Anti-dumping and Subsidy Issues in Agricultural Trade Presentation by G. Tereposky Thomas & Partners CATPRN Workshop 6 March 2005
Overview of Presentation 1. Introduction 2. What is dumping? 3. What is anti-dumping? 4. What is a subsidy? 5. What is the difference between between subsidy disciplines and countervailing measures? 6. Are anti-dumping and subsidy issues best addressed at the regional trade agreement level or the multilateral level?
Overview of Presentation 6. Example of anti-dumping issues that are relevant to the agricultural sector 7. Example of subsidy issues that are relevant to the agricultural sector 8. Negotiating dynamics - What makes economic sense is not always negotiable
Introduction Anti-dumping and subsidy issues are important to countries such as Canada which have a small domestic market and are exportoriented The issues are complex Established regimes are in place to address these issues - future developments will primarily involve fine-tuning these regimes:
Introduction Anti-dumping Agreement (WTO) Agreement on Subsidies and Countervailing Measures (WTO) Agreement on Agriculture (WTO) GATT 1994 (WTO)
Introduction There is a lot that could be fine tuned see WTO doc TN/RL/W/143, 22 Aug 03 (160 pages of dumping and subsidy issues being discussed in the WTO) My objective today is to give you an overview of the regimes and a few examples of issues that arise in the agriculture sector
What is Dumping? At its simplest level, dumping is price discrimination between domestic and export markets If prices of goods sold in export markets ( export price ) are lower than comparable prices in the domestic market of the exporter ( normal value ), dumping exists Detailed rules on how to determine dumping are set out in Article 2 of the Anti-dumping Agreement
What is anti-dumping? Anti-dumping refers to measures taken by an importing country to counteract dumping generally duties to offset the margin of dumping Under existing international rules, antidumping measures can be applied only in specific circumstances which include the existence of material injury to a domestic industry that is caused by dumped imports
What is anti-dumping? Anti-dumping issues and potential subject matter for negotiation arise throughout the anti-dumping process
What is anti-dumping? Stage #1 Initiation Stage #2 Preliminary Determinations of Dumping and Injury Stage #3 Final Determination of Dumping Stage #4 Final Determination of Injury Stage #5 Duty administration
What is anti-dumping? From an economic research perspective, likely focal points are the meaning and determination of: dumping causation injury I will provide some examples later in my presentation
What is a subsidy? A measure that is a subsidy in economic terms is not necessarily a subsidy in legal terms Defined in the Agreement on Subsidies and Countervailing Measures and in the Agreement on Agriculture In the case of agricultural subsidies, the starting point is always the Agreement on Agriculture
What is a subsidy? Domestic support = support provided for an agricultural product in favour of the producers of the basic agricultural product or non-product-specific support provided in favour of agricultural producers in general, other than support provided under programmes that qualify as exempt from reduction under Annex 2
What is a subsidy? Annex 2 green box subsidies - no, or at most minimal, trade-distorting effects or effects on production Export subsidies - subsidies contingent upon export performance, including the export subsidies listed in Article 9 of the Agreement
What is a subsidy? Article 9 - Export Subsidies subject to reduction commitments a) the provision by governments or their agencies of direct subsidies, including payments-in-kind b) the sale or disposal for export by governments or their agencies of noncommercial stocks of agricultural products at a price lower than the comparable price charged for the like product to buyers in the domestic market
What is a subsidy? c) payments on the export of an agricultural product that are financed by virtue of governmental action, whether or not a charge on the public account is involved, including payments that are financed from the proceeds of a levy imposed on the agricultural product concerned or on an agricultural product from which the exported product is derived
