WTO

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 The WTO Agreement on Subsidies and Countervailing
Measures disciplines the use of subsidies, and it regulates
the actions countries can take to counter the effects of
subsidies. Under the agreement, a country can use the
WTO’s dispute-settlement procedure to seek the
withdrawal of the subsidy or the removal of its adverse
effects. Or the country can launch its own investigation
and ultimately charge extra duty (“countervailing duty”)
on subsidized imports that are found to be hurting
domestic producers.
  The agreement contains a definition of subsidy. It
also introduces the concept of a “specific” subsidy
— i.e. a subsidy available only to an enterprise,
industry, group of enterprises, or group of industries

Subsidies and in the country (or state, etc) that gives the subsidy.
The disciplines set out in the agreement only apply
countervailing to specific subsidies. They can be domestic or
measures export subsidies.
 The definition contains three basic elements
1. A financial contribution 2. by govt. or public body
within the territory of a member 3. which confers a
benefit.
  The agreement defines two categories of subsidies:
prohibited and actionable. It originally contained a
third category: non-actionable subsidies. This
category existed for five years, ending on 31
Subsidies and December 1999, and was not extended.
countervailing  The agreement applies to agricultural goods as well
measures as industrial products, except when the subsidies are
exempt under the Agriculture Agreement’s “peace
clause”, however, that has also expired at the end of
2003.
  subsidies that require recipients to meet certain export
targets, or to use domestic goods instead of imported
goods. They are prohibited because they are
specifically designed to distort international trade, and
are therefore likely to hurt other countries’ trade. They
can be challenged in the WTO dispute settlement
procedure where they are handled under an
Prohibited accelerated timetable.
subsidies  If the dispute settlement procedure confirms that the
subsidy is prohibited, it must be withdrawn
immediately. Otherwise, the complaining country can
take countermeasures. If domestic producers are hurt
by imports of subsidized products, countervailing duty
can be imposed.
  In this category the complaining country has to
show that the subsidy has an adverse effect on its
interests. Otherwise the subsidy is permitted. The
agreement defines three types of damage they can
cause.
Actionable  One country’s subsidies can hurt a domestic
subsidies industry in an importing country. They can hurt rival
exporters from another country when the two
compete in third markets. And domestic subsidies in
one country can hurt exporters trying to compete in
the subsidizing country’s domestic market.
  If the Dispute Settlement Body rules that the subsidy
does have an adverse effect, the subsidy must be
withdrawn or its adverse effect must be removed.
Again, if domestic producers are hurt by imports of
subsidized products, countervailing duty can be
imposed.

Actionable  Some of the disciplines are similar to those of the Anti-

Dumping Agreement. Countervailing duty (the parallel
subsidies of anti-dumping duty) can only be charged after the
importing country has conducted a detailed
investigation similar to that required for anti-dumping
action.
  There are detailed rules for deciding whether a
product is being subsidized (not always an easy
calculation), criteria for determining whether
imports of subsidized products are hurting (“causing
injury to”) domestic industry, procedures for
Actionable initiating and conducting investigations, and rules
on the implementation and duration (normally five
subsidies years) of countervailing measures.
 The subsidized exporter can also agree to raise its
export prices as an alternative to its exports being
charged countervailing duty.
  Subsidies may play an important role in developing countries and in
the transformation of centrally-planned economies to market
economies. Least-developed countries and developing countries with
less than $1,000 per capita GNP are exempted from disciplines on
prohibited export subsidies. Other developing countries were given
Actionable time until 2003 to get rid of their export subsidies.

subsidies:  Least-developed countries must eliminate import-substitution

subsidies (i.e. subsidies designed to help domestic production and
CONT… avoid importing) by 2003 — for other developing countries the
deadline was 2000. Developing countries also receive preferential
treatment if their exports are subject to countervailing duty
investigations. For transition economies, prohibited subsidies had to
be phased out by 2002.
  A WTO member may restrict imports of a product temporarily
(take “safeguard” actions) if its domestic industry is injured or
threatened with injury caused by a surge in imports. Here, the
injury has to be serious.
Safeguards:  Safeguard measures were always available under GATT (Article
emergency 19). However, they were infrequently used, some governments

protection from preferring to protect their domestic industries through “grey area”
measures — using bilateral negotiations outside GATT’s auspices,
imports they persuaded exporting countries to restrain exports
“voluntarily” or to agree to other means of sharing markets.
 Agreements of this kind were reached for a wide range of
products: automobiles, steel, and semiconductors, for example.
  The WTO agreement broke new ground. It prohibits
“grey-area” measures, and it sets time limits (a “sunset
clause”) on all safeguard actions. The agreement says
members must not seek, take or maintain any voluntary
export restraints, orderly marketing arrangements or any
Actionable other similar measures on the export or the import side.

