Seminar on Trade Remedies

David N. TanenbaumAttorney and Trade Expert

July 2015

Trade Policy Project

Introduction

• WHO AM I?

• WHAT WILL WE COVER TODAY?• What are Trade Remedies?• Why are we talking about them?• What can they do for you ?• What CAN’T they do for you?

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Introduction

• WHAT WE WILL COVER TODAY? (CONT’D)• Antidumping, Countervailing Duties, Safeguards• Terms and concepts• Discuss each in turn, and distinguish them• The role of the Ministry and the Commission• How a trade case works

• Q & A AND CONCLUSION

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What are trade remedies?

• THREE TYPES: • antidumping (counteracting unfairly low prices) (AD)• countervailing duties (counteracting subsidies) (CVD)• safeguards (temporary relief from import surges) (SG)

• PERMISSIBLE IMPORT RESTRAINTS- !!!

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Why are Trade Remedies important?

• CONNECTION BETWEEN TRADE REMEDIES AND TRADE LIBERALIZATION• WTO membership requires tariff concessions

• TARIFFS DROP, IMPORTS RISE• Domestic industries may not be prepared for this increase• Foreign exporters may try and take advantage of the

situation to gain market share.

• FAIR TRADE AND UNFAIR TRADE

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What CAN’T trade remedies do?

• ANTIDUMPING/COUNTERVAILING • Will not protect industries in an importing country from fairly

traded goods.• These remedies are designed to address unfairly priced products that are

entering the domestic market

• Cannot stop imports from coming in unless they are harming the domestic industry, or preventing an industry from starting.

• SAFEGUARDS• Can address fairly traded goods, but cannot protect a domestic

industry forever • Time limits apply to duration of safeguard actions.• Industry is supposed to restructure or wind down• Still must show injury to the industry and not just increased competition

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Overview of Trade Remedies

• HOW DO AD/CVD REMEDIES WORK?• What is dumping?• What is a countervailable subsidy?• What is material injury or threat thereof?• What is causation?

• WHAT IS THE ROLE OF THE MINISTRY IN PROCESS?

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Antidumping vs Countervailing

• DIFFERENCES BETWEEN AD AND CVD• They Both level the playing field for Domestic producers of

products that are also imported• Antidumping

• Helps where products are being imported at prices that are too low – lower than what is charged where they are produced

• Countervailing Duty• Helps where a foreign government has provided a financial

assistance to a foreign company, allowing them to manufacture or export at a lower cost.

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Antidumping 9

What is dumping?

• USING THE LANGUAGE OF THE WTO AGREEMENT, IT MEANS “GOODS INTRODUCED INTO THE COMMERCE OF ANOTHER COUNTRY AT LESS THAN NORMAL VALUE”

• IN OTHER WORDS - “IF THE EXPORT PRICE OF THE PRODUCT EXPORTED FROM ONE COUNTRY TO ANOTHER IS LESS THAN THE COMPARABLE PRICE, IN THE ORDINARY COURSE OF TRADE, FOR THE LIKE PRODUCT WHEN DESTINED FOR CONSUMPTION IN THE EXPORTING COUNTRY“ WE HAVE DUMPING.

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Dumping Case Defined

• FIVE STEPS:

1. Define the ‘like product’,

2. Determine the ‘domestic industry’,

3. Show that goods have been dumped,

4. Demonstrate material injury, AND

5. Show a causal link between dumped imports and the material injury caused.

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A "LIKE PRODUCT" IS A PRODUCT WHICH IS IDENTICAL, I.E. ALIKE IN ALL RESPECTS, TO THE PRODUCT IMPORTED

IF THERE IS NO IDENTICAL PRODUCT, THE TERM "LIKE PRODUCT" CAN BE INTERPRETED TO MEAN A PRODUCT WHICH, ALTHOUGH NOT ALIKE IN ALL RESPECTS, HAS CHARACTERISTICS CLOSELY RESEMBLING THOSE OF THE IMPORTED PRODUCT.

Like Product 12

“Domestic Industry“

"DOMESTIC INDUSTRY" HAS TWO MEANINGS:

1) the domestic producers as a whole of the like products, or

2) the producers whose collective output constitutes a major proportion of the domestic production of the like products

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Dumping

WHAT IS DUMPING (REVISITED):

If Normal Value (price in Country of manufacture)

is higher than

Export Price (price as sold in Ukraine)

then you have dumping.

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Normal Value

“NORMAL VALUE:” THE PRICE FOR DOMESTIC SALES IN THE EXPORTING COUNTRY IS ESTABLISHED BASED ON:

o the comparable price,o in the ordinary course of trade,o for the like producto when destined for consumption in the exporting country

• 3 WAYS TO DETERMINE NORMAL VALUE• Domestic price; (Preferred method)• Third-country export prices;• Constructed normal value.

