Regulating Import
Competition and Unfair Trade
Chapter 11
© 2002 West/Thomson Learning
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Free Trade & Protectionism
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How do international rules serve to
check competing national interests
Focus on laws that safeguard domestic
industry from import competition
GATT / WTO & US law
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Authorize “import relief” or “ adjusting
imports”
“Safeguards” against injury from imports
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GATT Escape Clause
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GATT Article XlX allows escape from
previous tariff concessions
GATT 1994 Agreement on Safeguards
sets rules for safeguarding domestic
industry and providing import relief
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Is product being imported in such increased
quantities and under such conditions as to
cause or threaten to cause serious injury to
domestic industry?
Country seeking to apply safeguard must
first undertake administrative investigation
Safeguards only temporary – 4 years,
subject to extension to 8 years
Safeguards must be non-discriminatory, and
lifted gradually as conditions warrant
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GATT 1994 Agt. on Safeguards
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Countries imposing safeguards must notify WTO
Safeguards Committee – monitors compliance
 Tariffs preferred “safeguard” mechanism
 If use quotas, must allocate among supplying nations
based on proportion of total imports and can’t reduce
imports below average of last 3 years
 Limits on imposing safeguards on developing
countries
GATT encourages countries imposing safeguards to
compensate supplying nations for burden
 Reduce tariffs on other products
 If no agreement on compensation, supplying nation
can raise tariffs in retaliation
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Argentina Safeguard Measures on Imports
of Footwear (WTO App. Body, 1999)
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Argentina initiated safeguard investigation and
determined that increased imports of footwear caused
serious injury to domestic producers
 Increased duty on imported footwear to 200%,
except for imports from MERCOSUR nations
EU requested WTO panel, US joined as 3rd party
Must events leading to increased imports be
“unforeseen developments” to justify imposition of
safeguards?
Safeguards to be extraordinary measures – when
member confronted with unexpected events
Art. 4.2 of Agt on Safeguards requires investigation to
examine all relevant factors – included those listed
Argentina’s investigation didn’t examine 2 of listed
factors – didn’t comply with Agt. on Safeguards – can’t
justify excluding imports from non-MERCOSUR nations
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US Law on Safeguards: Section 201
of Trade Act, as Amended
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Allows import relief when“article being
imported in such increased quantities as
to be a substantial cause of serious injury
or threat thereof to domestic industry
producing an article like or directly
competitive with the imported article”
President may “adjust” imports after ITC
investigation if it will “facilitate efforts by
domestic industry to make positive
adjustment” and if provides greater
economic and social benefits than costs6
Enforcement of S. 201
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Initiated by petition filed with ITC – or ITC can
self-initiate
ITC holds public hearings
 considers statutory list of factors
 Prepares detailed analysis of affected
market
ITC makes recommendation to the President
President decides whether to implement
safeguards; temporary (4-8 yrs. maximum)
 50% tariff increase
 tariff rate quotas
 absolute quotas
 negotiated agreements
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Trade Adjustment Assistance
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Workers displaced by increased imports
may file petition with the Dept. of Labor
Sec. of Labor must determine that
imports have contributed to separation
Program administered through sate
unemployment programs
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Direct cash payments to workers
Job retraining for workers and relocation
Help for companies as well
Separate assistance program for
workers losing jobs as result of NAFTA 8
US Steel Industry: Case Study
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“Glut” of steel on world market – US firms face
heavy competition
2002 – ITC finds imports “substantial cause of
serious injury or threat”
 Bush Admin. Imposes 30% tariff under S.
201 – some countries excepted – for 3 years
WTO complaint filed by many countries
 WTO panel held not result of “unforeseen
developments” and couldn’t show imports
have increased, no showing of serious injury
and violated non-discriminatory principle
 2003 – WTO Appellate Body upholds panel
 Japan and EU threaten $2 Bil in retaliatory
tariffs
Bush Admin. removes tariffs in Dec. 2003
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Unfair Imports
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Dumping
Subsidies
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Dumping
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Dumping is the selling of products in a
foreign country for less than the price
charged in producer’s home market
Alleged price discrimination causing
injury to domestic competitors
Controversy over economic effects of
dumping
Anti-dumping provisions most
commonly used trade laws in EU and US
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GATT Provisions on
Dumping
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GATT 1994 Antidumping Agreement allows members
to impose duties if dumped goods threaten or cause
material injury to domestic industry
GATT says dumping is at less than normal value
 US states dumping is a sale at less than “fair value”
 Normal value - export price = dumping margin
 Export price = price w/o shipping charges sold to
unrelated buyer in importing country
 Use “constructed price” if products from “nonmarket” country
 GATT requires formal investigation to determine
material injury before imposing duties
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US Antidumping Provisions
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Petition filed with government to
initiate process
ITA determines if goods sold in US at
less than fair value
ITC determines extent of material injury
to US producers
If injury due to dumping, impose
antidumping duties
US Customs Service collects
antidumping duties
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Pesquera Mares Australes v. US (Fed. CA
2001)
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Facts: PMA, Chilean salmon exporter accused
of dumping
 ITA based “normal value” on sales in Japan
 Japanese sales of higher grade – ITA held
was “like product”
 ITA imposed duties; affirmed by Court of
Int. Trade; PMA appeals
Issue: Were Japanese sales of “like product”?