subsidies:  The bilateral measures that were not modified to

CONT… conform with the agreement were phased out at the end
of 1998. Countries were allowed to keep one of these
measures for an extra year (until the end of 1999), but
only the European Union — for restrictions on imports
of cars from Japan — made use of this provision.
  An import “surge” justifying safeguard action
can be a real increase in imports (an absolute
Safeguards: emergency increase); or it can be an increase in the
protection from imports: imports’ share of a shrinking market, even if
cont.….
the import quantity has not increased (relative
increase).
  Industries or companies may request safeguard action
by their government. The WTO agreement sets out
requirements for safeguard investigations by national
authorities. The emphasis is on transparency and on
following established rules and practices — avoiding
Safeguards: arbitrary methods.
emergency  The authorities conducting investigations have to
protection from announce publicly when hearings are to take place and
imports: cont.…. provide other appropriate means for interested parties
to present evidence. The evidence must include
arguments on whether a measure is in the public
interest.
  The agreement sets out criteria for assessing whether
“serious injury” is being caused or threatened, and the
factors which must be considered in determining the
impact of imports on the domestic industry. When
imposed, a safeguard measure should be applied only to
Safeguards: the extent necessary to prevent or remedy serious injury
emergency protection and to help the industry concerned to adjust.
from imports: cont.
 Where quantitative restrictions (quotas) are imposed, they
….
normally should not reduce the quantities of imports below
the annual average for the last three representative years
for which statistics are available, unless clear justification
is given that a different level is necessary to prevent or
remedy serious injury.
  In principle, safeguard measures cannot be targeted at
imports from a particular country. However, the
agreement does describe how quotas can be allocated
among supplying countries, including in exceptional
circumstances where imports from certain countries have
Safeguards: emergency increased disproportionately quickly.
protection from imports:  A safeguard measure should not last more than four
cont.…. years, although this can be extended up to eight years,
subject to a determination by competent national
authorities that the measure is needed and that there is
evidence the industry is adjusting. Measures imposed for
more than a year must be progressively liberalized.
  When a country restricts imports in order to safeguard its
domestic producers, in principle it must give something
in return. The agreement says the exporting country (or
exporting countries) can seek compensation through
consultations. If no agreement is reached the exporting
country can retaliate by taking equivalent action — for
Safeguards: emergency instance, it can raise tariffs on exports from the country
protection from imports: that is enforcing the safeguard measure.
cont.….  In some circumstances, the exporting country has to wait
for three years after the safeguard measure was
introduced before it can retaliate in this way — i.e. if the
measure conforms with the provisions of the agreement
and if it is taken as a result of an increase in the quantity
of imports from the exporting country.
  To some extent developing countries’ exports are shielded from
safeguard actions. An importing country can only apply a
safeguard measure to a product from a developing country if the
developing country is supplying more than 3% of the imports of
that product, or if developing country members with less than 3%
Safeguards: import share collectively account for more than 9% of total
emergency imports of the product concerned.
protection from  The WTO’s Safeguards Committee oversees the operation of the
imports: cont.…. agreement and is responsible for the surveillance of members’
commitments. Governments have to report each phase of a
safeguard investigation and related decision-making, and the
committee reviews these reports.
  Dumping is said to occur when the goods are
exported by a country to another country at a price
g:
Anti-Dumpinpin lower than their normal value. This is an unfair
g?
What is anti-dum trade practice that can have a distortive effect on
What is its purpose in
International Trade? international trade. Anti-dumping is a measure to
rectify the situation arising out of the dumping of
goods and its trade distortive effect.
  Thus, the purpose of anti-dumping duty is to rectify
the trade distortive effect of dumping and re-
establish fair trade. The use of anti-dumping
Anti-Dumping: What is measures as an instrument of fair competition is
anti-dumping? What permitted by the WTO. In fact, anti-dumping is an
is its purpose in instrument for ensuring fair trade and is not a
International Trade?
measure of protection per se for the domestic
industry. It provides relief to the domestic industry
against the injury caused by dumping.
  Often, dumping is mistaken and simplified to mean
cheap or low-priced imports. However, it is a
misunderstanding of the term. On the other hand,
dumping, in its legal sense, means the export of goods by
Does Dumping a country to another country at a price lower than its
mean cheap or normal value. Thus, dumping implies low-priced imports
low-priced only in the relative sense (relative to the normal value),
imports? and not in an absolute sense.
 The import of cheap products through illegal trade
channels like smuggling does not fall within the purview
of anti-dumping measures.
  Anti-dumping, in common parlance, is understood as a
measure of protection for domestic industry. However,
anti-dumping measures do not provide protection per se
to the domestic industry. It only serves the purpose of
Is anti-dumping a providing a remedy to the domestic industry against the
measure of injury caused by the unfair trade practice of dumping.
protection for the  In fact, anti-dumping is a trade remedial measure to
domestic counteract the trade distortion caused by dumping and
industry? the consequential injury to the domestic industry. Only in
this sense, it can be seen as a protective measure. It can
never be regarded as a protectionist measure.

