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An Introduction To Trade Remedies: Their Need & Working

The World Trade Organisation Members aspire for free trade, however, free trade does not always imply fair trade. Although, as a result of liberalization, there has been the advent of many players in the International market which has increased scope for freer competition, yet, as they say, all that glitters is not gold, the same also brings along with it the phenomena of unfair pricing by the exporters/business players. There has been a parallel increase in the instances of unfair trade practices opted by these market players thereby elevating the risk of injuries that might be caused to the domestic industries/businesses of various nations. Thus, such practices necessitate the need for establishing fair trade order and devising means for the protection of such domestic industries thereby curbing the risk of injuries caused to them due to the deployment of such unfair practices.

Trade remedies can be said to be tools of trade policy which permit the governments to take remedial actions against the imports that seek to cause or have the potential of causing material/substantial injury to the domestic industry of that nation. Generally, employment of these trade remedies as a general rule are discouraged, however in situations where there is a targetted risk to the domestic industry or when there is an invocation of such unfair trade practices, the states can take resort of these remedies as a protection measure as an exception. Thus, these trade remedies are to be invoked as an exceptional measure and not a general rule of law.

Trade remedies under the International law are broadly divided into; anti-dumping action; countervailing duty measures and safeguard actions and are majorly provided for in three separate agreements of the WTO, being, the Anti-dumping Agreement (Implementation of Article VI of the General Agreement on Tariffs and Trade 1994); the Agreement on Subsidies and Countervailing Measures; and the Agreement on Safeguards.

These remedies basically qualify the importing nation to exercise power with respect to regulating the rate, extent, and cost of imports entering into their territory. The importing nation can use these trade restraint mechanisms and impose restrictions and regulations on the exporting nation. Thus, like it is said, power corrupts and absolute power corrupts absolutely, similarly, when the importing nations are vested with such powers, there is the likelihood of them abusing these powers to the disadvantage of the exporting nations as well. Thus, the WTO also contains a system to stop such governments from abusing these measures/actions, since in all circumstances the consequences and impact of the exercise of such powers are more prejudicial to the interest of the exporting nation.

The first among the above-mentioned trade remedies relates to anti-dumping. Dumping means pricing the products in a way injurious to the market. Thus, when manufacturers exporting a product, charge low prices for their products as compared to the prices of similar products in the foreign market, it is referred to as an act of dumping. Thus, generally if viewed, dumping, in fact, should be considered for the consumers, as the products would be available to them at lower prices, however, since it has direct consequences on the domestic industries, thus governments are often found taking anti-dumping actions. Under the WTO, dumping as a general rule is not prohibited, however, it is prohibited if it either causes or threatens to cause material injury to the domestic industry of the importing country or if it becomes the cause for material retardation in the establishment of some industry in the domestic market of the importing country.

Dumping thus connotes, the act of exporting products at a price lower than what they are sold in the home country’s domestic market, or selling products at a cost even lower than their cost of production. It often reflects glimpses of unfair competition as it has the effect of injuring the domestic industries.

Thus, the WTO agreement allows the governments to respond to such practices by resorting to anti-dumping actions when there is a genuine case made out for material injury to the competing domestic industry. For sustaining such actions, the governments have to showcase that dumping is in effect taking place. The governments further are required to calculate the extent to which dumping is taking place, this well can be done by comparing the price at which the exporter is exporting and the price being charged by the exporter in his home country. Lastly, the governments have to establish that such actions on part of the manufacturer/exporter/exporting country are actually causing or threatening to cause injury to that government’s domestic industry.

Anti-dumping action typically means, imposing extra/additional import duty on the product thereby being exported by the exporting country for the purposes of bringing parity between the price charged by the exporting country and the normal value of the products in the importing nation’s home market so that the element of injury or threat of injury to the home market/ domestic industry is eliminated.

