and differential

treatment with regard to permitted duration of extensions, and with respect to re-application of

measures (Article 9.2).

33

EXERCISES

15. Explain the difference between the objective of the Agreement on Safeguards and the objective of

Agreement on Anti-Dumping.

16. Enumerate the substantive requirements for the application of safeguard measures. How do they differ

from the substantive requirements provided for the application of anti-dumping and countervailing

measures?

34

V. MONITORING BODIES AND NOTIFICATION REQUIREMENTS

MONITORING BODIES AND NOTIFICATION REQUIREMENTS

ANTI-DUMPING

MEASURES

SUBSIDIES AND

COUNTERVAILING

MEASURES

SAFEGUARD

MEASURES

Committee on Anti-

Dumping Practices

Committee on Subsidies and

Countervailing Measures

Committee on

Safeguards

MONITORING

BODY

Reporting to the Council for Trade in Goods, these Committees provide Members with

the opportunity to discuss any matters relating to the Agreements, including

Members' notifications of laws and regulations and the application of

anti-dumping/countervailing/safeguard measures (Article 16 of the Anti-Dumping

Agreement, Article 24 of the SCM Agreement and Article 13 of the Agreement on

Safeguards).

Notify to the relevant Committee domestic laws and procedures governing the

initiation and conduct of investigations concerning the application of

anti-dumping/countervailing/safeguard measures (including the texts of the

regulations), as well as any modification to such measures (Articles 16.5 and 18.5 of

the Anti-Dumping Agreement, Articles 25.12 and 32.6 of the SCM Agreement, and

Article 12.6 of the Agreement on Safeguards).

LEGISLATION

MA

IN N

OTIF

ICA

TIO

N R

EQ

UIR

EM

EN

TS

In addition, for SUBSIDIES:

Notify all specific subsidies (at

all levels of government and

covering all goods sectors,

including agriculture) to the

Committee (Articles 25 and 26).

On the periodicity of notifications,

Article 25.1 provides for annual

submission; at past SCM

Committee meetings, the Chair

has noted Members' views that

their resources would be best

utilized by giving maximum

priority to submitting new and full

subsidy notifications every two

years and by de-emphasizing the

review of updating notifications in

the intervening years.

35

MONITORING BODIES AND NOTIFICATION REQUIREMENTS

ANTI-DUMPING

MEASURES

SUBSIDIES AND

COUNTERVAILING

MEASURES

SAFEGUARD

MEASURES

Notify to the Committee, without delay, all preliminary or final anti-

dumping/countervailing/safeguard actions taken. Members shall also submit, on

a semi-annual basis, reports of any action taken within the preceding six months

(Article 16.4 of the Anti-Dumping Agreement, Article 25.11 of the SCM Agreement.)

(See also Article 12 of the Agreement on Safeguards).

ADOPTION OF

MEASURES

In addition: In addition: In addition:

Notify domestic authority

competent to initiate and

conduct AD investigations

(

Article 16.5 of the

Anti-Dumping Agreement).

Notify domestic authority

competent to initiate and

conduct countervailing

duty investigations

(

Notify initiation of an

investigation and results

of consultations

(Articles 12.1

Article 25.12 of the SCM

Agreement).

and 12.5 of

the Agreement on

Safeguards). Also if a

measure does not apply to

one or more developing

countries in accordance to

Article 9 (Article 9.1 of the

Agreement on Safeguards).

Table 1: Monitoring bodies and notification requirements

NOTIFICATION FORMATS

Anti-Dumping Agreement: Semi-annual report (G/ADP/1), Preliminary and final anti-dumping actions

(G/ADP/2).

SCM Agreement: Subsidies (G/SCM/6, Rev. 1), Laws and regulations (G/SCM/N/1), Semi-annual report

(G/SCM/2).

Agreement on Safeguards: Initiation of an Investigation (G/SG/N/6), Safeguard measure not applied to one

or more developing countries (G/SG/1), Decision to apply measures, including provisional measures and

consultations with Members (G/SG/1).