What is the difference between
anti-dumping duty and Normal
Customs DUTY? Is the anti-
dumping duty over and above
the Normal Customs duty
chargeable on the import of an
item?
 Although anti-dumping duty is levied and collected by the
Customs Authorities, it is entirely different from the Customs
duties not only in concept and substance but also in purpose and
operation. The following are the main differences between the
two: -
Conceptually, anti-dumping and the like measures in their essence
are linked to the notion of fair trade. The object of these duties is to
guard against the situation arising out of unfair trade practices while
customs duties are there as a means of raising revenue and for the
overall development of the economy.
Customs duties fall in the realm of trade and fiscal policies of the
Government while anti-dumping and anti-subsidy measures are
there as trade remedial measures.
  The object of anti-dumping and allied duties is to
What is the difference between
anti-dumping duty and Normal
Customs DUTY? Is the anti-
dumping duty over and above
the Normal Customs duty
chargeable on the import of an
item?
offset the injurious effect of international price
discrimination while customs duties have
implications for the government revenue and for the
overall development of the economy.
Anti-dumping duties are not necessarily in the
nature of a tax measure inasmuch as the Authority is
empowered to suspend these duties in case of an
exporter offering a price undertaking. Thus such
measures are not always in the form of duties/taxes.

What is the difference between
anti-dumping duty and Normal
Customs DUTY? Is the anti-
dumping duty over and above
the Normal Customs duty
chargeable on the import of an
item?
 Antidumping and anti-subsidy duties are levied against
exporter/country inasmuch as they are country-specific
and exporter-specific as against the customs duties which
are general and universally applicable to all imports
irrespective of the country of origin and the exporter.
Thus, there are basic conceptual and operational
differences between the customs duty and the anti-dumping
duty. The anti-dumping duty is levied over and above the
normal customs duty chargeable on the import of goods in
question.
  Dumping means the export of goods by one
country/territory to the market of another
country/territory at a price lower than the normal value.
If the export price is lower than the normal value, it
What are the constitutes dumping.
parameters used to
assess the dumping of  Thus, there are two fundamental parameters used for the
goods from a country? determination of dumping, namely, the normal value and
the export price. Both these elements have to be
compared at the same level of trade, generally at the ex-
factory level, for assessment of dumping.
  Normal Value: Normal value is the comparable price at
which the goods under complaint are sold, in the ordinary
course of trade, in the domestic market of the exporting
country.

