Unfair Trade Practices - Essay Example

Introduction to Unfair Trade Practices Unfair trade could encompass the domains of cartel agreements, price fixing, abusing dominant market positions. Overall, the unfair trade practices tend to cover monopolistic, duopolistic and similar practices. However at the moment WTO does not prescribe detailed laws to deal with the situation and instead it provides rules to curtail dumping and specific forms of subsidisation that would provide unfair leverage to one party. 2. Defining Dumping The liberalisation of international trade agreements has meant that products can now move from one territory to the other with little resistance such as trade barriers or special customs and excise duties. This free movement of goods from one nation to the other has meant that local industries have begun to feel the crunch of overwhelming competition. Within the confines of the one nation’s borders products are valued at similar levels known as the normal value of the product. However, foreign goods may be cheaper and offer greater utility to the consumers. When goods move from one nation to another such that the receiving nation’s products normal value is higher than that of foreign received goods value, the resulting market situation is known as dumping1. 2.1. WTO Stance on Dumping WTO deals with dumping based issues but does not elucidate strict and formal rules and laws that may be enforceable. Instead, the boundaries for dumping and anti-dumping cases are based on peculiar circumstances of each case. Specific WTO laws do not prohibit dumping per se but do provide guidelines to deal with dumping based practices. The regulatory regime of the WTO promotes the idea that dumping should be condemned if it is deemed harmful to the domestic industry of the importing nation. As per Article VI of the GATT 1994 and as per Article 2.1 of the Anti-Dumping Agreement the phenomenon of dumping has been defined as the “introduction of a product into the commerce of another country at less than its ‘normal value’”. 2.2. WTO Dumping Treatment The WTO regime is based on the mutual consent of individual members that are nation states as well as large business entities. However, for most given circumstances the WTO regime places emphasis on nation states representing the problems of businesses registered within their domains. The WTO regime is not answerable for or accountable for the actions of individual businesses no matter where they operate. However, it must be kept in mind that pricing mechanisms are generally settled by individual businesses and not nation states so there is little option available to nation states to control the prices of foreign goods. This line of argumentation mandates that the WTO regime cannot prohibit dumping. The only real method to deal with the prices of imported goods are imposing large duties in order to make these goods uncompetitive but these actions are seen as enacting trade barriers that are opposed to the WTO regime. Therefore, it is not possible for individual nation states to increase duties without going against the basic WTO regime. Even so, it is undeniable that dumping is harmful to domestic industry so there needs to be a procedure to deal with dumping within the domain of the WTO umbrella. Article VI of the GATT 1994 clearly states that it is possible for member states to condemn dumping especially “if it causes or threatens material injury to an established industry in the territory of a [Member] or materially retards the establishment of a domestic industry.” In order to deal with dumping issues the Anti-Dumping Agreement and Article VI of the GATT 1994 provide a complete framework and procedural rules. Member states of the WTO regime are allowed to impose anti-dumping measures though they are not expected to do this on their own initiative. Instead of possessing an internalised or domestic anti-dumping framework, member states are expected to agree to Article 1 of the Anti-Dumping Agreement that requires any anti-dumping measure to be approved under Article VI of the GATT 1994. Any legislation or regulatory measures to deal with anti-dumping must be governed by the said section of the GATT 1994. Based on these agreements, members of the WTO regime are encouraged to impose anti-dumping measures after an investigation is carried out to determine if dumping actually exists and what its scale and damage to domestic industry are. Typically, three conditions must be satisfied for a determination of anti-dumping measures: dumping exists in the specified market; existing domestic industry in the importing country producing similar products is suffering injury; there is a causal link between dumping and the injury suffered. 2.3. Recourse for Injurious Dumping The permissible responses to injurious dumping under Article VI in general and Article VI:2 in particular along with the Anti-Dumping Agreement include the following measures only: definitive anti-dumping duties; provisional measures; price undertakings2. In addition, Article 18.1 of the Anti-Dumping Agreement states that any anti-dumping measures that are taken must be compliant with the provisions of GATT 1994. However, all of these measures require that dumping is proven first. 2.4. Establishing Dumping Dumping has been defined as the “introduction of a product into the commerce of another country at less than its ‘normal value’” as per Article VI:1 of the GATT 1994 and Article 2.1 of the Anti-Dumping Agreement. This indicates that dumping would exist in any situation where the product’s normal value is greater than its export price. In order to decide if a certain product is being dumped, there is need to decide the normal value of a product as well as its export price. The normal value and export value are generally determined on a price-to-price comparison but the Anti-Dumping Agreement provides for circumstances where such comparison may not be possible due to alternative payment methods. Furthermore, it must be kept in mind that only dumping causing injury to domestic industry is considered for anti-dumping measures. Another aspect is that the intent behind dumping is not considered at all in determining if something is being dumped. 2.4.1. Normal Value As per Article 2.1 of the Anti-Dumping Agreement the normal value of a product is the price of a comparable product in the producing or exporting market. Four conditions must be satisfied in order to determine the normal value: the sale must be ‘in the ordinary course of trade’; the sale must be of a comparable or ‘like product’; the product must be ‘destined for consumption in the exporting country’; the price must be ‘comparable’3. The first condition is mandatory for determining the normal price and if the price falls below the cost of production then other means of investigating normal value must be used. In addition if the sales are carried out to affiliated parties, at very high or low values or below cost then normal value calculations must be revised. The second condition requires that comparable products are identified in the importing markets based on identical or closely related products. Article 2.7 of the Anti-Dumping Agreement and paragraph 1 of Article VI of the GATT 1994 state that alternative means may also be used to calculate the normal value if required. In these cases it is desirable to use price levels of a comparable product from a third country or to construct the normal value from scratch. 