36

VI. COMPARATIVE CHART: ANTI-DUMPING, COUNTERVAILING AND SAFEGUARD MEASURES

ANTI-DUMPING COUNTERVAILING SAFEGUARD

MEASURES MEASURES MEASURES

To counteract dumping

causing injury to the

domestic industry

To counteract subsidization

that is causing injury to the

domestic industry

To prevent or remedy

serious injury to the

domestic industry caused

by a surge of imports

(no unfair practice) and

give time to facilitate

adjustment to

competition

Objective

Discriminatory

(non-MFN)

Non-discriminatory

(MFN, in principle)

Nature of the Discriminatory (non-MFN)

Measure

Substantive 1.Dumped Imports 1. Subsidized Imports 1. Increased Imports

Requirements 2. Material Injury 2. Material Injury 2. Serious Injury

3. Causal link 3. Causal link 3. Causal link

In addition, the measure

must be applied as a

result of unforeseen

developments and of

the effect of the

obligations incurred by

a contracting party

under the GATT.

Like or Directly

Competitive Products

Product Like Products Like Products

Coverage

Necessity to prevent

or remedy serious

injury and facilitate

adjustment

Basis of the Margin of Dumping Margin of Subsidy

Measure

Products of Enterprises

practicing dumping

Products of Enterprises

benefiting from subsidies

granted by Members

Products of

Enterprises of

Members

Recipient of the

Measure

Anti-dumping duty (may

exceed bound tariff rate)

Countervailing duty (may

exceed bound tariff rate)

Among others, tariff

duty increase (may

exceed bound tariff

rate) or quota

Form of the

Measure

37

ANTI-DUMPING COUNTERVAILING SAFEGUARD

MEASURES MEASURES MEASURES

Duration of the Provisional Measure: Provisional Measure: Provisional Measure:

Measure a maximum of 4 months or

6 months (on decision of

the authority and upon

request)

a maximum of 4 months a maximum of 200 days

Final Measure: Final Measure:

Final Measure:

in principle, only as long as

and to the extent necessary

to counteract dumping

causing injury; however,

termination no later than

5 years from imposition

unless determination, in a

review initiated prior to that

date, that expiry of the duty

would be likely to lead to

continuation or recurrence

of dumping and injury.

in principle, only as long as and

to the extent necessary to

counteract subsidization causing

injury; however, termination no

later than 5 years from

imposition unless determination,

in a review initiated prior to that

date, that expiry of the duty

would be likely to lead to

continuation or recurrence of

subsidization and injury.

4 years

(can be extended to 8

years – 10 years for

developing country

Members).

Compensation to NO NO YES (sometimes)

affected

Members

special regard to the

situation of developing

countries

De minimis: exclusion of

imports from developing

countries if less than 4% of total

imports and 9% collectively.

De minimis: exclusion of

imports from developing

countries if less than 3%

of total imports and 9%

collectively.

Special and

Differential

Treatment

As Members applying

measures: duration of

extensions; and re-

application of measures.

38

ILLUSTRATION - TRADE REMEDIES

SCENARIO

Let us assume that Medatia and Vanin are WTO Members. VaninVegi is a producer of vegetables in Vanin.

Due to the excessive production of tomatoes in the world during the current year and the increased

availability of tomatoes on the international market, VaninVegi is unable to sell its tomatoes. If VaninVegi

does not find a market for its tomatoes, it will face great losses.

VaninVegi decides to sell its tomatoes in Medatia at prices below the market price for tomatoes of similar

quality in Medatia. VaninVegi prices 1 kg of tomatoes at $1.00 in Medatia, while it prices the same tomatoes

at $US 2 in Vanin.

Medatian tomato producers are experiencing a slump in their tomato sales. They consider that the reason

for this is the imports of tomatoes from Vanin at lower prices.

QUESTION 1

Assume you are an expert on WTO law and Medatian tomato producers ask for your advice on what type of

trade remedy they can request their government to apply to imports of tomatoes from Vanin.

PROPOSED ADVICE

Medatian tomato producers may request their government to impose anti-dumping measures on tomatoes

from Vanin.

As you know, the objective of anti-dumping measures is to offset the adverse effects caused by dumped

imports. A product is considered to be dumped when it is introduced into the commerce of another country

at less than its "normal value". The "normal value" is the sales price of the imported product in the country

of export, in this case Vanin.

According to the facts of the case, VaninVegi prices 1kg of tomatoes at US$1 in Medatia, while the "normal

value" of the same tomatoes in Vanin is US$ 2. Since the price of tomatoes in Medatia is less than the

normal value in Vanin, tomato producers in Vanin may want to request the initiation of an investigation for

the application of anti-dumping duties to VaninVegi tomatoes.