If the normal value can not be determined by means of the

How do you define: domestic sales, the following two alternative methods may
Normal Value be employed to determine the normal value: -

Export price and Comparable representative export price to an appropriate

third country.
dumping margins Constructed normal value, i.e. the cost of production in the
country of origin with reasonable addition for
administrative, selling, and general costs and reasonable
profits.
  Export price: The Export price of the goods allegedly
dumped into the country means the price at which it is
exported to the country. It is generally the CIF (cost,
insurance and freight )value minus the adjustments on
How do you define: account of ocean freight, insurance, commission, etc. so
Normal Value
as to arrive at the value at the ex-factory level.
Export price and  Dumping Margin: The margin of dumping is the
dumping margins difference between the Normal value and the export
price of the goods under complaint. It is generally
expressed as a percentage of the export price.
  Illustration: Normal value US$ 110 per kg.
Export price US$ 100 per kg. There is dumping in
this case as the export price is lower than the normal
How do you define: value and the dumping margin, in this case, is US$
Normal Value 10 per kg., i.e. 10% of the export price.
Export price and Dumping is a function of two variables, namely
Normal Value and Export Price, which must be
dumping margins compared at the same level of trade i.e. at the ex-
factory level.
  The following are essential for initiating an anti-
dumping investigation: -

What are the essential  Sufficient evidence to the effect that ;

requisites for initiating there is dumping
an anti-dumping there is an injury to the domestic industry; and
investigation? there is a causal link between the dumping and the
injury, that is to say, that the dumped imports have
caused the alleged injury.
  The domestic producers expressly supporting the anti-
dumping application must account for not less than
25% of the total production of the like article by the
domestic industry.

What are the essential  The application is deemed to have been made by or on
requisites for initiating an behalf of the domestic industry, if it is supported by
anti-dumping those domestic producers whose collective output
investigation? constitutes more than 50% of the total production of
the like article produced by that portion of the
domestic industry expressing either support for or
opposition as the case may be, to the application.
  Note: This is to further clarify that a domestic
What are the industry, which seeks relief, should give sufficient
essential requisites evidence with respect to the above parameters.
for initiating an Unless the above parameters are satisfied, it will not
anti-dumping be possible for the Authority to initiate an anti-
investigation? dumping investigation.
  Broadly, an injury may be analyzed in terms of the
volume effect and price effect of the dumped
imports. The parameters by which injury to the
What are the domestic industry is to be assessed in the anti-
parameters of injury dumping proceedings are such economic indicators
to the domestic having a bearing upon the state of the industry as
industry? the magnitude of dumping, and the decline in sales,
selling price, profits, market share, production,
utilization of capacity, etc.
  Non-Injurious Price (NIP) is that level of price, which the
industry is, expected to have charged under normal
circumstances in that country’s market during the Period
defined. This price would have enabled reasonable recovery
of the cost of production and profit after nullifying the
What are the non-
adverse impact of those factors of production which could
injurious price and
have adversely affected the company and for which dumped
injury margin? How
these are worked out? imports can’t be held responsible.
 Besides the calculation of the margin of dumping, the
Designated Authority also calculates the Injury Margin for
the Domestic Industry. The Injury Margin is the difference
between the Non-Injurious Price due to the Domestic
Industry and the Landed Value of the dumped imports.
  Landed Value for this purpose is taken as the
assessable value under the Customs Act and the
applicable basic Customs duties except for CVD,
SAD, and special duties.
 For calculating Non-Injurious Price, the Authority
What are the non- calls for costing information from the domestic
injurious price and
injury margin? How industry in the prescribed pro forma for the period
these are worked out? of investigations and three previous years.
Accounting records maintained on the basis of the
Generally Acceptable Accounting Principle (GAAP)
form the basis for estimating Non-Injurious Price.
  In the estimation of Non-Injurious Price for the
Domestic Industry, the Authority makes an
appropriate analysis of all relevant factors like usage
What are the non-
injurious price and of raw material, usage of utilities, captive
injury margin? How consumption, etc., and the actual expenses during the
these are worked out? Period of Investigation including the investments, the
capacity utilization, etc. The Non-Injurious Price for
Domestic Industry is determined considering the
reasonable return on the capital employed.
  In the anti-dumping proceedings, it is imperative to
prove that the dumping has caused injury to the
domestic industry. No anti-dumping duty shall be
recommended without a finding of this causal
How is a causal link
relationship. That is to say,
established between
dumping and injury  Dumping should lead to Injury
to the domestic  The causal link is to be established generally in terms
industry? of the following effects of dumped imports on the
domestic industry: -
  volume effect
 price effect

The volume effect of dumping relates to the market share

How is a causal link of the domestic industry vis-à-vis the dumped imports from
established between the subject country/ies while with regard to the price effect,
dumping and injury the Designated Authority shall consider whether there has
to the domestic been a significant price undercutting by the dumped
industry? imports as compared with the price of the like product in
that country, or whether the effect of such imports is
otherwise to depress prices to a significant degree or
prevent price increase which otherwise would have
occurred to a significant degree.
 In case anti-dumping
duty is warranted after the
investigation, what is the
extent of such duty to be
recommended/imposed?
 Under the WTO arrangement, the National
Authorities can impose duties up to the margin of
dumping i.e. the difference between the normal
value and the export price.

