Call for revision of anti-dumping, subsidy rules

by Chakravarthi Raghavan


GENEVA: Several developing countries have made a strong bid for changes in the WTO's Agreements on Anti-dumping and Subsidies and Countervailing Measures to ensure equity and symmetry in the operation and use of these agreements to promote development.

The views were presented at the informal WTO General Council meetings in October, which had been mandated by the 2nd Ministerial meeting of the WTO in Geneva in May to undertake a preparatory process for the 3rd Ministerial meeting in 1999, and address, among others, the issues of "implementation", "built-in agenda" and "future work already provided for in the Marrakesh agreements and decisions."

A number of developing countries focused on these rules areas, both as substantive issues as well as in terms of giving effect to the special and differential treatment principles in the WTO agreements.

Discussions on these are to be resumed at future meetings, but the WTO Members are yet to reach a consensus on how to do it.

Anti-dumping agreement

Brazil, India, Indonesia (for ASEAN), Egypt (for Africa) and South Korea were among those which focused on the Anti-dumping Agreement.

Brazil: "The abusive and disproportionate use of anti- dumping measures by some developed countries is also a way to frustrate expectations created during the Uruguay Round (UR). In the period 1987-1997, developing countries were responsible for only 31% of investigations opened. At the same time, they were affected by 62% of the investigations. This situation is even less acceptable given the concentration of measures in some specific sectors where developing countries have developed a competitive industry. One major trading partner [a reference to the USA], for example, in the last ten years, has opened 173 investigations in the steel sector, nearly half of all investigations opened by this Member. Our concern is accentuated by concrete indications that this outlook tends to aggravate in the near future."

Trade disruption

Egypt: Exports of developing countries are facing more frequent AD [anti-dumping] and CV [countervailing] measures, and their frequent use against exports from developing countries has become a matter of serious and growing concern. The uncertainty and restrictiveness of these measures have created trade disruption affecting not only particular consignments, but also longer-term trade in targeted products. The benefits of trade liberalization have been considerably neutralized by the use of AD measures against competitive exports in a number of products.

Enterprises from developing countries, particularly the small and medium enterprises (SMEs), do not have the technical and legal capacity nor the resources to mount an effective defence, and the assistance that developing-country governments can provide these enterprises to defend their cases is very limited.

At the same time, the liberalization efforts of developing countries have made their markets more contestable. But many of the developing- country governments lack expertise, capability and resources to effectively use AD and CV measures to protect legitimate concerns of their domestic industries.

Art. 15 of the agreement calls for developed countries to pay special regard to the situation of developing countries in applying AD measures. But no information is available on the actual implementation of this. The article also calls for "constructive remedies" to be explored. But no information is available also on the implementation of this provision. The agreement does not lay out how the objectives of Art. 15 are to be achieved, and the special dispensations provided have not accrued to developing countries. Detailed and binding guidelines should be laid down to implement this article so as to protect the trade interests of developing countries and prevent trade harassment. There is a need to raise the de minimis dumping margin and de minimis volume of imports below which injury should be considered insignificant.

India: Art. 15 of the AD agreement calls for special regard for the situation of developing countries and for exploring constructive remedies before applying AD duties. But the AD measures are being virtually used as "weapons" by certain developed countries to deny access to products of developing countries. Actions on the same product have been repeatedly initiated by certain developed countries, creating uncertainty and unpredictability in the market, militating against the GATT principles. Clear guidelines should hence be laid down to make sure that Art.15 provisions are translated into practice.

Towards this end, the prescribed de minimis dumping margin of 2% of export price, below which no AD duty is to be imposed, which is the same for developing and developed countries, is unrealistically low.

Dumping margin

For developing countries - many of whose exports are produced by labour-intensive SMEs, and where the imposition or even the threat of imposition of AD duties has a serious adverse effect on the functioning of such units, resulting in a fall in production, heavy unemployment and declines in incomes and increases in poverty levels - the de minimis margin should be raised to reflect the disadvantages that the industry in such a country suffers vis-a-vis comparable production in developed countries. In India, for example, it has been estimated that the disadvantage suffered by Indian industry due to differential costs of working capital, financing cost of excise duty refunds, intangible infrastructure costs, sales tax on local bought outs and octroi amounts to about 17%. The inherently high prices sometimes maintainable in domestic markets are not sustainable in exports, where prices reflect reduced levels of profitability for the exporter. While the extent of disadvantage varies from country to country, its assessment could be cumbersome and contentious. An across-the- board higher de minimis margin for all developing countries should be fixed to adequately reflect the higher price levels in such countries.

