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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).
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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
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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.
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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.
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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.
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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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