2.4.2. Export Value The export value of a product is generally based on the transaction price at which the producer is selling the product to the importer. The Anti-Dumping Agreement provides that the export value may not always be defined in this manner for example if the transaction is based on internal transfers or barters. The involvement of a third party in the transaction may also complicate the assessment of export value. Article 2.3 of the Anti-Dumping Agreement provides alternative arrangements to calculate the export price that are: using the price at which the product was first sold by the exporter; experts may use any other suitable means to determine export value. 2.4.3. Comparing the Normal and Export Value Article 2.4 of the Anti-Dumping Agreement provides for comparing the normal value and the export value at the same levels of trade which are generally taken at the ex-factory levels. These are combined with the sales at the same time as deemed applicable. When these values are being tabulated due compensation is carried out for sale, taxation, levels of trade, quantities, physical characteristics as well as any other characteristics that may be able to vary both value levels. 2.4.4. Margin of Dumping Calculation The difference between the export value and the normal value is seen as the margin of dumping. Article 2.4.2 of the Anti-Dumping Agreement requires that the margin of dumping be calculated by: comparing the weighted average normal value against the weighted average prices of all comparable export transactions; performing a transaction to transaction comparison of normal and export values. The first form of calculation may only be carried out if targeted dumping is detected where the export patterns are significantly different between various purchasers, regions and time periods. Experts may provide explanations why certain factors may be implemented or may not be implemented to calculate the margin of dumping. Care must be taken to ensure that zeroing is not allowed during such calculations4. 3. Implications for Current Case Within the current scenario, the products being exported from Newland will be evaluated for dumping that is injurious in the markets of Richland. An investigation will be conducted by the WTO team in this regard to establish the nature of injury to the domestic industry in Richland after which the normal and export value of all furniture items will be tabulated individually. Once these values are compiled, the margin of dumping will be calculated that will provide Richland the direction to set anti-dumping measures. The furniture being imported from Newland will be assessed for value and comparable characteristics after which the acceptable and non-acceptable items will be segregated. This will provide Richland with the right to enforce anti-dumping measures as per Article VI of the GATT of 1994 and the Anti-Dumping Agreement. 4. Anti-Dumping Measures Three measures of control are possible for anti-dumping measures that are provisional measures, price undertakings and definitive anti-dumping duties. 4.1. Provisional Anti-Dumping Measures Under Article 7 of the Anti-Dumping Agreement provisional measures may be imposed if a preliminary affirmative determination of dumping, injury and causation is carried out. This imposition must be such that it can prevent injury but imposition is not possible before sixty days of the investigation’s start. However, such measures should be as short as possible ranging between four and six months as per Article 7.4 of Anti-Dumping Agreement. 4.2. Price Undertakings Using the same investigation procedure as above, it is possible to provide dumping compensation through price undertakings such as price revisions and ceasing exports. However, this is purely a voluntary measure on the part of the exporters and the investigation authorities. 4.3. Definitive Anti-Dumping Duties Article 9 of the Anti-Dumping Agreement allows the collection of anti-dumping duties after an investigation has confirmed injurious dumping. This stipulation still makes levying duties optional to the state and implies that it is preferable to use the ‘lesser duty rule’ to impose as low a duty as possible. However, these principles are not enforceable and the respective law allows the bereaved state to levy duties to offset the margin of dumping as required. Overall, the anti-dumping duty cannot exceed the margin of dumping under Article 9.3 and Articles 9.3.1 and 9.3.2 provide for ensuring that excessive duties are not collected. Under Article 9.4 individual margins of dumping are countered too. Furthermore, retroactive action is prohibited under Article 10 but is allowed under Article 6.10 if the importer was aware of the injurious consequences of such imports or if the imports were dumped in a short period. 4.4. Application Time of Duties Anti-dumping duties are installed in place until the margin of dumping is not somehow reversed as per Article 11.15. However, a periodic review of anti-dumping duties is carried out under Article 11.2 in order to ascertain the applicability of anti-dumping duties. Article 11.3 also mandates that any imposed anti-dumping duties must be removed no later than five years from their date of application unless reviewed and agreed to by competent authority. 5. Countervailing Measures and Subsidies Article VI and XVI of the GATT 1994 as well as Articles 3 to 9 of the SCM Agreement define subsidy for the WTO regime. Any support provided by the government that might cause injurious harm whether intended or unintended is classified as a subsidy. Affected members may choose to impose countervailing duties in order to counter subsidies by other members. However, this like other facets of the WTO regime need to be investigated well and established before implementation6. 6. Implications for Current Case Based on the arguments presented above it is obvious that the subsidies provided by Newland present a stark picture, as they are injurious to the domestic furniture industry in Richland. The case of margins of dumping investigation are injurious in nature too so Newland will have to deal with any implications delivered by Richland that are within the scope of WTO regime regulations. 7. References Appellate Body Report, EC – Bed Linen, para. 47. Appellate Body Report, US – 1916 Act, para. 137. Panel Report, US – DRAMS, para. 6.42. Panel Report, US – Export Restraints, para. 8.44. Appellate Body Report, US – Hot-Rolled Steel, para. 165. Van den Bossche, Peter (2005). The Law and Policy of the World Trade Organization. Cambridge, UK: Cambridge University Press. Read More