Art. 5.8 of the AD agreement provides that the volume of "dumped" imports shall be normally regarded as negligible if the dumped imports from a country are less than 3%, unless countries individually accounting for less than 3% collectively account for more than 7%. In view of the liberalization of global trade, and of more and more developing countries entering untapped markets for them, these percentages should be increased to 7% and 15% respectively.

AD investigations are against specific exporters, and the impact and resulting duties are felt by developing-country exporters, who are very small in size and operations, and the cost of defending their interests is prohibitive. Hence, an investigation against developing-country exporters should be initiated only if it has the support of 50% of the domestic industry of the importing developed country, and no investigation should be initiated for a period of 365 days from finalization of a previous investigation for the same product resulting in non-imposition of duties. If it is established that circumstances have changed drastically, such investigations should be initiated only if they have the support of at least 75% of domestic industry. Stricter criteria should be applied for such repeated investigations, and the period of investigation should not be less than a year. Guidelines should be established defining the parameters of "establishing", "drastic" change of circumstances and "stricter criteria" to be applied.

Art. 9.1 allows for imposing AD duties when all requirements have been fulfilled, but says that the duty should be less than the dumping margin if the lesser duty is adequate to remove injury to the domestic industry. But a large number of developed countries, who are also active users of this instrument, apply duties to the fullest extent of the dumping margin, resulting in a higher level of production to the domestic industry. There should be a special provision in the rules to make mandatory the "lesser-duty rule" when a developed country is investigating alleged dumped imports from a developing country. Norms and criteria should be established to operationalize the "lesser-duty" route in terms of "adequacy" to remove "injury".

The AD agreement has severely limited the role of WTO dispute panels, enjoining them from overturning the conclusions of the authorities of the importing country if they had evaluated the facts properly, objectively and without bias - even if the panel reaches a different conclusion on the same facts. Since developed countries are increasingly resorting to use of AD duties against developing countries, the same standards of review applicable to disputes relating to other covered agreements should apply to anti-dumping.

Indonesia (for ASEAN): The AD agreement, unlike others, does not provide for any substantive review nor specific scope for amendments. The annual review under Art.16 has been reduced to a "routine exercise", while problems relating to implementation of the agreement proliferate. These should be addressed.

  • Art. 2.4 of the agreement requires fair comparison between export prices and normal value. But it also provides for exceptions, and the exceptions have virtually become the rule - resulting in artificially high dumping margins;

  • Art. 3 on determination of injury is still not procedurally defined, leaving room for discretion, contributing to unfair use of such measures;

  • Only lip service is often paid to the "lesser-duty rule" under Art. 9.1, with very few AD actions resulting in a "lesser duty adequate to remove the injury to the domestic industry";

  • Art. 15 concerning developing-country Members continues to be effectively non-operative; special regard is seldom accorded to developing-country Members in the application of AD measures and constrictive remedies are almost unheard of;

  • the "standard-of-review" provision in Art. 17 unduly circumscribes the role of WTO dispute panels - and is in complete contrast to the powers extended to panels under Art. 11 of the Dispute Settlement Understanding (DSU). There is no reason why a different and more restrictive standard of review must pertain to adjudication of WTO disputes in the AD area.

South Korea: Considering the proliferation of AD actions in recent years, the provisions of the agreement should be seriously reviewed in the context of implementation, as well as in the future round of negotiations. Too frequent, some might say abusive, recourse to AD actions is often due to the ambiguity and vagueness of some of the provisions of the agreement. This problem deserves immediate attention, and Korea will go over this issue in further detail at a later stage of the preparatory process.

Subsidies and Countervailing Measures

On the Agreement on Subsidies and Countervailing Measures:

Egypt: This agreement, and the S&D treatment there, is of great importance to developing countries since certain subsidies are critical to the process of development.

The provisions of the agreement relating to presumption of serious prejudice and to non-actionable subsidies being applied provisionally for five years, are to be reviewed in mid-1999 to decide whether they are to be extended or in a modified form. Given that the financial capacity of developing countries to provide subsidies is limited and that their development, particularly in the industrial sector, may require subsidies, these should be categorized as non-actionable under Art. 8. These subsidies may include measures such as cheaper finance, financial support for advanced technology and subsidy for diversification efforts or market development, and so on.

