1. International Trade and WTO
Prof. Sohn, Taewoo

2. Videoclip: Hearing Trade enforcement including Anti-dumping laws
-Senate committee Appropriations/Homeland Security
(May 25, 2011) (1:53H→ 13 min)
Videoclip: U.S. Anti-dumping Laws
-Women in International Trade Legislative Committee-
(Aug.18) (55min →?)

3. 7. Safety valves for domestic pressures
(3) Subsidies and countervailing measures
[ Agreement on Subsidies and Countervailing Measures (“SCM Agreement”)]
The Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) addresses two separate but closely related topics: multilateral disciplines regulating the provision of subsidies, and the use of countervailing measures to offset injury caused by subsidized imports.
Multilateral disciplines are the rules regarding whether or not a subsidy may be provided by a Member. They are enforced through invocation of the WTO dispute settlement mechanism. Countervailing duties are a unilateral instrument, which may be applied by a Member after an investigation by that Member and a determination that the criteria set forth in the SCM Agreement are satisfied.

4. 7. Safety valves for domestic pressures
(3) Agreement on Subsidies and Countervailing Measures (“SCM Agreement”)
(a) Structure of the Agreement
Part I provides that the SCM Agreement applies only to subsidies that are specifically provided to an enterprise or industry or group of enterprises or industries, and defines both the term “subsidy” and the concept of “specificity.”
Parts II and III divide all specific subsidies into one of two categories: prohibited and actionable, and establish certain rules and procedures with respect to each category.
Part V establishes the substantive and procedural requirements that must be fulfilled before a Member may apply a countervailing measure against subsidized imports.
Parts VI and VII establish the institutional structure and notification/surveillance modalities for implementation of the SCM Agreement.
Part VIII contains special and differential treatment rules for various categories of developing country Members.
Part IX contains transition rules for developed country and former centrally-planned economy Members.
Parts X and XI contain dispute settlement and final provisions.

5. (b) Coverage of the Agreement
(3) Agreement on Subsidies and Countervailing Measures (“SCM Agreement”)
(b) Coverage of the Agreement
Part I of the Agreement defines the coverage of the Agreement. Specifically, it establishes a definition of the term “subsidy” and an explanation of the concept of “specificity”. Only a measure which is a “specific subsidy” within the meaning of Part I is subject to multilateral disciplines and can be subject to countervailing measures.
Definition of subsidy unlike the Tokyo Round Subsidies Code, the WTO SCM Agreement contains a definition of the term “subsidy”. The definition contains three basic elements: (i) a financial contribution (ii) by a government or any public body within the territory of a Member (iii) which confers a benefit. All three of these elements must be satisfied in order for a subsidy to exist.
The concept of “financial contribution” was included in the SCM Agreement only after a protracted negotiation. Some Members argued that there could be no subsidy unless there was a charge on the public account. Other Members considered that forms of government intervention that did not involve an expense to the government nevertheless distorted competition and should thus be considered to be subsidies. The SCM Agreement basically adopted the former approach. The Agreement requires a financial contribution and contains a list of the types of measures that represent a financial contribution, e.g., grants, loans, equity infusions, loan guarantees, fiscal incentives, the provision of goods or services, the purchase of goods.

6. (b) Coverage of the Agreement
(3) Agreement on Subsidies and Countervailing Measures (“SCM Agreement”)
(b) Coverage of the Agreement
In order for a financial contribution to be a subsidy, it must be made by or at the direction of a government or any public body within the territory of a Member. Thus, the SCM Agreement applies not only to measures of national governments, but also to measures of sub-national governments and of such public bodies as state-owned companies.
A financial contribution by a government is not a subsidy unless it confers a “benefit.” In many cases, as in the case of a cash grant, the existence of a benefit and its valuation will be clear. In some cases, however, the issue of benefit will be more complex. For example, when does a loan, an equity infusion or the purchase by a government of a good confer a benefit? Although the SCM Agreement does not provide complete guidance on these issues, the Appellate Body has ruled (Canada – Aircraft) that the existence of a benefit is to be determined by comparison with the market-place (i.e., on the basis of what the recipient could have received in the market). In the context of countervailing duties, Article 14 of the SCM Agreement provides some guidance with respect to determining whether certain types of measures confer a benefit. the context of multilateral disciplines, however, the issue of the meaning of “benefit” is not fully resolved.

