Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. CHAPTER 11 Regulating Import Competition and Unfair Trade

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 2 Article XlX- allows escape from previous promises. Many countries have provisions in national law that parallel GATT’s Escape clause. GATT Escape Clause (1947)

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 3 “Products imported in such increased quantities and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products.” Countries should notify WTO Safeguards committee. Is the injury “serious”? Is the injury “imminent”? WTO Agreement on Safeguards (1994)

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 4 WTO Agreement on Safeguards 1 st Step: Public administrative investigation. Global Safeguards. Limits on Use of Safeguards. –May not exceed 4 years. –Voluntary restraint agreements no longer permitted. Trade Compensation. The WTO Committee on Safeguards: countries must notify the WTO Committee on Safeguards when taking action.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 5 Safeguards Against Injury Under U.S. Law U.S. Escape Clause: Section 201 of The Trade Act of –Does not follow the GATT guidelines. –U.S. law refers to safeguards as “positive adjustments.” –WHAT? “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”

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 6 Safeguards Against Injury Under U.S. Law U.S. Standard for Import Relief. ITC Safeguard Investigations: public notice in the Federal Register. Must have “substantial cause of serious injury” and apply the Argentina standard. 

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 7 Cases on Safeguard Measures Argentina Safeguard Measures on Imports of Footwear (WTO 1999): Argentina had not shown that increased imports were the cause of serious harm to domestic footwear. Heavyweight Motorcycles & Engines & Power-Train Subassemblies (ITC, 1983): incremental duties must be imposed.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 8 President’s options: –Temporary: 4-8 yrs. –50% tariff increase. –Tariff rate quotas. –Absolute quotas. –Auctioned import license quotas. –Trade adjustment assistance. –Negotiated agreements. orderly market agreements (gov. to gov.) VRA: gov. to supplier. Remedies Under U.S. Law

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 9 China Safeguards Imports from China are subject to special rules not applicable to other WTO countries. U.S. and China agreed that safeguards would apply until Relief if ITC finds “market disruption.”

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 10 Trade Adjustment Assistance File with the Department of Labor. Direct cash payments to workers. Job retraining for workers and relocation. Help for companies as well.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 11 U.S. Steel Industry: Case Study In June 2001, President Bush asks ITC to investigate. Clinton had refused to take such action. In October 2001, ITC found serious injury. In 2002 President Bush imposed tariffs up to 30% on steel imports. WTO 2003 found U.S. in violation and Bush lifted them December 2003.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 12 Unfair Import Laws: Dumping and Antidumping Duties Dumping- antidumping duties. Subsidies- countervailing duties. 

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 13 DumpingDumping What is it? selling products in foreign country for less than the price charged in producer’s home market. Price discrimination. What is wrong with this? Purpose to drive out competition. Criticism?

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 14 WTO Antidumping Agreement 1994 GATT/WTO Antidumping Agreement. What is the “dumping margin”? –Dumping is at less than normal value. –US states dumping is a sale at less than “fair value.” –Normal value- export price= dumping margin. –What is a “like product”?

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 15 Dumping Adjustments Pesquera Mares Australes Ltd v. U.S. (Chilean salmon) : violated U.S. antidumping laws by selling foreign salmon at less than fair value. Export price= price w/o shipping charges sold to unrelated buyer in importing country. Market Viability and Constructed Value. Sales Below Cost. The “Level of Trade” Problem.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 16 Disputes taken to the WTO Dispute Settlement Panel. Panel must accept the “facts” as found by the ITA/ITC in their investigation. WTO Dispute Settlement

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 17 See the Bulk Aspirin from the People’s Republic of China (ITA, 2000): –The ITC found injury to US producers of aspirin but the ITA in calculating the dumping margin cut the antidumping duties to zero. Rhodia testified that without the duties its business disappeared. Rhodia closed its U.S. plant and moved to China. Dumping and Non-market Economy Countries

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 18 Unfair Import Laws: Subsidies and Countervailing Duties 1994 Agreement on Subsidies and Countervailing Measures Unfair Imports Consistent with GATT Remedy = COUNTERVAILING DUTIES

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 19 Unfair Import Laws: Subsidies and Countervailing Duties Subsidy : 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) in order to achieve a social or economic objective

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 20 Unfair Import Laws: Subsidies and Countervailing Duties Prohibited Subsidies: export subsidies or import substitution subsidy. Domestic Subsidies: Some subsidies are permitted as part of government’s responsibility to fund social programs and provide growth.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 21 Adverse Effect Subsidies : domestic subsidies which give unfair competitive advantage to domestic firms. Actionable at WTO if: –Cause injury to domestic industry, OR –Cause nullification and impairment of rights, OR –Cause “serious prejudice.” (Presumed to exist if the subsidy exceeds 5% of its value.) Upstream Subsidies: granted for raw materials. Remedies for Adverse Subsidies

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 22 Nonactionable or Socially Beneficial Subsidies Not actionable under WTO rules. Include: –Industry or universities for expanding knowledge. –Poor, depressed, or underemployed geographic regions. WTO uses binding arbitration to decide.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 23 Subsidies and State-Owned Enterprises Presents several problems when enterprises are owned by countries without a market economy. 2007, the Department of Commerce began applying the countervailing duty to nonmarket countries like China. What about state-owned enterprises that have transitioned to private. 

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 24 U.S. Countervailing Measures Concerning Certain products from the EC (steel) 2002 EC challenges U.S. use of “same person” test. The panel found that the U.S.violated the WTO Agreement on Subsidies and Countervailing measures (SCM). Subsequently in 2003, the ITA changed its rules. The presumption is rebuttable if the company can show that the government sold its interest, retains no control and it was an arm’s length transaction at fair market value.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 25 Controversy and Injury Continued Dumping and Subsidy Offset (2000), required countervailing duties collected by U.S. government be paid directly to petitioning companies. –In 2005, EU, Mexico, Canada, and Japan began retaliating by imposed tariffs on U.S. goods. –Law is now repealed. What about the “material injury” requirement?

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 26 Countervailable duties and Antidumping duties may be reviewed by the CIT (both final determinations and negative injury). Limited review in Escape Clause. Judicial Review

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 27Conclusion Complex interrelated international and national regulations. Businesses will face these issue at home and abroad. What role WTO will play in the future? Role of politics- reflections? Other news items?