In order to do so, they will have to present a written request and provide evidence of dumping, injury and

causation as well as other information regarding the product, industry, importers, exporters and other

matters. The request must meet the "standing" threshold set out in the Anti-Dumping Agreement: it has to

be supported by those domestic producers of tomatoes whose collective output constitutes more than 50

per cent of the total production of tomatoes produced by that portion of the domestic tomato industry in

Medatia expressing either support for or opposition to the application (no application may be initiated when

domestic producers expressly supporting the application account for less than 25 per cent of the total

production of the like product produced by the domestic industry).

39

QUESTION 2

Assume you are the authority in charge of anti-dumping investigations in Medatia: what would you have to

do after receiving the request of the domestic producers of tomatoes for the application of anti-dumping

measures to VaninVegi tomatoes?

PROPOSED ANSWER

The Anti-Dumping Agreement sets forth certain substantive requirements that must be fulfilled in order to

determine whether the imposition of an anti-dumping measure would be permitted, as well as procedural

requirements, including evidentiary requirements regarding the initiation and conduct of anti-dumping

investigations.

PROCEDURAL REQUIREMENTS APPLICABLE TO THE INITIATION OF THE INVESTIGATION

The authorities must first examine the accuracy and adequacy of the evidence provided in the application to

determine whether there is sufficient evidence to justify the initiation of the investigation (an application

shall be rejected and an investigation shall be terminated promptly as soon as the authorities concerned are

satisfied that there is not sufficient evidence of either dumping or of injury to justify proceeding with the

case). The investigating authority would also have to confirm satisfaction of the "standing" requirement..

Assuming that the application is determined to contain sufficient evidence to justify initiation and the

standing requirement is met...

SUBSTANTIVE REQUIREMENTS DURING THE INVESTIGATION

The investigating authority will have to determine the existence of: 1. Dumped Imports, 2. material injury

or threat of material injury caused to the domestic industry producing the "like product"; and, 3. causal link

between dumped imports and the injury.

1. DUMPED IMPORTS (*)

The authority has to determine whether VaninVegi is exporting its tomatoes to Medatia at a price below the

price for the same tomatoes in Vanin. Dumping is calculated on the basis of a fair comparison between the

normal value of tomatoes (usually the sales price in the exporter's domestic market- Vanin) and the export

price (the price of the product in the country of import - Medatia). The Agreement provides rules for the

calculation of the normal value and the export price. Authorities have to make a "fair comparison" between

these two figures; this means that the normal value and the export price shall be compared at the same

level of trade (normally ex-factory level) and in respect of sales made at as nearly as possible the same

time. Adjustments may be needed to either or both the normal value and the export price in order to

ensure a fair comparison. Then, the margin of dumping has to be calculated based on a comparison of the

weighted average normal value to the weighted average of all comparable price export prices, or a

transaction –to-transaction comparison of normal value and export price (or, in certain circumstances, a

weighted average normal value to individual export transaction prices).

2. MATERIAL INJURY (*)

After determining dumping, the authority has to determine whether domestic tomato producers in Medatia

are suffering material injury.

40

This analysis must be based on positive evidence and involve an objective examination of the volume of

dumped imports and their effect on prices in the domestic market, as well as the effect of such dumped

imports on the domestic producers of tomatoes. In the evaluation of the impact of dumped imports, the

authority must evaluate all relevant economic factors bearing upon the state of the domestic tomato

producers, including those factors listed in the Agreement.

3. CAUSAL LINK

In addition to determining dumping and injury to the domestic industry, it is necessary to demonstrate that

there is a causal relationship between the dumped imports of tomatoes and the injury to the domestic

industry of these products, before applying anti-dumping measures. This examination requires investigating

authorities to examine any known factor other than dumped imports, which may be causing injury to the

domestic tomato producers.