7. (3) Agreement on Subsidies and Countervailing Measures (“SCM Agreement”)
(c) Specificity
Assuming that a measure is a subsidy within the meaning of the SCM Agreement, it nevertheless is not subject to the SCM Agreement unless it has been specifically provided to an enterprise or industry or group of enterprises or industries. The basic principle is that a subsidy that distorts the allocation of resources within an economy should be subject to discipline. Where a subsidy is widely available within an economy, such a distortion in the allocation of resources is presumed not to occur. Thus, only “specific” subsidies are subject to the SCM Agreement disciplines. There are four types of “specificity” within the meaning of the SCM Agreement:
Enterprise-specificity. A government targets a particular company or companies for subsidization; Industry-specificity. A government targets a particular sector or sectors for subsidization. Regional specificity. A government targets producers in specified parts of its territory for subsidization. Prohibited subsidies. A government targets export goods or goods using domestic inputs for subsidization.

8. (d) Categories of Subsidies
(3) Agreement on Subsidies and Countervailing Measures (“SCM Agreement”)
(d) Categories of Subsidies
The SCM Agreement creates two basic categories of subsidies: those that are prohibited, those that are actionable (i.e., subject to challenge in the WTO or to countervailing measures). All specific subsidies fall into one of these categories.
Prohibited subsidies: subsidies that require recipients to meet certain export targets, or to use domestic goods instead of imported goods. They are prohibited because they are specifically designed to distort international trade, and are therefore likely to hurt other countries’ trade. They can be challenged in the WTO dispute settlement procedure where they are handled under an accelerated timetable. If the dispute settlement procedure confirms that the subsidy is prohibited, it must be withdrawn immediately. Otherwise, the complaining country can take counter measures. If domestic producers are hurt by imports of subsidized products, countervailing duty can be imposed.
* Actionable subsidies: in this category the complaining country has to show that the subsidy has an adverse effect on its interests. Otherwise the subsidy is permitted. The agreement defines three types of damage they can cause. One country’s subsidies can hurt a domestic industry in an importing country. They can hurt rival exporters from another country when the two compete in third markets. And domestic subsidies in one country can hurt exporters trying to compete in the subsidizing country’s domestic market. If the Dispute Settlement Body rules that the subsidy does have an adverse effect, the subsidy must be withdrawn or its adverse effect must be removed. Again, if domestic producers are hurt by imports of subsidized products, countervailing duty can be imposed.

9. (e) Subsidies and countervailing measures
Some of the disciplines are similar to those of the Anti-Dumping Agreement. Countervailing duty (the parallel of anti-dumping duty) can only be charged after the importing country has conducted a detailed investigation similar to that required for anti-dumping action. There are detailed rules for deciding whether a product is being subsidized (not always an easy calculation), criteria for determining whether imports of subsidized products are hurting (“causing injury to”) domestic industry, procedures for initiating and conducting investigations, and rules on the implementation and duration (normally five years) of countervailing measures. The subsidized exporter can also agree to raise its export prices as an alternative to its exports being charged countervailing duty.
Subsidies may play an important role in developing countries and in the transformation of centrally-planned economies to market economies. Least-developed countries and developing countries with less than $1,000 per capita GNP are exempted from disciplines on prohibited export subsidies. Other developing countries are given until 2003 to get rid of their export subsidies. Least-developed countries must eliminate import-substitution subsidies (i.e. subsidies designed to help domestic production and avoid importing) by 2003 — for other developing countries the deadline was Developing countries also receive preferential treatment if their exports are subject to countervailing duty investigations. For transition economies, prohibited subsidies had to be phased out by 2002.

10. * videoclip: U.S. Auto dumping case (1:34 min)
(f) AD-CVD’?
People sometimes refer to the two together — “AD-CVD” — but there are fundamental differences
Dumping and subsidies — together with anti-dumping (AD) measures and countervailing duties (CVD) — share a number of similarities. Many countries handle the two under a single law, apply a similar process to deal with them and give a single authority responsibility for investigations. Occasionally, the two WTO committees responsible for these issues meet jointly.
The reaction to dumping and subsidies is often a special offsetting import tax (countervailing duty in the case of a subsidy). This is charged on products from specific countries and therefore it breaks the GATT principles of binding a tariff and treating trading partners equally (MFN). The agreements provide an escape clause, but they both also say that before imposing a duty, the importing country must conduct a detailed investigation that shows properly that domestic industry is hurt.
But there are also fundamental differences, and these are reflected in the agreements.
Dumping is an action by a company. With subsidies, it is the government or a government agency that acts, either by paying out subsidies directly or by requiring companies to subsidize certain customers.
But the WTO is an organization of countries and their governments. The WTO does not deal with companies and cannot regulate companies’ actions such as dumping. Therefore the Anti-Dumping Agreement only concerns the actions governments may take against dumping. With subsidies, governments act on both sides: they subsidize and they act against each others’ subsidies. Therefore the subsidies agreement disciplines both the subsidies and the reactions.
* videoclip: U.S. Auto dumping case (1:34 min)