What is a subsidy? d) the provision of subsidies to reduce the costs of marketing exports of agricultural products (other than widely available export promotion and advisory services) including handling, upgrading and other processing costs, and the costs of international transport and freight
What is a subsidy? e) internal transport and freight charges on export shipments, provided or mandated by governments, on terms more favourable than for domestic shipments f) subsidies on agricultural products contingent on their incorporation in exported products
What is a subsidy? Agreement on Subsidies and Countervailing Measures Article 1 (definition of a subsidy)
What is a subsidy? For the purpose of this Agreement, a subsidy shall be deemed to exist if: (a)(1) there is a financial contribution by a government or any public body within the territory of a Member (referred to in this Agreement as "government"), i.e. where: (i) a government practice involves a direct transfer of funds (e.g. grants, loans, and equity infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees); (ii) government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits);
What is a subsidy? (iii) a government provides goods or services other than general infrastructure, or purchases goods; (iv) a government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments; or (a)(2) there is any form of income or price support in the sense of Article XVI of GATT 1994;
What is a subsidy? and (b) a benefit is thereby conferred
What is the difference between between subsidy disciplines and countervailing measures? Subsidy disciplines are obligations under international trade agreements that prohibit or limit subsidies Agreement on Agriculture Domestic support and export subsidy reduction commitments SCM Agreement Prohibited subsidy and serious prejudice provisions
What is the difference between between subsidy disciplines and countervailing measures? Countervailing measures are taken by importing countries and usually involve a duty (i.e., countervailing duty) that is applied against subsidized imports to offset subsidization Countervailing measures can be imposed only in certain circumstances include the existence of material injury to a domestic industry that is caused by dumped imports
What is the difference between between subsidy disciplines and countervailing measures? Like anti-dumping measures, countervailing measures involve a staged procedure: Stage #1 Initiation Stage #2 Preliminary Determinations of Subsidy and Injury Stage #3 Final Determination of Subsidy Stage #4 Final Determination of Injury Stage #5 Duty administration
What is the difference between between subsidy disciplines and countervailing measures? From an economic research perspective, likely focal points are: meaning of subsidy new or refined subsidy disciplines causation injury I will provide some examples later in my presentation
Are anti-dumping and subsidy issues best addressed at the regional trade agreement level or the multilateral level? Certain anti-dumping and subsidy issues have been addressed in a limited manner at the regional level NAFTA Chapter 19 binational panel review
Are anti-dumping and subsidy issues best addressed at the regional trade agreement level or the multilateral level? Canada Chile FTA: Reciprocal Exemption from the Application of Antidumping Subject to Article M-03, as of the date of entry into force of this Agreement each Party agrees not to apply its domestic antidumping law to goods of the other Party. Specifically: a) neither Party shall initiate any anti-dumping investigations or reviews with respect to goods of the other Party;
Are anti-dumping and subsidy issues best addressed at the regional trade agreement level or the multilateral level? b) each Party shall terminate any ongoing anti-dumping investigations or inquiries in respect of such goods; c) neither Party shall impose new anti-dumping duties or other measures in respect of such goods; and d) each Party shall revoke all existing orders levying antidumping duties in respect of such goods.
Are anti-dumping and subsidy issues best addressed at the regional trade agreement level or the multilateral level? Article M-03: Phase-in Provisions Article M-01 applies to all goods of the other Party as of: (a) the date on which the tariff of both Parties is eliminated at the subheading level; or (b) January 1, 2003, whichever comes first.
