Overview of Trade Remedies in WTO System

1. Overview ofTrade Remedies in WTO System Antidumping, Subsidies, Safeguards Presented by Kenneth J. Pierce and Matthew R. Nicely Willkie Farr & Gallagher for the Georgetown University Law Center NCIEC WTO Conference sponsored by the U.S. – Vietnam Trade Council 11 March 2004

2. New York-based law firm with more than 500 attorneys in offices around the world Washington DC office houses our international trade practice – one of the largest and most prominent in the United States Practice includes 18 lawyers and 5 trade analysts with decades of experience in the field Focus of practice is international trade remedies, particularly antidumping and countervailing duties and safeguard measures Our successes span all aspects of the litigation, from work before U.S. agencies to appeals before U.S. courts and the WTO Currently representing Vietnam in shrimp antidumping case Introduction to Willkie Farr & Gallagher

3. Introduction to trade remedies Safeguard Measures Anti-dumping Duties Countervailing Duties WTO Dispute Settlement Agenda

4. Permissible import restraints that otherwise would be contrary to WTO principles essentially, exceptions to the bedrock rules of binding tariffs and MFN (most favored nation) treatment Designed to allow relief from imports deemed “unfair,” or adjustment from a surge in imports often called the “safety valve” to allow further trade liberalization WTO identifies three primary types: safeguards (temporary relief from import surges) countervailing duties (counteracting subsidies) antidumping (counteracting unfairly low prices) What are trade remedies?

5. In early years, little attention paid to trade remedies original GATT: Article VI covered anti-dumping measures; Article XVI covered subsidy practices and Article XIX dealt with safeguards focus of GATT was reducing tariffs Over time, focus on trade remedy measures Kennedy Round (1969) produced first rules on antidumping duties; but only agreed to by a limited number of countries Tokyo Round (1979) expanded Anti-Dumping Code; produced Subsidies and Countervailing Duties Agreement, but did not really address substance of subsidy practices Uruguay Round produced first agreement on application of safeguard measures; addressed substance of subsidies Historical Development

6. As tariffs are reduced or eliminated, more countries are invoking WTO trade remedies to assist domestic industries From 1995 through June 30, 2003: 259 safeguard proceedings were initiated (huge increase in 2002 due to steel measures) 2,156 antidumping proceedings were initiated 160 CVD proceedings were initiated Frequency of Use

7. Frequency of Use - cont’d

8. Historically, relatively few users of trade remedies; recently, more and more countries have utilized Frequency of Use - cont’d

9. Frequency of Use - cont’d

10. Nature of underlying activity AD and CVD counteract “unfair” trade practices unfairly priced (AD) and government subsidized (CVD) imports the added tariff is intended to offset the improper dumping or subsidy allegation of unfairness means must target individual country In safeguard cases, there is no issue of unfairness by law, all imports examined in a safeguards case are considered fairly traded since fairly traded, all sources should be included (though exceptions apply for developing country exclusions, country-specific safeguards (China and Vietnam), and possibly FTA partners) Nature of injury varies AD and CVD require only material injury Safeguards require serious injury Distinctions

11. Nature of remedy AD and CVD limited to the amount of dumping or subsidization Safeguard remedies more flexible Duration of remedy AD and CVD can last forever, although there are reevaluations every five years Safeguard measures usually shorter in duration – often three years to avoid need to compensate Distinctions

12. Cases usually brought by domestic industries struggling to compete with imports Usually triggered by an increase in imports Some degree of injury to domestic industry must be demonstrated regardless of dumping or subsidy margin (or size of import surge), no import relief unless finding of injury and causation Similarities

13. Intended to “safeguard” domestic industries from consequences of trade concessions made through GATT/WTO process Allows countries to temporarily suspend tariff concessions to give domestic industry “breathing room” necessary to adjust to increased import competition Belief is that having such a “safety valve” makes it easier for countries to maintain the political resolve to negotiate trade concessions Safeguards – Overview

14. Before WTO Agreement, countries often imposed “gray measures”, such as “voluntary export restraints” U.S. demanded VERs on imported steel, autos and semiconductors during 1980s EU demanded strict VERs on cars New WTO Agreement prohibits gray measures Detailed mechanism for addressing import surges that cause serious injury New agreement applies to all WTO members Safeguards – The New Agreement

15. Under WTO Agreement three conditions must be satisfied before imposing safeguard measures (1) must find a recent increase in import volume that was unforeseen and the result of trade concessions (2) must find that the increased imports have caused (or threatened to cause) the domestic industry to suffer serious injury (3) must craft appropriate remedy that is no more restrictive than necessary to eliminate the serious injury caused by the imports Safeguards – The New Agreement

16. Developing countries are accorded some favorable treatment under Agreement safeguard measures may not be applied against developing countries that account for less than 3% of total imports of the like product, UNLESS total share of all developing countries is more than 9% Example of U.S. steel case Safeguards – Developing Countries

17. Safeguards agreement not currently on agenda; however, very well could become “sleeper” issue Recent Appellate Body decisions have interpreted Safeguards Agreement to make it difficult to impose import restraints In particular, U.S. has lost every safeguard decision that was challenged Adverse domestic reaction to WTO rulings could make U.S. willing to seek to revise Agreement Safeguards – The Doha Round