India: There is an in-built imbalance in the agreement. Subsidies normally used in developed countries (R&D, regional development and adaptation to environmental standards) are considered non-actionable. But subsidies usually used by developing countries for the development, diversification and upgrading of their industries are actionable. This imbalance has to be removed by making the latter range of measures also non-actionable.

Art. 27.2 of the agreement provides a special dispensation for developing-country Members specified in Annex VII, and to other developing countries for a period of eight years. But the subsidies maintainable under this article are nevertheless subject to countervailing measures, in accordance with the provisions of Art.VI of GATT 1994. Thus, the special dispensation of Art. 27.2 is negated by the provisions allowing countervailing measures. It is hence necessary that countervailing measures not be allowed to be used by developed- country Members against subsidies maintained by developing countries under the Art. 27 dispensation.

Other provisions of the subsidies agreement also need to be altered to take account of the interests of developing countries:

  • Industries in developing countries face more disadvantages than their counterparts in developed countries - among others, for reasons of the high cost of capital, low levels of infrastructure development, inadequate integration and organization of the economy, and poorly developed information networks. Recent thinking among economists recognizes the need for a more active role for the state. In order to offset the many disadvantages that developing countries and LDCs among them encounter, the de minimis level below which countervailing duties may not be imposed, now fixed at 3% for developing countries, should be scaled up to a more realistic level.

The agreement provides that if the volume of the subsidized imports from a developing country is less than 4% of imports of a product, the investigation should be terminated unless the volume of imports of the like product from all developing countries whose individual shares of total imports represent less than 4% collectively accounts for 9% of total imports.

The CV investigations should be terminated when imports from a developing country are less than 7%, irrespective of the cumulative volume of imports of the like product from all countries. Alternatively, if a safeguard is needed for developed countries against a surge of subsidized imports from a number of developing countries at the same time, the de minimis volume of cumulative imports should be raised to at least 15%.

  • Even if the investigation by a developed country reaches the conclusion that the export prices have an element of subsidy, the duties should be restricted to the amount by which the subsidy exceeds the de minimis level.

  • The definition of "inputs" under footnote 61 of Annex II of the agreement should be widened to include all inputs which are financially, not necessarily physically, incorporated in the cost/price of export products. This will allow for remission of import charges on capital goods when used for export production. Also, consumables other than those prescribed under the current definition should be included - so that duties and import charges can be rebated by developing countries without being considered subsidies.

  • Aggregated and generalized rates of duty remission should be allowed for developing countries even though individual units may not be able to establish the source of their inputs. This is necessary as export production units in developing countries are very small in size, compared to their counterparts in developed countries, and consequently do not have the necessary expertise to maintain elaborate systems of accounting of inputs.

  • Para (k) of Annex I states that export credits at rates below those which the granting authority actually has to pay for funds so employed would be considered as export subsidy. Developing-country Members should get special dispensation, and such credits should not be considered as subsidies so long as the rates at which they are extended are below LIBOR.

  • Taxes can be collected in many developing countries, including India, at different levels. Customs duties, income tax, excise duties on production of goods, and so on are levied and collected by the central government. The state governments may charge sales tax on sales within their respective states, while local authorities often collect municipal or other taxes including octroi, cess and so on. The impact of such taxes varies from state to state, and even from district to district within a state. Goods produced in the country suffer from a number of these taxes at various stages of production. While some of them, like excise duties, are taken care of by a system of abatements at every stage of production, others remain unabated - in addition to a large number of other taxes that have to be absorbed as a cost of manufacture.

Even though the GATT agreement permits neutralization of all taxes, several remain un-neutralized in many developing countries because of the plethora of taxes and multiplicity of collecting agencies. The developed countries get over this problem by using the VAT system, the introduction of which in developing countries will take time because of the complexities and costs involved. Such countries should be allowed to neutralize the cost-escalating effect of such taxes by partial or full remission of direct taxes. (Third World Economics No. 197, 16-30 November 1998)

Chakravarthi Raghavan is the Chief Editor of the South-North Development Monitor (SUNS) from which the above article first appeared.