Decision: Yes, affirm CIT decision
Reasons: distinctions btwn grades nominal
 Commercial practice didn’t recognize grade
above “superior”
 ITA definition of “identical in physical
characteristics” as not requiring products be
exactly the same is permissible under
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statute
WTO Role in Anti-Dumping
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WTO Committee on Antidumping Practices
created in 1994
Dumping disputes may be submitted to WTO
DSB for resolution
WTO panel may review final antidumping
order of admin. Agency for consistency with
GATT Antidumping Agt
If order violated GATT, panel can recommend
measures to be taken against importing
country
Limited scope of review:
 Can’t reconsider determinations of fact
from investigation
 Can’t overturn interpretation of agreement
made by investigating agency
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Dumping and Non-Market
Economies
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US – specific rules for calculating dumping margins in
NME countries
 Define “surrogate normal value” by price of factors of
production in market economy country at same level
of development and significant producer of
comparable merchandise
 Market–oriented industries: inputs procured at free
market prices, production due to market forces and
producers mostly privately-owned
Bulk Aspirin from PRC (ITA 2000): R alleges that aspirin
from PRC being dumped on US market
 Only 2 Chinese firms responded to request for
information – they weren’t subject to govt. control
 Apply single PRC-wide rate to all other producers
 Use India as surrogate – significant producer of
comparable merchandise – use Indian figures for
normal value
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Subsidies
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Government confers a benefit on a
domestic firm and provides income,
price support or financial contribution
(not collecting a tax, providing grant or
loan at favorable rate)
Domestic subsidies are permitted as
part of government’s responsibility to
fund social programs and provide
growth
Subsidies distort trade patterns, give
unfair competitive advantage, and
encourage activity unprofitable without
subsidy
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GATT and Subsidies
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GATT provides 3 types of subsidies:
 Prohibited subsidies: Export or import
substitution subsidies
 Domestic or adverse subsidies: government
programs as part of legitimate responsibility
of government to direct industrial growth
and fund social programs
 Socially-beneficial subsidies: subsidies to
expand knowledge through R & D;
subsidies to poor or depressed regions, or
subsidies to help firms meet one-time costs
of environmental or antipollution
requirements
Member nations should notify WTO Committee
on Subsidies and Countervailing Measures in
advance of granting subsidy
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GATT and Subsidies
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1994 Agreement on Subsidies and Countervailing Measures
 WTO member can appeal to WTO for dispute resolution
 WTO can recommend elimination of subsidy, elimination
of harmful effects, or countermeasures
Adverse effects of subsidies actionable under WTO if:
 Cause injury to domestic industry in another WTO
member
 Cause nullification and impairment of member rights
under GATT
 Cause “serious prejudice” to another member
Importing country may also initiate admin. proceedings to
impose countervailing duties to eliminate subsidy
advantage
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US Procedure for
Countervailing Duties
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Complaint filed with ITA
 ITA determines is subsidy exists
 ITC then determines if subsidy causes material
injury to domestic industry
 “material injury” standard less than “serious injury”
standard required for action under safeguard
provisions
 If injury exists, impose CVD’s to offset subsidy
advantage
ITA and ITC decisions subject to judicial review in US
Court of International Trade if final or negative
determinations
Finding of material injury must be reviewed every 5
years if antidumping order in effect
NAFTA Arbitration Panel for dumping of Mexican or
Canadian goods
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Dumping and Subsidy Offset
Act of 2000
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Toughened CVD and Antidumping laws
 Applied to CVD’s and antidumping duties
assessed after Oct. 1, 2000
 US Customs will now collect and distribute
duties to injured parties
WTO held transfer payments was subsidy,
affirmed on appeal
Aug. 2004 – WTO approves retaliatory
sanctions against US
US repeals provisions in Feb. 2006 – but repeal
not effective until Oct. 1, 2007
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US-Countervailing Measures Concerning
European Steel (WTO Appellate Body 2002)
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Facts: Govt. support or ownership of European steel
industry
 US responded with countervailing duties
 Later, govts. privatized industry – new private firms
sell steel in US
 ITA imposed countervailing duties on steel imports –
held benefits from subsidies were “passed through”
to new firms – used “same person” rule
 EC – transfer was at arm’s length – fair market value
– no govt. control
Issue: Did “same person” rule application violate GATT
SCM Agt.?
Decision: Yes, “same person rule” impedes ITA from
examining if benefit continues to exist after change in
ownership
 ITA must consider broad range of factors to
determine if benefits “pass through”
ITA adopts new rule – rebuttable presumption
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Section 301 Actions
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Allows retaliation by USTR against
countries violating US rights under
international trade agts
S. 301 actions initiated by petition to
USTR
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Investigation of alleged violations
Commerce Dept. – investigate if CVD or
subsidy – if so, negotiations
If no resolution, USTR can impose measures
Remedies include:
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Suspend trade concessions
Impose duties
Import restrictions
Compensatory benefits to US
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S. 337 of Tariff Act of 1930
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Allows relief for unfair methods of
competition in importation or sale of
imported goods
Used to prevent infringement of IP
rights – pirated or counterfeit goods
Investigation by ITC – petition by
domestic producer or holder of IP rights
Remedy is exclusion of goods
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Cease and desist order – permanent
exclusion order
Penalty for violation is $100K fine or 2X
domestic value of goods
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Web Sites
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http://www.wto.org
http://www.usitc.gov
http://www.doleta.gov
http://www.ita.doc.gov
http://www.european.cu.int/comm/trad
e
http://www.ia.ita.doc.gov
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