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Export price

• EXPORT PRICE: THE PRICE AT WHICH THE PRODUCT IS EXPORTED FROM ONE COUNTRY TO ANOTHER, BUT

IF• NO EXPORT PRICE EXISTS OR THE EXPORT PRICE IS

UNRELIABLE BECAUSE THERE IS A RELATIONSHIP BETWEEN THE EXPORTER AND IMPORTER

THEN• THE EXPORT PRICE MAY BE CALCULATED USING THE

PRICE AT WHICH IMPORTED GOODS ARE FIRST RESOLD TO AN INDEPENDENT BUYER, ADJUSTED FOR LEVEL OF TRADE AND OTHER DIFFERENCES.

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Fair Comparison

• COMPARISON MUST BE MADE BETWEEN THE EXPORT PRICE AND THE NORMAL VALUE AT THE SAME TRADE LEVEL, AT THE SAME TIME, AND TAKING INTO ACCOUNT DIFFERENCES THAT MAY AFFECT PRICE COMPARABILITY.

• WHEN THE NORMAL VALUE AND THE EXPORT PRICE ARE NOT ON A COMPARABLE BASIS, ADJUSTMENTS MUST BE MADE.

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Fair Comparison

• ADJUSTMENTS INCLUDE:• Differences in commissions paid,• After-sales costs,• Costs of credit granted,• Directly related transport and handling costs,• Discounts and rebates,• Level of trade,• Physical characteristics, and• Import charges and indirect taxes.

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Margin Calculation 19

Normal Value Export Price

Producer X to Unrelated customer

Producer X to Unrelated customer

Sales price: 100 Sales Price: 100

- Duty drawback: 5 - Physical differences: 5

- Discounts: 2 - Discounts: 2

- Packaging: 1 - Packaging: 2

- Inland freight: 1 - Inland freight: 1

- Ocean freight & insurance: 6

- Credit: 3 - Credit: 3

- Guarantees: 2 - Guarantees: 3

- commissions: 2 - Commissions: 3

= Ex-factory NV: 84 = ex-factory price: 75

Price difference = 84-75

= 9

9/75 = 12% dumping rate

Injury 20

Meaning of "Injury"

THE TERM "INJURY" HAS THREE MEANINGS IN THE AD WORLD

1) Material injury to a domestic industry

2) Threat of material injury to a domestic industry

3) Material retardation of the establishment of a domestic industry

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Determination of Injury

THE DETERMINATION OF INJURY MUST BE BASED ON POSITIVE EVIDENCE AND INVOLVE AN OBJECTIVE EXAMINATION OF:

the volume of the dumped imports the effect of the dumped imports on prices in the

domestic market for like products, and the consequent impact of these imports on domestic

producers of like products.

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Determination of Injury

MEASURED BY THE VOLUME OF DUMPED/SUBSIDISED IMPORTS

• consider whether there is a “significant” increase• increase in either absolute terms or relative to production or

consumption

VIEWED THROUGH THE EFFECT ON PRICES IN THE DOMESTIC MARKET

• Price “depression”: imports force prices down?• Price “suppression”: do low priced imports prevent price

increases?

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Determination of Injury 24

Productivity Market share

Margin of dumping Domestic prices

Decline in sales Inventories

Output Employment

Wages negative effect on cash flow

Capacity utilization Profits

Return on investments Investment

Ability to raise capital growth

Threat of Injury

• THREAT OF INJURY IS “FUTURE INJURY” THAT MUST BE CLEARLY FORESEEN OR IMMINENT.

• “FUTURE INJURY” MEANS AN EXPECTATION THAT THE CURRENT CIRCUMSTANCES WILL CHANGE CREATING A SITUATION IN WHICH DUMPING WOULD CAUSE INJURY.

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Material Retardation

• INJURY MAY ALSO BE FOUND WHERE DUMPED PRODUCTS ARE MAKING IT IMPOSSIBLE TO ESTABLISH OR START A DOMESTIC INDUSTRY.• Significant investment• Long term planning

• VERY DIFFICULT STANDARD TO DEMONSTRATE

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Causation 27

Causation

It must be demonstrated that the dumped imports cause injury through the effects of dumping.

Can show existence of a causal relationship by establishing a "symmetry in time" between the dumped imports and injury.

Can use "causality" tests between the prices of the imports investigated and domestic prices.

Inferred: If imports go up and profits in the export market industry go down, then causality is established

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Other Factors –Causation

• ANALYSIS SHOULD TAKE INTO ACCOUNT ANY OTHER FACTORS WHICH ARE INJURING THE DOMESTIC INDUSTRY.

