The smooth operation of international trade in products depends on binding tariffs and their application to all trading partners equally (most-favored-nation treatment, or MFN). The WTO agreements uphold the fundamental ideas, but they also provide deviations - under certain conditions. These 3 problems are as follows:
• Measures made to prevent dumping (selling at an unfairly low price)
• In order to balance the subsidies, there are particular "countervailing" duties.
• Imports will be temporarily restricted as part of emergency measures to "safeguard" indigenous businesses.
A corporation is deemed to be "dumping" a product if it sells it abroad for less than it would typically charge on its domestic market. Is this an unfair market? Although there are varying views, many governments enacts the act to prevent dumping in order to protect their home industry. The WTO agreement does not make any conclusions. It is frequently referred to as the "Anti-Dumping Agreement" and focuses on how governments can or cannot respond to dumping. (This single-minded focus on responding to dumping contrasts with the Subsidies and Countervailing Measures Agreement's)
Although the legal criteria are more specific, the WTO agreement generally permits governments to take action against dumping when there is actual ("material") harm to the domestic industry that is competing. To achieve that, the government must be able to demonstrate that dumping is occurring, quantify its extent (how much lower the export price is than the exporter's home market price), and demonstrate that the dumping is harming or endangering the environment.
Countries are permitted to take action against dumping under GATT (Article 6). Article 6 is expanded and made clearer by the Anti-Dumping Agreement, and the two work together. Typically, anti-dumping action entails levying an additional import duty on the specific product from the specific exporting country in order to bring its price closer to the "normal value" or to undo the harm to domestic industry in the importing country. These actions are in violation of the GATT principles of binding tariffs and not discriminating between trading partners.
There are numerous methods for determining if a product is being dropped heavily or just softly. The agreement reduces the variety of available choices. It offers three ways to figure out a product's "normal value." The primary one is determined by the price on the domestic market of the exporter. When this cannot be used, there are two possible options: the exporter's price charged in another nation, or a computation based on the exporter's manufacturing costs, other expenses, and typical profit margins. The agreement also details how to fairly compare the export price to what would otherwise be a regular pricing.
It is insufficient to determine how much dumping a product has received. Only if the dumping is harming the industry in the importing nation can anti-dumping measures be implemented. As a result, a thorough inquiry must first be carried out in accordance with established guidelines. All pertinent economic factors that have an impact on the state of the industry in question must be evaluated as part of the study. If an inquiry reveals that dumping is occurring and that it is harming domestic industry, the exporting company can agree to raise its price to a predetermined level in order to avoid paying anti-dumping import duties.
There are specific guidelines for how anti-dumping lawsuits should be filed, how the investigations should be carried out, and the requirements for guaranteeing that all interested parties have a chance to present evidence. Anti-dumping restrictions must be lifted five years after their implementation, unless an examination reveals that doing so would cause harm.
When authorities find that the margin of dumping is negligibly small (defined as less than 2% of the product's export price), anti-dumping investigations must be terminated right away. Other terms are also established. Investigations must come to an end, for instance, if the amount of dumped imports is negligible (i.e., if the volume from one country represents less than 3% of all imports of that product) however, investigations may continue if several countries that each contribute less than 3% of imports combine to make up 7% or more of all imports.
According to the agreement, member nations are required to immediately and fully inform the Committee on Anti-Dumping Practices of all preliminary and conclusive anti-dumping actions. Also required is a twice-yearly report on all investigations. Members are encouraged to counsel one another when issues arise. Additionally, they have access to the WTO's dispute resolution process.
Subsidies And Countervailing Measures:
This agreement accomplishes two goals: it limits the use of subsidies and it governs the steps that nations might take to offset their negative consequences. It states that a country may request the withdrawal of the subsidy or the removal of its negative consequences through the WTO's dispute resolution process. Alternately, the nation can conduct its own examination and finally impose an additional tax (known as a "countervailing duty") on subsidized imports that are discovered to be detrimental to domestic manufacturers.
The definition of a subsidy can be found in the agreement. It also introduces the idea of a "specific" subsidy, which is one that is only granted to a certain business, industry, group of businesses, or industry in the nation (or state, etc.) that is providing the subsidy. Only certain subsidies are subject to the restrictions outlined in the agreement. They may be for imports or exports.
Both prohibited and actionable subsidies are defined in the agreement. The third category, non-actionable subsidies, was initially included. This category had a five-year lifespan that expired on December 31, 1999, and it was not renewed. Except for instances where the subsidies are exempt under the Agriculture Deal's "peace clause," which is set to expire at the end of 2003, the agreement applies to both industrial and agricultural goods.
Subsidies that obligate recipients to utilize domestic products in place of imports or to accomplish certain export targets are prohibited. They are forbidden because they are intended to stifle international trade and are therefore likely to harm trade with other nations. They are subject to challenge through the WTO dispute resolution process, which moves at a quicker pace. The subsidy must be withdrawn right away if the dispute resolution process finds it to be illegal. In any other case, the complaining nation may retaliate. Countervailing duty may be applied if imports of subsidized goods harm domestic manufacturers.