The second remedy being, countervailing duties, basically mean imposing tariffs on imported goods to counteract the subsidies made to those goods by their exporting country. Countervailing duties are often also termed as anti-subsidy duties. These duties typically mean import tax which is imposed on the goods for the purposes of either preventing dumping or to is used as a countervailing measure to tackle the export subsidies been granted by the exporting nation on their goods. Thus, where manufacturers by providing subsidies to the exporting products attempt to lower down the price of such products in the foreign market, the importing nation can adopt this remedy and impose tariffs on the products being imported so as to lower down the price of these products in the market of importing nation thereby preventing the domestic industries from the threats which such low prices might cause.

Countervailing Duties (CVD)  are measures of regulation often employed for neutralizing the negative impact that arises due to subsidies being provided by the government of the exporting nation on such products. The cost of the exporting goods is naturally bound to decrease when the government provides subsidies as compared to the prices of the same products in the importing nation wherein no such subsidies are provided. Thus, as a result of importing such subsidized imports, there might be dire consequences for the domestic industries, thereby leading to factory closure and extending to causing huge job losses as well.

Talking about unfair trade practice in the International Trade Law realm, such export subsidies to are considered to be one of such practices since they have serious and damaging repercussions on the domestic industries of the importing nation. The effect that such subsidies cause on the domestic industries can well be showcased by way of the following example; Now, say country X provides an export subsidy to manufacturers in the nation who export pens at $8 per pen in mass to Country Y. And, say Country Y has home manufacturers (being the domestic industry/home market of Country Y) who make the same pens available at $10 in the Country Y. Then, by virtue of the export subsidy being offered by Country X to its manufacturers, the cost of the same pen goes down to $8 per pen when imported from Country X and rises to $10 when manufactured in Country Y. It is obvious, that there would be a tendency in the consumers of Country Y to opt for a pen priced at $8 per pen rather than buying the same pen priced at $10. Therefore, this export subsidy provided by the Country X, though would have the effect of fostering exports of Country X would at the same time have a negative impact on the domestic industries of Country Y. If Country Y, in such circumstances determines that its domestic industry is being hurt on account of the unrestrained flow/import of such subsidized pens then it can resort to the imposition of such countervailing duties on the pens so as to neutralize the impact thereof. The WTO, therefore, provides for a solution to such situations, as it provides Country Y with the option to impose import tax or countervailing duty to be precise, on the subsidized pens to bring the cost of such importing pens to $10 equal to the price of the in-house pens, thereby eliminating the unfair price advantage that the manufacturers of Country X could have over Country Y owing to the export subsidy provided by the Country X.

To ensure, that such countervailing measures are not abused by the importing nations, the WTO has provided for global rules governing trade inter se the nations and also the detailed procedures stating the circumstances giving rise for the imposition of such countervailing duties by the importing nations. These rules are well contained in the WTO’s “Agreement on Subsidies and Countervailing Measures”, which contained in the General Agreement on Tariffs and Trade (GATT) 1994, thereby defining how and when can the export subsidies be used and also regulates the measures that nations can opt for counteracting such subsidies. Generally, the common form of measures opted by the affected nation includes seeking withdrawal of the subsidy through the WTO’s dispute settlement procedure; or as pointed out above, the imposition of countervailing duties on the subsidized imports which have the effect of hurting the domestic producers/ industry of the affected nation.

The definition of the term “subsidy” for the purposes of the agreement has been kept quite broad. It is defined to include any financial contribution made by a government or government agency, including a direct transfer of funds (such as grants,loans and infusion of equity), potential direct transfer of funds (for example, loan guarantees), fiscal incentives such as tax credits, and any form of income or price support.

In order to ensure that there is no abuse of such measures by the affected nation, there are limitations placed on the occasions when such measures may be resorted to by the nations. Thus, an importing nation can charge such countervailing duties only after conducting an in-depth investigation into such subsidized exports. The agreement thereby, provides in great detail the rules for determining if a product is subsidized and also calculating the amount of such subsidy, there is a further mention of the criteria for establishing/ascertaining if such subsidized imports affect the domestic country and further also extends to rules for implementation as well as the duration of the countervailing duties which generally is five years.

