Regulating Unfair Competition and Unfair Trade

1. Regulating Unfair Competition and Unfair Trade Chapter 11 © 2005 West Legal Studies in Business/Thomson Learning

2. Free Trade & Protectionism • Move beyond simple labels • Understand connection between international and national law • GATT/ WTO & national law

3. GATT Escape Clause: remedy when there is no intent to harm • Article XlX- allows escape from previous promises, 11/94 Agreement on Safeguards • Many countries have provisions in national law that parallel GATT’s Escape clause

4. GATT 1994 Agreement on Safeguards • “Products imported in such increased quantities and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products” • Countries should notify WTO Safeguards committee

5. GATT 1994 Agreement on Safeguards • Administrative inquiry • WTO Committee on Safeguards • Argentina Safeguard Measures on Imports of Footwear, Dec. 1999: Argentina had not shown that increased imports were the cause of serious harm to domestic footwear

6. GATT 1994 Agreement on Safeguards • What is U.S. position? • What happens if a country differs from the WTO’s position?

7. Relief from injury caused by Imports • No wrong doing • Some “intent’ to cause injury

8. US Escape Clause: Section 201 of Trade Act • WHAT? “article being imported in such increased quantities as to be a SUBSTANTIAL cause of SERIOUS INJURY or threat thereof to domestic industry producing an article LIKE or DIRECTLY COMPETITIVE with the imported article”

9. Who Enforces? • Complaint filed with ITC (bipartisan) • Hearings • Recommendation to the President • President decides whether to implement • Example: Harley Davidson case

10. Steel Imports- 2001 • June 2001, Bush asks ITC to investigate • Clinton had refused to take such action • ITC decided OCT. 2001 found serious injury • White House must decide after further hearings • Steelworkers? Free Trade agenda? • President Bush imposed quotas WTO 2003 found U.S. in violation. and lifted them December 2003.

11. Remedies under US Escape clause • President’s options: • temporary-4-8 yrs. • 50% tariff increase • tariff rate quotas • absolute quotas • Auctioned import license quotas • Trade adjustment assistance • negotiated agreements • orderly market agreements(gov. to gov.) • VRA: gov. to supplier

12. Trade Adjustment Assistance • File with the Dept. of Labor • Direct cash payments to workers • Job retraining for workers and relocation • Help for companies as well

13. Unfair Imports: all countries have statutes patterned after GATT • Dumping- antidumping duties • Subsidies- countervailing duties

14. Dumping • What is it? selling products in foreign country for less than the price charged in producer’s home market • Price discrimination • What is wrong with this? • Purpose to drive out competition • Criticism?

15. Dumping outlawed by GATT • 1994 Antidumping Agreement • GATT says dumping is at less than normal value • US states dumping is a sale at less than “fair value” • Normal value- export price= dumping margin

16. Dumping • Export price= price w/o shipping charges sold to unrelated buyer in importing country • Constructed price • Pesquera Mares Australes Ltd v. U.S. (Chilean salmon) : violated U.S. antidumping laws by selling foreign salmon at less than fair value • Used sales in Japan to compare

17. Mechanics of Dumping Investigation • ITA determines whether dumping exists • ITC determines extent of injury • You can win but still lose. How? If the dumping margin calculated is small

18. WTO will play role • WTO Dispute Settlement body

19. How to calculate when dealing with products from non market economies? • Bulk Aspirin from the People’s Republic of China 2000 • The ITC found injury to US producers of aspirin but the ITA in calculating the dumping margin cut the antidumping duties to zero. Rhodia testified that without the duties its business disappeared. Rhodia closed its U.S. plant and moved to China.

20. Subsidies • 1994 Agreement on Subsidies and Countervailing Measures • Unfair Imports • Consistent with GATT • Remedy = COUNTERVAILING DUTIES

21. What Is a Subsidy? • Government confers a benefit on a domestic firm and provides income, price support or financial contribution (not collecting a tax, providing grant or loan at favorable rate) providing investment capital, Furnishing goods or services like a road • Prohibited subsidies: export subsidies or import substitution subsidy • Some subsidies are permitted as part of government’s responsibility to fund social programs and provide growth

22. WTO may investigate • Cause injury • Nullification and impairment of rights • Serious prejudice to another • Specific

23. Subsidy • Prohibited subsidies: export or import substitution subsidies • Domestic subsidies: government programs generally permissible as part of legitimate responsibility of government to direct industrial growth and fund social programs

24. US investigation • ITA- Does subsidy exist • ITC- Material injury? • NOTE THAT THE STANDARD MATERIAL INJURY IS LOWER THAN THE SERIOUS INJURY REQUIRED UNDER ESCAPE CLAUSE

25. U.S. Countervailing Measures Concerning Certain products from the EC (steel) 2002 • EC challenges U.S. use of “same person” test. The panel found that the U.S.violated the WTO Agreement on Subsidies and Countervailing measures (SCM). • Subsequently in 2003, the ITA changed its rules. The presumption is rebuttable if the company can show that the government sold its interest , retains no control and it was an arm’s length transaction at fair market value.

26. Judicial Review? • Countervailable duties and Antidumping duties may be reviewed by the CIT (both final determinations and negative injury) • Limited review in Escape Clause

27. Conclusions • Complex interrelated international and national regulations • Businesses will face these issue at home and abroad • What role WTO will play in the future? • Role of politics- reflections? • Other news items?