Subsidies that can be challenged: In this case, the complaining nation must provide evidence that the subsidy has a negative impact on its interests. If not, the subsidy may be used. Three different categories of damage are specified in the agreement. Subsidies from one nation may harm a domestic industry in a nation that imports. When the two compete in third markets, they can harm rival exporters from another nation. Additionally, exporters attempting to compete in the home market of the subsidizing nation may suffer from domestic subsidies in that nation.
Subsidies must be withdrawn or their harmful effects must be eliminated if the Dispute Settlement Body determines that the subsidy does indeed have a detrimental effect. Once more, countervailing duty might be applied if imports of subsidized goods affect domestic manufacturers.
The Anti-Dumping Agreement's rules are comparable to some of these ones. Only once the importing nation has performed a thorough investigation for anti-dumping action then only countervailing duty (the parallel to anti-dumping duty) may be levied. The criteria for determining whether imports of subsidized products are harming ("causing injury to") domestic industry, the procedures for starting and conducting investigations, and the rules for the implementation and duration (typically five years) of countervailing measures are all in great detail. As a substitute for having countervailing duties applied to its exports, the subsidized exporter may also agree to increase its export prices.
In emerging nations and in the transition from centrally planned to market economies, subsidies may be crucial. Less developed and developing nations with a GNP per capita of less than $1,000 are immune from restrictions on illegal export subsidies. 2003 is the deadline for other developing nations to stop providing export subsidies. By 2003, least developed nations must stop providing import-substitution subsidies (i.e., aiding domestic production and preventing imports), the deadline for other developing nations was 2000. Developing nations also benefit from preferential treatment if inquiries into countervailing duties are conducted on their exports. By 2002, transitional economies had to phase out all banned subsidies.
Safeguards: Imports Emergency Protection
If a WTO member's domestic industry suffers harm from an increase in imports or fears harm, it may temporarily prohibit imports of that product (perform "safeguard" steps). In this case, the harm must be severe. Under GATT, safeguards were always available (Article 19). However, they were rarely employed since some governments preferred to adopt "grey area" measures to preserve their local sectors. Through bilateral discussions outside of the GATT, they convinced exporting countries to curb shipments "voluntarily" or to agree to alternate ways of sharing markets. Such agreements have been made for a variety of goods, including semiconductors, steel, and vehicles.
The WTO deal made history. It forbids "grey-area" actions and places deadlines (a "sunset clause") on all safeguarding procedures. Members are prohibited from seeking, implementing, or maintaining any voluntary export limitations, orderly marketing agreements, or other comparable measures on the import or export side, according to the agreement. At the end of 1998, the bilateral measures that had not been changed to comply with the agreement began to be phased out. Only the European Union used the clause that permitted countries to maintain one of these measures for an additional year (through the end of 1999) in order to impose limitations on automobile imports from Japan.
A real increase in imports (an absolute increase) or a rise in the imports' share of a contracting market, even though the import quantity has not increased, are both examples of an import "surge" that might necessitate safeguard action (relative increase).Industries or businesses may ask their government to take protective measures. The WTO agreement specifies guidelines for national authorities conducting safeguard inquiries. Transparency and adhering to accepted standards and procedures are prioritized over using arbitrary methods. The investigating authorities must make public announcements of hearing dates and offer other suitable channels for interested parties to present evidence. Arguments on whether a measure is in the public interest must be included in the evidence.
The agreement lays out the standards for establishing whether "severe injury" is being inflicted or threatened, as well as the elements that must be taken into account when estimating how imports will affect the domestic industry. When implemented, a safeguard measure should only be used to the amount required to stop or fix serious harm and assist the industry in question in making adjustments. Unless a clear justification is provided that a different level is required to prevent or remedy serious injury, quantitative restrictions (quotas) should generally not reduce the quantities of imports below the annual average for the last three representative years for which statistics are available.
In theory, imports from a certain nation cannot be the focus of safeguard measures. The agreement does, however, specify how quotas can be distributed among suppliers, particularly in the rare case where imports from some nations have expanded excessively quickly. A safety measure should not last more than four years, though it may be prolonged up to eight years if determined necessary and there is proof the industry is adapting by competent national authorities. The easing of restrictions that have been in place for more than a year is required.
In theory, a nation must provide something in exchange when it limits imports to protect its domestic manufacturers. According to the agreement, the exporting nation (or nations) may request compensation through negotiations. If a compromise cannot be found, the exporting nation may respond by taking a similar move, such as increasing export tariffs from the nation enforcing the protective measure. If the safeguard measure is in compliance with the terms of the agreement and was implemented in response to an increase in the volume of imports from the exporting country, the exporting country may have to wait three years after the safeguard measure was introduced before it can respond in this way.
Exports from underdeveloped nations are partially exempt from protective measures. Only when a developing nation supplies more than 3% of the product's imports, or when developing country members with a combined import share of less than 3%, accounts for more than 9% of the product's total imports, can an importing country impose a safeguard measure to a product from that country.
The WTO Safeguards Committee is in charge of monitoring members' pledges and overseeing the agreement's operation. Every stage of a safeguard inquiry and any associated decision-making must be reported by governments, and the committee examines these reports.