APPLICATION OF ANTI-DUMPING MEASURES

After making a preliminary determination that dumped imports are causing injury to the domestic industry

producing tomatoes, the investigating authority may apply provisional anti-dumping measures, under the

conditions and for the duration envisaged in the Agreement. After making a final determination that

dumped imports are causing injury to the domestic industry of tomatoes, pursuant to an investigation

meeting the procedural requirements provided in the Agreement (e.g. evidence requirements, transparency

provisions, judicial review, etc.) the investigating authority may apply final anti-dumping measures, in the

form of tariff duties above the bound level to tomatoes from VaninVegi (possibilities concerning undertakings

may also be explored). In the event that final anti-dumping measures are applied, they shall terminate no

later than five years from imposition, unless a review initiated prior to that date establishes that expiry of

the duty would be likely to lead to continuation or recurrence of dumping and injury.

(*) For the purposes of the illustration, the tomatoes concerned are presumed to be "like products.

41

VII. SUMMARY

The WTO Agreements allow Members to apply three types of trade remedies (anti-dumping, countervailing

and safeguard measures), which permit them to depart from certain obligations contained in the WTO

Agreements. However, such remedies may only be applied after a domestic investigation is conducted and

certain substantive and procedural requirements provided in the respective Agreement are met.

These three mechanisms share many similarities, but also differ in some aspects. While anti-dumping

measures are applied against injurious "dumping", the objective of countervailing measures is to offset the

injurious effect of "subsidies". Both "dumping" and "subsidies" are considered unfair trade practices.

Dumping is an action by private firms, and thus, is not prohibited by the Anti-Dumping Agreement; the

Agreement governs the imposition of anti-dumping measures.

In contrast, in the case of subsidies, it is the government, a government agency or a private body following

government's instructions which provides the subsidy. Thus, the SCM Agreement includes both disciplines

on the use of subsidies as well as upon the use of countervailing measures by WTO Members. In this

regard, it classifies subsidies into two categories: prohibited and actionable. Both types of subsidies might

be challenged through the WTO dispute settlement mechanism; although in the case of actionable subsidies,

it must be demonstrated that these cause adverse effects.

On the other hand, unlike anti-dumping and countervailing measures, the application of safeguard measures

does not depend on unfair trade practices. Rather, safeguard measures may be imposed when a surge of

imports causes injury to a domestic industry. The objective of safeguard measures is to prevent or remedy

serious injury and facilitate structural adjustment of the industry adversely affected by an increase of

imports.

The similarities between these measures extend to the substantive requirements for their application. In the

case of anti-dumping and countervailing measures, it is necessary to show that dumped imports/subsidized

imports are causing or threatening to cause material injury to the domestic industry producing the like

products. For the application of safeguard measures these requirements differ. Instead, it is necessary to

show that increased imports are causing or threaten to cause serious injury to the domestic industry

producing the like or directly competitive products.

Before the imposition of anti-dumping, countervailing or safeguard measures, investigating authorities must

determine that the three substantive elements mentioned above are met. Moreover, investigating

authorities have to comply with a number of procedural requirements (conditions for the initiation of

investigations, evaluation of evidence, application of provisional measures, transparency provisions, duration

and review of the measures, etc). The procedural requirements provided for the three measures are fairly

similar, although there are also important differences, especially in the context of safeguard measures.

Members may decide to apply an anti-dumping, countervailing or safeguard measure, as the case may be,

only if the investigation establishes that the three substantive requirements are met. For all three

mechanisms, the measures may take the form of an increased tariff above the bound level. In addition, the

Agreement on Safeguards allows Members to apply a quantitative restriction, subject to certain conditions.

42

There are also important differences with respect to whom the measures will apply. While anti-dumping

duties would be applied to the products of enterprises found to be practicing dumping, countervailing duties

would be placed on products of enterprises benefiting from the subsidies. Since safeguard measures have to

be applied, in principle, on an MFN basis, they will have to target the imports of the like or directly

competitive products of all affected WTO Members (in the context of special and differential treatment, only

products coming from developing countries may be excluded under certain circumstances). In addition, a

Member applying safeguard measures would have to offer compensation to the affected Members according

to the provisions of the Agreement.

43

PROPOSED ANSWERS

1. Dumping is a form of price discrimination, which takes place when the price of a product when exported

to another country is less than the price of that same product when sold in the market of the exporting

country. Dumping is calculated on the basis of a fair comparison between the normal value (the price of

the imported product in the “ordinary course of trade” in the country of origin or export) and the export

price (the price of the product in the country of import).

