Chapter D - Contingent protection

The WTO agreement includes a number of provisions that allow for the temporary suspension of obligations, including:¹²

Anti-dumping: measures to offset dumping – pricing of exports below what is charged in the home market; foreign pricing below costs of pro-duction; or foreign pricing below what is charged in a third market – that materially injures a domestic industry;

Countervailing duties: measures to offset the effect of subsidization that materially injures a domestic industry;

Balance of payments: restrictions on imports to safeguard a country’s ex-ternal financial position (GATT Articles XII and XVIII(b); Article XII of the General Agreement on Trade in Services (GATS));

Safeguard actions (emergency protection): temporary protection in cases where imports of a product cause or threaten serious injury to domestic producers of directly competitive products.

Anti-dumping. WTO rules allow action to be taken against dumped imports if dumping causes or threatens material injury to a domestic import-competing industry. This is a weaker standard than the serious injury criterion that applies in the case of safeguards. Dumping compris-es offering a product for sale in export markets at a price below the price charged by a firm in its home market, in the ordinary course of trade.

Trade is considered not to be ordinary if over an extended period of time (normally one year) a substantial quantity of goods is sold at less than av-erage total costs (the sum of fixed and variable costs of production plus

11Evaluations of PSI programmes suggest that they can be effective mechanisms to improve tariff revenue collection. Yang (2008) concludes that PSI programmes are associated with increases in tariff revenue collection and on average revenue increases exceed the costs of PSI programmes by a factor of two or more. See Rege (1999) for a discussion of the negotiating his-tory of the Agreement on Preshipment Inspection and developing country positions, concerns and objectives.

12See Hoekman and Kostecki (2009) for a political economy informed discussion of WTO rules in this area; and Mavroidis (2016) for detailed legal analysis of the various agreements and case law through 2015.

tic market are too small to allow price comparisons, the highest compa-rable price charged in third markets is used. Alternatively, the exporting firm’s estimated costs of production plus a reasonable amount for prof-its, administrative, selling and any other expenses may be used to de-termine normal value (the so-called constructed value). Anti-dumping actions may be taken only if it can be shown that dumping has caused or threatens material injury of the domestic import competing indus-try. Anti-dumping duties are to be terminated within five years of impo-sition, unless a review determines that both dumping and injury caused by dumped imports continues to persist or that removal of the measure would be likely to lead to the recurrence of dumping and injury. Duties may not be imposed if dumping margins are less than 2 per cent, or the level of injury is negligible, or the market share of a firm is less than 3 per cent.

An extensive discussion of the provisions of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 is beyond the scope of this chapter. Many of these are very technical and detailed with a view to constraining creative use of meth-odologies that are designed to result in high dumping margins. Thus the provisions are intended to reduce policy space. They impose a substantial barrier or threshold for developing countries seeking to use anti-dump-ing procedures. However, they are arguably beneficial from an economic and national welfare perspective as they are aimed at preventing abuse of these procedures.

Measures to countervail the effects of subsidies. WTO members may impose duties to countervail the injurious effect on domestic industries of subsidized imports. Necessary conditions for the imposition of coun-tervailing duties include demonstration of the existence of a subsidy, a finding that a domestic industry producing similar (like) products is ma-terially injured and a causal link between the subsidization and injury.

Injury requires that the volume of subsidized imports has increased, that this has had an impact on price levels or is reflected in price undercutting of domestic firms and that this in turn has had a detrimental effect on the domestic industry. At least 25 per cent of the firms in the domestic indus-try must support the launching of a countervailing duties investigation.

Detailed requirements and deadlines are established regarding the dif-ferent phases of investigations, including the collection of evidence, the rights of interested parties, the calculation of the extent to which a sub-sidy benefits the recipient, the determination of injury, possible remedies, and access to judicial review of the countervailing duties decision. As for

anti-dumping, a sunset provision of five years applies, unless a review de-termines that the abolition of protection would be likely to lead to the con-tinuation or recurrence of injury.

