Unit 14 - Background & Issues

We shall look at trade remedies, understood as covering anti-dumping and countervailing duties actions (GATT/WTO Art VI, and at the subsidiary agreement level the Anti-dumping Agreement and the Subsidies and Countervailing Measures Agreement) as well as safeguard actions (GATT/WTO Art XIX, and at the subsidiary agreement level the Safeguard Agreement).  Trade remedies are much beloved by domestic industries seeking protection from foreign competition, and in a practical sense often allow derogation from MFN principles in targeting individual countries’ trading activities.  For technical reasons, they are often behind calls for “fair” trade even while they tend to confuse sometimes protectionism versus predatory behaviour (which is reflected in long-running discussions whether anti-dumping and countervailing duties law should essentially follow the predatory pricing model of antitrust law, versus more open-ended concepts about “unfair” practices, which typically means exporters selling goods abroad for a price below that charged in their home markets).

Anti-dumping and countervailing duties law actually predates the 1947 GATT.  It represents trade law in place prior to the protectionist 1930 Smoot-Hawley Tariff Act claimed to be a substantial contributing factor to the Great Depression, which in turn was an impetus for the GATT/WTO longer term.  It represents trade actions taken by national authorities outside the GATT/WTO dispute resolution framework (although they are subject to limitation under the GATT/WTO Agreement and subsidiary agreements, so the national authorities’ actions may be subsequently challenged under the GATT/WTO dispute resolution mechanism).  But again in a practical sense, since the remedies for antidumping and countervailing duties are typically special tariffs to offset the perceived “unfair price” advantage, once a preliminary finding is made at the national level and the special tariff charged on a preliminary basis, at the private sector level the commercial basis for continuing importation of the offending goods is often so offset by the special tariff that the eventual resolution of the proceedings hardly matters (and foreign exporters often do not even bother to reply to a foreign government inquiry investigating anti-dumping and countervailing duties charges).

So as a practical matter, in a manner resembling TRO litigation, an early decision often renders the final outcome almost moot.  Accordingly, this is an area in which industry associations traditionally retain trade law counsel to prepare preliminary documentation of “unfair practices” for delivery to their national governments in an attempt to convince the national government initially to open a trade remedies investigation.  This is the basis for the Washington trade practice, an eco-system consisting of specialized federal agencies like the International Trade Administration within the Department of Commerce (the back office side of statistical and pricing investigations), the Office of the US Trade Representative (negotiating trade agreements), the US International Trade Commission (as quasi-judicial agency administering trade remedies), domestic industry groups, and the DC law firms harboring the federal agencies’ alumni.  The Indonesian professional analogue is small but growing, as the government seeks over the longer term to replace its practical reliance on foreign trade counsel (mostly Australian) with domestic professionals.

To this, under current circumstances non-market economies present special challenges when determining subsidies.  This accounts for China’s pressing desire to be declared a full market economy to avoid subsidy issues, which is now wrapped up in disputes whether special methodology under China’s WTO Accession Protocol should still be in use.  (Technically speaking, the distinction with a non-market economy may be that the comparison price is not what the good sells for in the home market, but rather what it sells for in a third country, or an otherwise constructed price.)  Similarly, an economy with heavy state involvement oftentimes may include a variety of subsidies generally to develop a particular industry, often producing overcapacity in such industry, and the subsidies like cheap government finance may support a substantial part of industry costs, without amounting in a technical sense to prohibited “export subsidies” as are targeted by current GATT/WTO provisions.

The other thing to note is that, as heavy industry has moved into newly industrialized countries like BRICs, anti-dumping and countervailing duty proceedings have moved from being a preoccupation of industrialized countries to one of the newly industrialized countries.  So, for example, the Indonesian Anti-Dumping Authority or KADI is quite active.  But subsidies and government direction of the economy are not only found in non-market based economies, as witnessed on the US side by invocation of the Defense Production Act in the midst of the COVID-19 pandemic (national security recast in public health terms, rather than as military or economic security covered in conjunction with GATT/WTO Article 21).

The concept of the “safeguard” action on the other hand involves the idea that when for unanticipated reasons an industry in an importing country faces temporary disadvantages, they should be entitled to a corresponding temporary reprieve while they get their competitive house in order.  For example, textile quotas were phased out progressively under the Multi-Fibre Agreement post 1994, so when China joined the WTO and its low-cost textiles flooded many Asian markets, many Asian textile industries effectively sought safeguard protection (above and beyond what had been special safeguard protections negotiated in China’s Accession Protocol for the WTO).  The issue is that the protection is supposed to be temporary for a limited adjustment period, so that the practical problem is whether the disadvantaged domestic industry is in a temporary bind (so can they adjust successfully, and how long is that supposed to take)?  Further, in the safeguard case the pressure is generalized so that under other trade law principles, if temporary quotas are imposed under the trade remedies analysis the available quotas should be divided “equitably” among foreign exporting countries (GATT/WTO Article XIII, which also applies, for example, to quotas applied in a balance of payments crisis under GATT/WTO Article XII to protect a country’s currency).