2. The normal value is generally the price, in the ordinary course of trade, for the like product at issue when

destined for consumption in the exporting country market. However, in cases where there are no sales of

like product in the ordinary course of trade in the domestic market of the exporting country or the sales

are so low in volume that they do not permit a proper comparison of home market prices and export

prices, the normal value can be determined in two other ways: A. the comparable price of the like product

when exported to a third country (provided that price is representative); or B. the constructed normal

value of the product, which is calculated on the basis of the cost of production, plus a reasonable amount

for administrative, selling and general costs and profits.

3. The export price will normally be based on the transaction price at which the foreign producer sells the

product to the importing country. However, in cases where there is no export price for a given product or

the transaction price at which the exporter sells the product to the importing country is unreliable

because of an association or a compensatory arrangement between the exporter and the importer or a

third party, the export price could be determined by reference to the price at which the imported product

is first resold to an independent buyer. If the imported product is not resold to an independent buyer, or

is not resold as imported, the authorities may determine a reasonable basis on which to calculate the

export price.

4. The basic requirement is a fair comparison between the normal value and the export price. Accordingly,

the prices being compared shall be those of sales made at the same level of trade, normally the

ex-factory level (to avoid the distorting effect of factors such as transport, insurance, etc), and of sales

made at as nearly as possible the same time. To ensure that prices are comparable, the Anti-Dumping

Agreement requires that adjustments be made to either the normal value, or the export price, or both, to

account for differences affecting price comparability in the product, or in the circumstances of sale, in the

importing and exporting markets.

5. The three conditions are:

The existence of dumped imports: dumping is determined on the basis of a fair comparison between

the normal value (the price in the country of origin or export) and the export price (the price of the

product in the country of import);

the finding of injury: the dumped imports result in material injury to a domestic industry producing

the like products, threat of material injury to a domestic industry, or material retardation of the

establishment of a domestic industry; and,

the finding of causation: the injury is caused by the dumped imports, including an assessment of any

known factor other than dumped imports which may be causing injury to the domestic industry at the

same time. Injury caused by these other factors must not be attributed to dumped imports.

44

6. The determination of injury to the domestic industry producing the like products in an anti-dumping

investigation shall be based on positive evidence and involve an objective examination of both: (a) the

volume of dumped imports and the effect of the dumped imports on prices in the domestic market for like

products; and, (b) the consequent impact of the dumped imports on domestic producers of like products.

The volume effects of the dumped imports shall be assessed by considering whether there has been a

significant increase in the dumped imports either in absolute terms or relative to production or

consumption in the importing Member. The price effects of the dumped imports would be assessed by

examining whether there has been significant price undercutting by the dumped imports as compared

with the price of a like product of the importing Member; or whether the effect of dumped imports is

"otherwise" to depress prices to a significant degree, or to prevent price increases, which otherwise would

have occurred, to a significant degree. The determination of the impact of the dumped imports on

domestic producers of like products involves the examination of those factors enumerated in Article 3.4 of

the Anti-dumping Agreement, such as: actual or potential declines in sales, profits, output, market share,

productivity, return on investments, utilization of capacity; factors affecting domestic prices; the

magnitude of the margin of dumping; actual and potential negative effects on cash flow, inventories,

employment, wages, growth, ability to raise capital or investments. This list is not exhaustive nor can

one or several of these factors give decisive guidance; thus, investigating authorities are required to

examine all other relevant economic factors.

7. The Agreement establishes the general principle that it is desirable that the imposition of anti-dumping

duties by Members is permissive, even if all the requirements for imposition have been met. In any case,

anti-dumping duties cannot exceed the margin of dumping calculated during the investigation. Moreover,

the Agreement provides that it is desirable that the duty be less than the margin of dumping if such

"lesser duty" would be adequate to remove the injury to the domestic industry.

8. As a general principle, an anti-dumping measure shall remain in force only as long as and to the extent

necessary to counteract dumping which is causing injury. Investigating authorities are required to review

the need for continued imposition of anti-dumping measures, on their own initiative or, provided that a

reasonable period of time has elapsed since the imposition of the measure, upon request by any

interested party which submits positive information substantiating the need for a review. Article 11.3

(known as the "sunset clause") provides that anti-dumping measures shall normally terminate no later

than five years after first being applied, unless a review initiated prior to that date establishes that the

expiry of the duty would be likely to lead to continuation or recurrence of dumping and injury.