• the volume and value of imports not sold at dumped prices• contraction in demand • competition between foreign and domestic producers• changes in patterns of consumption • developments in technology• export performance and productivity of the domestic industry

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Where to start? 30

Ministry of Economic Development and Trade

• A government division that is responsible for trade remedies investigations

• They investigate the alleged dumping, subsidy or safeguard case and recommend to the Commission whether to initiate a case make determinations of injury, and how to remedy.

• They hold hearings and ensure that due process is provided to all participants

• Ultimately Commission orders the duties on dumped goods

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Process

• APPLICATION• REVIEW FOR SUFFICIENCY• INITIATION• COLLECT INFORMATION/QUESTIONNAIRE• VERIFICATION• PRELIMINARY DETERMINATION• HEARINGS• FINAL DETERMINATION• ASSESSMENT OF DUTIES• JUDICIAL REVIEW• WTO DISPUTE SETTLEMENT

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Applications 33

• INVESTIGATIONS NORMALLY ARE INITIATED UPON A WRITTEN APPLICATION SUBMITTED BY OR ON BEHALF OF THE DOMESTIC INDUSTRY

• “BY OR ON BEHALF OF THE DOMESTIC INDUSTRY:” THE APPLICATION MUST BE SUPPORTED BY DOMESTIC PRODUCERS WHOSE COLLECTIVE OUTPUT CONSTITUTES• more than 50 per cent of the production of the domestic

producers expressing a position on the application (either support or opposition) AND

• at least 25 per cent of total domestic production

The Application

THE APPLICATION SHOULD CONTAIN: the identity of the applicant

a complete description of the allegedly dumped product

a description of the total volume and value of the domestic

production of the like product

list all known domestic producers, their volume and value of

production

the countries of origin or export in question

the identity of each known importer, exporter or foreign producer

information on the normal value and export prices

information on the effect of those imports on domestic prices

information on the impact or injury

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Ministry Investigation

THE MINISTRY EXAMINES:• the accuracy and adequacy of the evidence provided

in the application• determine whether there is sufficient evidence to

justify the initiation of an investigation.

• If there is enough to proceed, they will initiate and send questionnaires to foreign producers seeking information on their prices etc.

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Investigation

• QUESTIONNAIRES• If a case is initiated, the next step is for the Ministry to get

information from the parties.• A LOT of information, which is gathered by issuing

questionnaires to producers, importers and governments.

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Verification of information

WTO AGREEMENT: THE AUTHORITIES MUST SATISFY THEMSELVES AS TO THE ACCURACY OF THE INFORMATION SUPPLIED BY THE PARTIES

THE INFORMATION RECEIVED MAY BE VALIDATED BY CONDUCTING VERIFICATIONS IN OTHER COUNTRIES. Members of the Ministry may go to the exporting

companies offices in foreign countries and verify data.

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Hearings and Determinations

VERIFIED INFORMATION WILL FORM BASIS OF THE MINISTRY’S DETERMINATION

PARTIES CAN REQUEST HEARINGS AND SUBMIT FURTHER (WRITTEN) INFORMATION

MINISTRY WILL ISSUE A FINAL DETERMINATION This will state facts and decisions in the case

AFFIRMATIVE DECISION = ANTIDUMPING DUTIES ARE PUT IN PLACE

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"Facts available"

DETERMINATIONS MAY BE MADE ON THE BASIS OF THE FACTS AVAILABLE WHEN AN INTERESTED PARTY: refuses access to necessary information does not provide it within a reasonable period or significantly impedes the investigation

AND THIS CAN RESULT IN AN UNFAVOURABLE OUTCOME FOR THE UNCOOPERATIVE PARTY.

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Time-limit for investigations

EXCEPT IN SPECIAL CIRCUMSTANCES, INVESTIGATIONS SHALL BE CONCLUDED WITHIN ONE YEAR, AND IN NO CASE MORE THAN 18 MONTHS, AFTER THEIR INITIATION

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ONE YEAR

18 MONTHS

Confidential Information

• INVESTIGATIONS IN TRADE REMEDIES ARE VERY INVASIVE.• Companies must reveal sensitive information in a case

brought by their competitors, and reveal information to foreign governments.

• STRICT RULES MUST ENSURE THAT THE INFORMATION IS NOT REVEALED TO COMPETITORS AND IS RESTRICTED TO VIEW ON A “NEED TO KNOW” BASIS.• Balanced against the need for interested parties to have

access to that info.

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Confidential Information

• COUNTRIES HAVE DIFFERENT APPROACHES TO SOLVE THIS.• Parties must ask for confidential treatment of certain

information• They must provide a non-confidential version of their

submissions• Numerical data should be “ranged” and other information

summarized.

