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Trade Remedy Provisions in Regional Trade Agreements

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Trade Remedy Provisions in Regional Trade Agreements Trade remedy provisions in regional trade agreements Eric C Emerson1 Steptoe & Johnson LLP, Washington, DC; Officer, IBA Trade and Customs Law Committee [email protected] ultiple factors, including the stagnation of the VI and XVI of the GATT, and their application MDoha Round of WTO trade negotiations, have led is governed by the Agreement on Subsidies and to a proliferation of bilateral and multilateral free trade Countervailing Measures (‘SCM Agreement’). agreements around the world. The GATT permits these An importing country is permitted to apply regional trade agreements (‘RTAs’) as an exception to countervailing duties to specified imports if it can the bedrock principle of ‘most favoured nations’ demonstrate that a foreign producer has benefited treatment, but only if they eliminate ‘duties and other from an unfair government subsidy, and that imports restrictive regulations of commerce’ – a phrase which, from that foreign producer have caused, or threaten if read literally, appears to encompass all trade to cause, material injury to the domestic industry in remedies such as antidumping duties, countervailing the importing country. duties, and safeguard provisions. • Safeguard measures are permitted under Article XIX The reality, though, is quite different, and most RTAs of the GATT, and rules regarding their application leave the signatories’ trade remedy rights unaffected. are contained in the Agreement on Safeguards. However, in the RTAs that do address these issues, Unlike the antidumping and countervailing duty parties have developed an array of modifications to remedy, a party is not required to demonstrate both the substantive and the procedural aspects of that imports were unfairly priced in order to apply the rules that govern trade among WTO members. a safeguards remedy. Rather, a party need only The purpose of this paper is to review and summarise determine that a product is being imported into its the more significant of these modifications in order territory in such increased quantities and under such to provide a reference tool for practitioners involved conditions as to cause or threaten serious injury to negotiations of RTAs over this important and often the domestic industry that produces like or directly contentious issue, and also to suggest ways in which competitive products. these modifications could help to advance the current Parties are not required to impose trade remedies to negotiations over trade remedies in the Doha Round. the fullest extent permitted under the GATT; indeed, parties are not required to impose trade remedies at all. However, if parties do employ such measures, they Legal framework must do in a manner consistent with the GATT and Trade remedies under the GATT and the WTO agreements these agreements. The term ‘trade remedies’ refers to the legal mechanisms in the GATT and the various WTO Regional trade agreements agreements that allow parties to take action against As noted above, RTAs directly conflict with the ‘most unfairly traded or injurious imports. The three favoured nations’ principle that is fundamental to the principal trade remedies described in the WTO GATT, in that RTAs are specifically designed to provide agreements are antidumping duties, countervailing more favourable treatment to their signatories than duties, and safeguards: to other trading partners. However, the GATT does • Antidumping duties are permitted under Article provide an exception for RTAs, but sets a high standard VI of the GATT, and the rules governing their for this exception in order to ensure that the benefits application are spelled out in the Agreement of any particular RTA outweigh its potential negative on Implementation of Article VI of the General consequences to the multilateral trading system as a Agreement on Tariffs and Trade 1994 (‘AD whole. Specifically, Article XXIV(8)(b) of the GATT Agreement’). Generally speaking, ‘dumping’ occurs states that: when a foreign producer sells its merchandise in a A free-trade area shall be understood to mean a foreign market at less than its ‘normal value’. If these group of two or more customs territories in which imports also cause or threaten to cause material the duties and other restrictive regulations of injury to the domestic industry in the importing commerce (except, where necessary, those permitted country, the importing country is permitted to apply under Articles XI, XII, XIII, XIV, XV and XX) are antidumping duties to offset this unfair pricing. eliminated on substantially all the trade between • Countervailing duties are permitted under Articles IBA Legal Practice Division ASIA PACIFIC FORUM NEWS July 2008 11 gatt & WTO the constituent