9. An anti-dumping investigation may involve the following steps:

A. Initiation of Investigation on the basis of a Request of the Domestic Industry; B. preliminary

determination of dumping, injury, and causation – (if affirmative) provisional measures or price

undertakings may be put in place; and C. final determination of dumping, injury, and causation – (if

affirmative) imposition of definitive anti-dumping duties.

10. The main object and purpose of the SCM Agreement is to increase and improve GATT disciplines relating

to the use of both subsidies and countervailing measures. Thus, the SCM Agreement addresses two

separate but closely related matters: (i) the multilateral disciplines on the use of subsidies; and (ii) the

conditions under which Members may apply countervailing measures.

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11. There are four elements that have to be established before a subsidy can be identified: 1. a financial

contribution (is granted); 2. by a government or any public body within the territory of a Member; and,

3. a benefit is thereby conferred (to a recipient). In addition, a subsidy as found by applying the three

criteria mentioned above would not be subject to the SCM Agreement unless it is specific, that is, it has

been specifically provided to an enterprise or industry or group of enterprises or industries.

12. The SCM Agreement provides two types of subsidies:

Prohibited subsidies: subsidies granted contingent upon export performance or upon the use of

domestic over imported goods. Such subsidies are challengeable through either multilateral track -

through the invocation of the WTO dispute settlement mechanism - or (if they are causing injury to

the domestic industry of the importing Member) unilateral track - through countervailing action; and,

actionable subsidies (not prohibited): subsidies that cause adverse effects to a WTO Member. There

are three types of adverse effects: 1. those which cause injury to the domestic industry –

challengeable through either multilateral or unilateral track; 2. those which cause serious prejudice to

a Member's exporting interests –challengeable through multilateral track only; and, 3. those resulting

in nullification or impairment of benefits accruing under GATT 1994 - related to harm to a Member's

exporting interest - challengeable through multilateral track only.

13. The provisions of GATT and of other Multilateral Trade Agreements in Annex 1A of the WTO Agreement

(including the SCM Agreement) apply subject to the provisions of the Agreement on Agriculture

(Article 21 of the Agreement on Agriculture); thus the Agreement on Agriculture prevails over the SCM

Agreement in cases of conflict.

14. The SCM Agreement recognizes that subsidies can play an important role in the economic development of

developing country Members, and thus provides special and differential treatment to such Members. In

general, the lower a Member's level of development, the more favourable the treatment it receives with

respect to subsidies disciplines as well as when faced with countervailing duties. Those special and

differential provisions grant (or granted) longer periods to phase out export and import substitution

subsidies. There is also more favourable treatment with respect to actionable subsidies. Regarding

countervailing measures, the Agreement recognizes that developing country Members' exporters are

entitled to more favourable treatment with respect to the termination of investigations when the level of

subsidization granted upon a product or the volume of the subsidized imports is de minimis according to

the Agreement.

15. Both the Anti-Dumping Agreement and the Agreement on Safeguards grant Members the right to impose

measures inconsistent with certain provisions of the GATT. However, the former aims to remedy the

injury to domestic industries caused by unfair trade practices, while the latter is intended to prevent or

remedy serious injury and facilitate structural adjustment of the industry injured by increased imports.

16. Safeguard measures must be applied as a result of unforeseen developments and of the effect of the

obligations incurred by a Contracting Party under the GATT. Three conditions are required to be met

before the application of a safeguard measure:

Increased quantity of imports in absolute or relative terms;

serious injury caused or threatening to be caused to the domestic industry of "like or directly

competitive" products; and,

causal link between increased imports and injury caused to the domestic industry.

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Four main differences can be identified: 1. while dumping and subsidies have to be found before the

imposition of anti-dumping and countervailing measures respectively, increased quantity of imports are

the first requirement for the application of a safeguard measure; 2. the application of a safeguard

measure requires the finding of unforeseen developments which is not required in the anti-dumping and

countervailing investigation; 3. while the imposition of anti-dumping and countervailing measures require

the finding of material injury to a domestic industry of like product, the application of a safeguard

measure will require that serious injury caused not only to the like product, but also to directly

competitive products; and, 4. while anti-dumping and countervailing measures can be applied to a

particular source of imports, safeguard measures must be applied, in principle, on an MFN basis.

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