11. 7. Safety valves for domestic pressures
(4) Safeguards: GATT Article XIX
Safeguard measures are defined as “emergency” actions with respect to increased imports of particular products, where such imports have caused or threaten to cause serious injury to the importing Member's domestic industry.
Article XIX Emergency Action on Imports of Particular Products
1. (a) If, as a result of unforeseen developments and of the effect of
the obligations incurred by a contracting party under this Agreement,
including tariff concessions, any product is being imported into the
territory of that contracting party in such increased quantities and under
such conditions as to cause or threaten serious injury to domestic
producers in that territory of like or directly competitive products, the
contracting party shall be free, in respect of such product, and to the
extent and for such time as may be necessary to prevent or remedy such
injury, to suspend the obligation in whole or in part or to withdraw or
modify the concession.

12. Article XIX Emergency Action on Imports of Particular Products
(b) If any product, which is the subject of a concession with
respect to a preference, is being imported into the territory of a contracting
party in the circumstances set forth in sub-paragraph (a) of this paragraph,
so as to cause or threaten serious injury to domestic producers of like or
directly competitive products in the territory of a contracting party which
receives or received such preference, the importing contracting party shall
be free, if that other contracting party so requests, to suspend the relevant
obligation in whole or in part or to withdraw or modify the concession in
respect of the product, to the extent and for such time as may be necessary
to prevent or remedy such injury.
2. Before any contracting party shall take action pursuant to the
provisions of paragraph 1 of this Article, it shall give notice in writing to
the CONTRACTING PARTIES as far in advance as may be practicable and
shall afford the CONTRACTING PARTIES and those contracting parties
having a substantial interest as exporters of the product concerned an
opportunity to consult with it in respect of the proposed action. When
such notice is given in relation to a concession with respect to a preference,
the notice shall name the contracting party which has requested the action. In critical circumstances, where delay would cause damage which it would be difficult to repair, action under paragraph 1 of this Article may be taken provisionally without prior consultation, on the condition that consultation shall be effected immediately after taking such action.

13. Article XIX Emergency Action on Imports of Particular Products
3. (a) If agreement among the interested contracting parties with
respect to the action is not reached, the contracting party which proposes
to take or continue the action shall, nevertheless, be free to do so, and if
such action is taken or continued, the affected contracting parties shall
then be free, not later than ninety days after such action is taken, to
suspend, upon the expiration of thirty days from the day on which written
notice of such suspension is received by the CONTRACTING PARTIES, the
application to the trade of the contracting party taking such action, or, in
the case envisaged in paragraph 1 (b) of this Article, to the trade of the
contracting party requesting such action, of such substantially equivalent
concessions or other obligations under this Agreement the suspension of
which the CONTRACTING PARTIES do not disapprove.
(b) Notwithstanding the provisions of sub-paragraph (a) of this
paragraph, where action is taken under paragraph 2 of this Article
without prior consultation and causes or threatens serious injury in the
territory of a contracting party to the domestic producers of products
affected by the action, that contracting party shall, where delay would
cause damage difficult to repair, be free to suspend, upon the taking of the
action and throughout the period of consultation, such concessions or
other obligations as may be necessary to prevent or remedy the injury.

14. (4) Safeguards: GATT Article XIX
In the technical language of WTO system, a safeguard is used to restrain international trade in order to protect a certain home industry from foreign competition. A member may take a “safeguard” action (e.g. restrict importation of a product temporarily) to protect a specific domestic industry from an increase in imports of any product which is causing, or which is threatening to cause, serious injury to the domestic industry that produces like or directly competitive products.
Safeguard measures were always available under GATT Article XIX. However, they were infrequently used, and some governments preferred to protect their industries through “grey area” measures (“voluntary” export restraint arrangements on products such as cars, steel and semiconductors). As part of the WTO deal, members gave up these “grey area” measures and adopted a specific WTO Safeguards Agreement which disciplines the use of safeguard measures.

15. (4) Safeguards: GATT Article XIX
Safeguards are usually seen as responses to fair trade behaviour, as opposed to unfair trade practices such as Dumping Subsidy
As such they are supposed to be used only in very specific circumstances, with compensation, and on a universal basis, i.e., a member restricting imports for safeguard purposes will have to restrict imports from all other countries. However, exceptions to this non-discriminatory rule are provided for in the Agreement on Safeguards itself as well as in some ad hoc agreements. In this last respect it is worthwhile noting that the People's Republic of China has accepted that discriminatory safeguards may be imposed on its exports to other WTO members until 2013.
Regional trading arrangements have their own rules relating to safeguards. Some safeguard measures can be resorted to in the area of services, as provided for in the General Agreement on Trade in Services (GATS).