What is the minimum level of
imports (de-minimus margins)
from a country and from an
individual exporter below which
such exporter or country is to be
excluded from the scope of Anti-
Dumping investigation/duties?
 Individual exporter: Any exporter whose margin of dumping
is less than 2% of the export price shall be excluded from the
purview of anti-dumping duties even if the existence of
dumping, injury as well as causal link is established.
 Country: Further, the investigation against any country is
required to be terminated if the volume of the dumped imports,
actual or potential, from a particular country accounts for less
than 3% of the total imports of the like product.
 However, in such a case, the cumulative imports of the like
product from all these countries who individually account for
less than 3%, should not exceed 7% of the import of the like
product.
  The relief to the domestic industry against the dumping
of goods from a particular country is in the form of the
anti-dumping duty imposed against that country/ies,
which could go up to the dumping margin. Such duties
What is the relief/remedy are exporter-specific and country-specific.
to the Domestic Industry
under the Anti-Dumping  However, the remedy against dumping is not always in
mechanism? Is it always the form of anti-dumping duty. The Authority may
in the form come into terminate or suspend the investigation after the
operation? preliminary findings if the exporter concerned furnished
an undertaking to revise his price to remove the dumping
or the injurious effect of dumping as the case may be. No
anti-dumping duty is recommended on such exporters
from whom price undertaking has been accepted.

What are other remedial
measures against unfair
trade practices in addition
to anti-dumping? How do
they come into operation?
 Apart from dumping, some of the countries also
resort to the subsidization of their exports to other
countries. Export subsidies, under the WTO
agreement, are treated as unfair trade practices and
such subsidies are actionable by way of levy of anti-
subsidy countervailing duty.
 There is one more trade remedial measure called
"safeguards" which are applied as an emergency
measure in response to the surge in imports of a
particular item.
  The anti-subsidy countervailing measure is in the form
What are other remedial
measures against unfair
trade practices in addition
to anti-dumping? How do
they come into operation?
of countervailing duty which is to be imposed only
after the determination that:
1.the subsidy is a specific subsidy
2.the subsidy relates to export performance;
3.the subsidy relates to the use of domestic goods over
imported goods in the export article; or
4.the subsidy has been conferred on a limited number
of persons engaged in manufacturing, producing, or
exporting the article.
  If there is a financial contribution by the Government or
any public body within the territory of the exporting
country, i.e. where-
there is a direct transfer of funds (including grants, loans,
What is a subsidy and equity) by the Government;
for this purpose? government revenue i.e. otherwise due is foregone and
A subsidy is said to not collected (including fiscal incentives, I.T. exemption
exist; a government provides goods or services other than
general infrastructure;
1.a government grants or maintains any form of income
or price support that operates directly or indirectly to
increase the export of any article from its territory.
  However, the subsidy which is for research activities
conducted by the persons engaged in manufacture or
export, or the subsidy which is for assistance to
disadvantaged regions with the territory of the exporting
country is not actionable. Thus, no countervailing duty is
to be levied on such subsidies.
What is not a  In the anti-subsidy countervailing investigation, the
subsidy? Government of the exporting country/ies is a party to the
investigation in addition to the exporters from these
countries. The countervailing duty imposed on the
subsidized exports from a country shall not exceed the
amount of such subsidy/ies.
  Safeguards, on the other hand, are applied when:
1.there is a surge in imports of a particular product
irrespective of a particular country/ies and,
2.it causes serious injury to the domestic industry.
Wh
Saf at Safeguard measures are applied to all imports of the
egu are product in question irrespective of the countries in which
ard it originates or from which it is exported. This aspect
s? distinguishes Safeguards from antidumping and anti-
subsidy measures which are always country-specific and
exporter-specific.
 Safeguards are applied in the form of either safeguard
duty or in the form of safeguard QRs (import licenses).