Balance of payments related measures. GATT Article XII (for indus-trialized countries) and Article XVIII(b) (for developing countries) permit the use of trade restrictions to safeguard a country’s external financial position. Given that a floating exchange rate or a depreciation is a more appropriate instrument to deal with balance-of-payment disequilibria (as part of a comprehensive macroeconomic adjustment programme if need-ed) these GATT provisions have largely become redundant. During the Uruguay Round of trade negotiations, the scope to use quantitative re-strictions under Article XVIII(b) was reduced and surveillance strength-ened. In principle, surcharges or similar measures must be applied on an across-the-board basis – as that is what is needed from a balance-of-pay-ments perspective. During the Uruguay Round it was agreed to use meas-ures for balance-of-payments purposes that have the less disruptive effects on trade than quantitative restrictions, such as import surcharges or im-port deposit requirements. The use of new quantitative restrictions for balance-of-payments purposes must be justified – countries must demon-strate that price-based measures cannot arrest the deterioration in the ex-ternal accounts. Surcharges or similar measures must be applied on an across-the-board basis. However, exemptions may be made for certain es-sential products, necessary to meet basic consumption needs or which help to improve the balance-of-payments situation, such as capital goods or in-puts needed for production. A WTO member applying new restrictions or raising the general level of its existing restrictions must consult with the Committee on Balance of Payments within four months of the adoption of such measures. Each year a member taking balance-of-payments actions must provide the WTO secretariat with a consolidated notification provid-ing information at the tariff-line level on the type of measures applied, the criteria used for their administration, product coverage and trade flows af-fected. Countries applying balance-of-payments measures must engage in periodic consultations with the Committee and provide an overview of the balance-of-payments situation and the policy measures that have been taken to restore equilibrium, a description of the restrictions that are ap-plied, progress towards removing the restrictions, and a plan for the elim-ination and progressive relaxation of remaining barriers.

Safeguards. The WTO Agreement on Safeguards requires that safeguard measures against imports be taken only if an investigation demonstrates that imports have increased so much to have caused or to threaten seri-ous injury to an import-competing domestic industry. Investigations must

ings or other mechanisms through which traders and other affected par-ties can present their views on whether a safeguard measure would be in the public interest. Investigating authorities must publish a report setting forth their findings and reasoning. Serious injury is defined as a significant overall impairment in the situation of a domestic industry. The agreement lays out criteria for defining what comprises a domestic industry and fac-tors to determine whether increased imports have caused serious injury, all of which must be examined by the government imposing a measure.

Moreover, a causal link needs to be made between increased imports and serious injury or threat thereof. Imports do not have to be the sole or even the major source of injury, but they have to be a factor – injury caused by other factors may not be attributed to trade. Protection is limited to what is necessary to prevent or remedy serious injury and must apply against all imports (i.e. must be non-discriminatory).

If a quantitative restriction is used, it may not reduce imports below the average level of the last three representative years, unless a lower lev-el is necessary to prevent or remedy serious injury. While in principle safeguard actions must be non-discriminatory, quantitative restrictions may be allocated on a selective basis if the Committee on Safeguards ac-cepts that imports from certain members have increased disproportionate-ly and the measures imposed are equitable to all suppliers of the product.

Such “quota modulation” may be maintained for four years at the most.

Safeguard actions that respond to absolute increases in imports do not require compensation of affected exporting countries for the first three years. In principle, the level of protection should decline over time, with actions not lasting more than four years. A safeguard may be applied for a maximum total of eight years. If an action is extended beyond four years, a necessary condition is that the industry demonstrates that it is making appropriate adjustments. Notwithstanding the many procedural require-ments, if governments so wish they can put in place provisional safe-guards virtually immediately – in “critical circumstances” WTO members may impose safeguards immediately on a provisional basis (Article 6 of the Agreement on Safeguards).