The third remedy being, the Safeguard Actions. These actions are more like emergency actions. Thus, in times when there is a surge of imports causing or threatening to cause serious substantial injury to the domestic industry. A member of the WTO may cause temporary restriction on the imports of particular products if it so feels that such imports have the effect of causing serious injury to the domestic industry. These measures are generally adapted to buy time for the domestic industries to adjust to the foreign competition created by virtue of increased quantities of imports causing serious injury to the domestic industries of the importing nations who produce “like or directly competitive” products.

This Agreement on Safeguards under article 19 of the GATT, 1994 and is also referred to as the third leg of the trade measures. This agreement finds its roots in the events that took place in the 1980s when there was a rapid growth in the exports from the manufacturers of Japan and also of the Newly Industrialised Countries (NICs) of East Asia which constrained various countries and majorly the US, ultimately had to accede to the pressure built by the domestic lobbies in these nations for restricting the imports.

These grey measures also included within themselves Voluntary Export Restraints (VERs), wherein most of the exporters in Japan had agreed on limiting the exports to certain fixed quantities. VERs are kind of non-tariff barriers on the number of goods/products that can be exported out of the exporting country during a specified period of time. They are viewed as being self-imposing limits by the exporting country when actually they are imposed at the instance of importing country. These restraints are generally imposed by the importing countries for the purposes of providing protection to the ongoing domestic businesses of that country. Oftenly, the goods that are imported into the country pose to be a competitive threat to the domestic businesses producing the same goods in the importing country and for protecting the domestic businesses against the surge of such imports there restraint barriers imposed by the importing country. In order to protect its’s trade interest VERs are then offered by the exporting country for propitiating the importing country and deterring it from imposing such explicit and stringent trade barriers.

Voluntary Export Restraint, the name itself provides, is a measure adopted in international trade law for protecting business/trade interests. The term voluntary is prefixed since it is self-imposed by the exporting country for protecting itself against the deterring barriers intended to be imposed by the importing country. The imposition of this restraint widely covers many products ranging from products relating to textiles, footwear, steel, machine tools, and even automobiles. Recently, India dragged the USA into WTO on the steel and aluminum tariffs imposed by the latter. The reason cited by India was USA’s inconsistency with global trade norms. Multiple violations of the WTO norms especially relating to norms like the introduction of restrictions in the form of sanctions/ quotas, discrimination against its imports and the major one being the use of tariffs for getting other countries to agree to adopt such VERs.

These so-called “grey measures” were mostly non-transparent, arbitrary and trade-distorting, and, instead of regulating the trade in an efficient manner, the very purpose for which they were adopted stood defeated since these measures, on the contrary, led to increasing the market prices of those goods which were restricted which perversely had the effect of increasing profits of the exporters. Thus, this was a clear case where the so-called regulatory measures turned into abusive measures.

For resorting to the safeguards agreement, it is imperative that the importing country conducts a thorough, in-depth investigation with due compliance with the procedural requirements to determine whether a serious injury has occurred to the domestic industries. After the inquiry is conducted, then the authorities can accordingly choose to impose quantitative restrictions or special import duties as they consider most appropriate in view of the prevailing situation.

No doubt, these trade remedies are available to all the 164 member countries of the WTO, yet, their use is still more specific to developed nations in comparison to developing nations because of the complexity of the WTO procedural requirement or even due to the fact that huge costs are incurred in the process of dispute settlement.

Recently, in India, the Ministry of Commerce came up with Manual of Operating Practices for Trade Remedy Investigations and Handbook of Operating Procedures of Trade Defence Wing. The country has also come up with brochure pertaining to Trade Remedial Measures for the purposes of familiarising the industry about measures like anti-dumping, countervailing and safeguard measures. These publications have been brought in by the DGTR (Director General for Trade Remedies) Officials and the Trade Policy Divison, Department of Commerce, Centre for WTO studies, Centre for Trade and Investment Law and the Centre for Regional Trade.

India has actively been resorting to these trade remedies. For instance, in March 2018 India imposed anti-dumping duty on the import of Ofloxacin which was used for treatment for infections in China.

About Radhika Bhakoo

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