• FAILURE TO PROVIDE NECESSARY INFORMATION CAN RESULT IN PUNITIVE RATES BEING APPLIED

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Subsidies andCountervailing Duties 43

What are Subsidies?

• TWO CONDITIONS: • “financial contribution” by a government;

and• “a benefit is thereby conferred”

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Subsidy Concepts

• “FINANCIAL CONTRIBUTION”• direct transfer of funds (grants, loans)• potential direct transfer of funds (loan guarantees)• government provision/purchase of goods or services• government payments to a funding mechanism or

government direction (or entrustment) to do one of the above

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Subsidy Concepts

• “CONFERRING A BENEFIT”• equity capital, only if investment decision is inconsistent

with the actual investment practice• loan, only if amount paid is different from commercial

loan/guarantee• Provide lower priced services or goods, or buy them at a

higher rate

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Subsidy Concepts

• ONLY A COUNTERVAILABLE SUBSIDY IF “SPECIFIC”• specific if access is limited to an enterprise or industry or

group of enterprises or industries• not specific if access based on objective criteria or

conditions, provided that they are automatic, strictly adhered to, and verifiable

• specific if access is limited to certain enterprises located within a designated geographical region

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Subsidy Concepts

• TWO OTHER SITUATIONS WHERE A SUBSIDY IS CONSIDERED SPECIFIC:

1) contingent on export performance

2) contingent upon the use of domestic over foreign goods (Import substitution).

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The Countervailing Duty Law 49

WHAT IS A COUNTERVAILABLE SUBSIDY?• DOMESTIC SUBSIDY

• Country A provides an income tax exemption limited to the steel industry There is a financial contribution by a government There is a financial benefit (if the company has taxable income),

only provided to a specific industry

• Country B provides inputs to the steel industry at a price lower than the market price There is a financial contribution by a government and a financial

benefit, only provided to a specific industry

The Countervailing Duty Law 50

WHAT IS A COUNTERVAILABLE SUBSIDY?• EXPORT SUBSIDY

• Country A provides a cash benefit of 10 percent of the f.o.b.value of any export There is a financial contribution by a government, only provided

to exporters

• Country B provides an income tax exemption for export earnings There is a financial contribution by a government There is a financial benefit (if there was taxable income), only

provided to exporters

Countervailing Duty

• A DUTY WILL BE APPLIED TO IMPORTS OF GOODS FROM THAT COUNTRY IN THE AMOUNT OF THE LEVEL OF SUBSIDY TO ‘LEVEL THE PLAYING FIELD’.

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Subsidy Allegations

• APPLICATION FOR CVD INVESTIGATION MUST CONTAIN INFO ON FOREIGN SUBSIDIES TO BE COUNTERVAILED.

• WHERE DO WE FIND THAT INFORMATION?• WTO website

• Members have to notify the WTO of their subsidy programmes

• Newspaper/Web/Media• These programmes are often widely reported

• CVD actions undertaken by other countries

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Safeguards 53

Safeguards – Overview

• 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

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Safeguards

• A PRODUCT “IS BEING IMPORTED INTO ITS TERRITORY IN SUCH INCREASED QUANTITIES, ABSOLUTE OR RELATIVE TO DOMESTIC PRODUCTION”

• ESSENTIALLY, WHETHER IMPORTS HAVE INCREASED IN ABSOLUTE OR RELATIVE TERMS• Remember: no claim that the goods are being unfairly

priced or subsidized.

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Safeguards

SAFEGUARDS INVOLVE FOUR STEPS:1. Determination of the Like or Directly Competitive Product,

2. Determination of the Domestic Industry,

3. Determination of Serious Injury or Threat thereof, and

4. Determination of Injury Caused by Increased Imports.

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Causation

Serious Injury

Domestic

Industry

Like or Directly Competi

tive Product

Injury and Threat of Injury

• SERIOUS INJURY AND THREAT OF SERIOUS INJURY

• THE AGREEMENT PROVIDES AN ILLUSTRATIVE LIST OF FACTORS:• rate and amount of the increase in imports of the product

concerned in absolute or relative terms,• share of the domestic market taken by the increased imports, and• changes in the level of sales, production, productivity, capacity

utilization, profits and losses, and employment.

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Safeguards

• REMEDIES• Quota• Special tariff• Combination of both

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4 YEARS

8 YEARS

Safeguards

• DURATION:• Initial application 4 years or less and can be extended;• No longer than 8 years (with special rules for developing

country Members);• If duration more than 1 year, must be progressively

liberalized.

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Questions? Comments?

THANK YOU