territories in products originating party to give reasonable consideration to price in such territories. undertakings.9 The omission of Articles VI, XVI and XIX – the Articles In terms of substantive changes, while none of the that provide for antidumping duties, countervailing RTAs reviewed modify the standards for applying the duties and safeguards measures – from the highlighted CVD remedy, several RTAs do modify AD rules. The portion of Article XXIV(8)(b) quoted above suggests following are some of the more common or interesting that the drafters of the GATT considered trade occurrences: remedies to be among the ‘duties and other restrictive • Increasing the threshold for determining ‘negligible’ regulations of commerce’ that a free trade area was imports from two per cent to five per cent;10 intended to eliminate. • Increasing the standards for de minimis dumping margins in investigations from two per cent to five per cent;11 Treatment of trade remedies in regional trade • Eliminating the practice of ‘zeroing’ in calculating agreements dumping margins;12 To determine exactly how trade remedies have • Use of the ‘lesser duty’ rule (ie, a duty which is less been addressed in the RTA context, over 100 RTAs than the dumping margin where such lesser duty is notified to the WTO were reviewed for the terms sufficient to eliminate material injury);13 ‘antidumping’, ‘countervailing’ and ‘safeguards’.2 • An agreement to eliminate the application of any While the language of Article XXIV suggests that trade third country dumping provisions as otherwise remedies would be eliminated in RTAs, in fact, only a permitted by Article 14 of the AD Agreement;14 and small number of RTAs satisfy this requirement. Many • Recognition of the ‘public interest’ in making AD of the RTAs reviewed do not mention trade remedies determinations.15 at all, and a large percentage of those that do simply reiterate the RTA signatories’ rights under the various Dispute settlement for antidumping and countervailing duty WTO agreements. decisions Separate from changes to the procedural and Modifications to antidumping and countervailing duty substantive provisions of AD/CVD proceedings provisions themselves, some RTAs contain provisions that affect Only a small number of RTAs meet the standard the way in which AD/CVD disputes between the implied by Article XXIV(b)(8) of eliminating the signatories are addressed. antidumping remedy altogether,3 and in only one RTA The most well-known of these is Chapter 19 of the reviewed did the parties also agree to eliminate the North American Free Trade Agreement (‘NAFTA’), CVD remedy.4 In addition, two RTAs contemplate the which was based on a comparable provision of the possible elimination of the AD remedy,5 and two more US–Canada Free Trade Agreement, under which RTAs suggest that parties can rely on the CVD remedy the NAFTA parties (ie, Canada, Mexico and the only until certain laws relating to competition and United States) established an alternative mechanism, public aid are revoked.6 independent of each country’s normal judicial process, Of the procedural changes to trade remedies, for reviewing AD/CVD decisions made by each party’s the most common among the RTAs reviewed is national administering authority. The Chapter 19 the referral of any AD/CVD dispute to a ‘joint review process is unique because decisions of a NAFTA committee’.7 If the joint committee is unable to panel are as enforceable on the administering authority resolve the matter within a specified period of time as a decision from a national court of competent (usually in the range of 30–45 days), the party may jurisdiction. While the panel review process does continue with its action. Since most of these ‘joint result in a decision that is free from the appearance of committees’ consist of representatives from the parties bias, its disadvantage is that it required the parties to in equal numbers, the efficacy of this referral step create an entirely new appellate review process from is questionable. Nevertheless, the referral to a joint whole cloth as well as the integration of decisions from committee might allow certain cases to be addressed this review into national law. In the Softwood Lumber and disposed of before duties are applied, particularly from Canada dispute, all of the difficulties inherent in where the complaint involves a government action integrating this novel provision into national law were – like the provision of a subsidy – that could be laid bare, particularly as the United States sought to efficiently investigated and resolved before a full CVD avoid implementation of several adverse decisions. investigation is undertaken. Other RTAs contain a A different, perhaps simpler approach is suggested similar requirement for pre-initiation consultations by the Canada–Chile Free Trade Agreement, which
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