18. Definition what it is: “dumping” refers to situation when an exporter sells goods in an export market at prices lower than those same goods are sold in its home market what it is not: dumping has nothing to do with actions of a foreign government; dumping does not involve predatory pricing antidumping remedy consists of additional tariff equal to the amount of injurious dumping (discuss “lesser duty rule”) Antidumping – Overview

19. Economic theory is that it is unfair for foreign companies to use profits earned from a closed market to capture export markets Rationale not reflected in AD Agreement or, in turn, national laws law does not require showing that home market is closed law does not even require showing of excess profits in home market Competition authorities dislike AD laws competition officials understand anticompetitive nature but politicians love them Antidumping – rationale

20. Concept of “dumping” has long history first national AD law adopted in 1904 by Canada many other countries followed GATT 1947 recognized problem of dumping - Article VI Increased use of AD laws, combined with lack of specificity in GATT, led to attention during trade negotiations refining AD rules became part of each round of negotiations Kennedy Round: 11 pages, 4,613 words Tokyo Round: 17 pages, 6,712 words Uruguay Round: 26 pages, 11,746 words more recently, dispute over AD Agreement almost derailed new round Antidumping – historical development

21. Primary purpose of WTO AD Agreement is to establish disciplines for imposition of AD duties Detailed rules on how to determine the magnitude of any dumping General rules on how to analyze whether the domestic industry is suffering material injury New rules on how long AD duties can be imposed Antidumping – WTO Agreement

22. No real “breaks” for developing countries Article 15 historically ineffective De minimis rule applies to all countries Negligibility rule applies to all countries Cumulation largely negates negligibility exception Special rules for “non-market economies” Antidumping – Developing Countries

23. Bona fide agenda item Carefully negotiated mandate “improve and clarify” “but preserve “basic concepts and principles” U.S. agenda to strengthen anti-dumping measures, avoid new disciplines. Developing countries want better rules on negligibility, make Article 15 real Antidumping – the Doha Round

24. Harder issue than AD because no consensus about the “problem” many believed assisting industry was legitimate function of government U.S. had strongly held contrary view 1979 Agreement was optional 1995 Agreement binds all WTO members first time adoption of substantive rules traffic light approach standards for determining countervailability Subsidies – Overview

25. Addresses definition of “subsidy” for first time Provides alternative ways to attack subsidies WTO dispute settlement Countervailing Duties Provides procedural framework for CVD measures Subsidies and CVD Measures

26. Financial contribution by government government versus private sector Benefit conferred use of market benchmarks Specific to some industry certain companies or industries all export subsidies de jure versus de facto Definition of Subsidy

27. Framework for possible WTO challenge Prohibited subsidies (“red light”) export subsidies, import substitution Actionable subsidies (“yellow light”) government financing; beneficial tax rates but must demonstrate “serious prejudice” Non-actionable subsidies (“green light”) R&D assistance; facility adaptation for environmental regulations have since expired Subsidies – The New Agreement

28. Can attack red light or yellow light subsidies Common theme: use of market benchmark to evaluate subsidy Must be “specific,” which is often a major issue to be debated Procedural framework largely mirrors Antidumping Agreement CVD – The New Agreement

29. Developing and least-developed countries given time to comply with new anti-subsidy rules least developed countries (less than $1,000 per capita) are exempted from disciplines on prohibited subsidies other developing countries have until 2003 to eliminate export subsidies least developed countries to eliminate import substitution policies by 2003 More favorable de minimis and negligibility rules Subsidies – Developing Countries

30. Bona fide agenda item Same careful mandate More fundamental issues (e.g. renewing “green light” subsidies) Subsidies – The Doha Round

31. As more countries use trade remedies, more countries are turning to the WTO. Binding dispute settlement makes WTO alternative more attractive. The trend will accelerate as developing countries rush to use trade remedies. Attacking trade remedies

32. The WTO has adopted 84 panel reports. Of those 84 reports, 54 (or 64%) covered AD/CVD or Safeguard Measures: AD - 21 (or 25%)(includes 2 regarding Mexico's High Fructose Corn Syrup, 2 regarding EC Bed Linen, 2 regarding Korean DRAMs, and 2 regarding Guatemala cement) Subsidies/CVD - 25 (or 30%)(includes 2 regarding Australian leather, 3 regarding Brazilian aircraft, 2 regarding Canadian aircraft, 3 regarding Canadian milk/dairy and 2 regarding US-FSC) Safeguards - 8 (or 10%) WTO Panel Decisions

33. Strength of claim. Authorities often make many mistakes; attack the weakest parts of the decision. Special standard of review for antidumping; others subject to DSU Article 11 standard. Alternatives under domestic law may be faster and more effective Commercial stakes: Need to balance governmental systemic concerns with commercial stakes. Dispute Settlement: Issues to consider

34. Unique standard of review accept any “permissible” legal interpretation accept any “unbiased” and “objective” factual findings Uncertain future for this special rule Panels have been deferential, but not excessively Can succeed in challenge anti-dumping measures Special antidumping standard

35. WTO process takes 18-24 months. “Reasonable period of time” adds another 12-15 months. National authority may repeat its decision. Overall pattern is mixed; authorities sometimes implement Implementation challenges

36. WTO review takes time, and outcome uncertain. But can influence how authorities handle future cases under that particular trade remedy. Can also influence how authorities handle other cases involving the complaining country. The longer term view

37. Some changes are better pursued in negotiations rather than litigation. Ongoing negotiations for antidumping and countervailing duties. Possibility of safeguard issues being added directly or indirectly. The role of new negotiations