Are anti-dumping and subsidy issues best addressed at the regional trade agreement level or the multilateral level? The detailed rules governing anti-dumping and subsidies are established at the multilateral level, namely the WTO
Examples of anti-dumping issues that are relevant to the agricultural sector Below cost domestic sales such sales are not in the ordinary course of trade and in certain circumstances can be disregarded Effect is to increase average selling price, therefore normal value, and therefore margin of dumping during period of investigation
Examples of anti-dumping issues that are relevant to the agricultural sector Anti-dumping Agreement, Art. 2.2.1: May be disregarded in determining normal if sales are made within an extended period of time in substantial quantities and are at prices which do not provide for the recovery of all costs within a reasonable period of time
Examples of anti-dumping issues that are relevant to the agricultural sector extended period of time should normally be one year but shall in no case be less than six months made in substantial quantities when: weighted average selling price of the transactions under consideration is below the weighted average per unit costs, or volume of sales below per unit costs represents not less than 20 per cent of the volume sold in transactions under consideration
Examples of anti-dumping issues that are relevant to the agricultural sector Reasonable period is not defined
Examples of anti-dumping issues that are relevant to the agricultural sector Do these thresholds make sense in the agricultural context: Where producers are typically "price takers" and who usually have fixed costs that cannot be easily reduced over the short term when there is a decline in selling prices? Where prices are cyclical? Where prices are often set regionally or globally?
Examples of anti-dumping issues that are relevant to the agricultural sector De minimis threshold ADA, Article 5.8 - There shall be immediate termination in cases where the authorities determine that the margin of dumping is de minimis (less than 2 per cent), expressed as a percentage of the export price. Does a 2% de minimis threshold make sense in the agricultural context?
Examples of subsidy issues that are relevant to the agricultural sector In the agricultural area, subsidy issues arises primarily in the context of subsidy disciplines under the Agreement on Agriculture Amber box domestic support is subject to reduction commitments - levels in excess of commitments are prohibited Blue box for subsidies that are tied to programs that limit production no disciplines on these subsidies
Examples of subsidy issues that are relevant to the agricultural sector Green box subsidies Annex 2 of the Agreement on Agriculture- must not distort trade, or at most cause minimal distortion (paragraph 1) must be government-funded (not by charging consumers higher prices) - must not involve price support
Examples of subsidy issues that are relevant to the agricultural sector Ongoing discussions on criteria for boxes and applicable disciplines
Examples of subsidy issues that are relevant to the agricultural sector Canada Dairy (WTO Appellate Body Round #1) Involved the provision of milk at discounted prices to Canadian processors to facilitate exports of their products. Challenged under Article 9.1(c) of the Agreement on Agriculture. Word "payments" in Article 9.1(c), denotes a transfer of economic resources. "Payments" could be made in a form, other than money, that confers value, such as by way of goods or services. A "payment" which does not take the form of money is commonly referred to as a "payment in kind".
Examples of subsidy issues that are relevant to the agricultural sector The provision of milk at discounted prices to processors for export under Special Classes 5(d) and 5(e) constitutes "payments", in a form other than money, within the meaning of Article 9.1(c). "Financed by virtue of governmental action" - appropriate to look to the "governmental" involvement as whole and not just to the role of the provincial milk marketing boards. The functioning of the system depends on a complex regulatory web involving the CDC and the CMSMC, acting together with the provincial milk marketing boards. It is, therefore, the "action" of all these bodies together which must be examined.
Examples of subsidy issues that are relevant to the agricultural sector In the regulatory framework, "government agencies" stand so completely between the producers of the milk and the processors or the exporters that we have no doubt that the transfer of resources takes place "by virtue of governmental action".
Examples of subsidy issues that are relevant to the agricultural sector Canada Dairy (WTO Appellate Body Round #2) Canada eliminated the special discounted prices for processors and replaced them with Commericial Export Milk (CEM) -- Canadian producers can sell any quantity of CEM to Canadian processors for export processing on terms and conditions freely negotiated between the producer and the processor. Also found to be an export subsidy under Article 9.1(c).
Examples of subsidy issues that are relevant to the agricultural sector Key to the finding was the determination of the appropriate standard for assessing whether sales of CEM by producers involve "payments" under Article 9.1(c). Where the alleged payment is made by an independent economic operator and where the domestic price is administered, we believe that the average total cost of production represents the appropriate standard for determining whether sales of CEM involve payments."
Examples of subsidy issues that are relevant to the agricultural sector EC Sugar (WTO Panel Under appeal) Involved exports of C sugar under the EU sugar program. C sugar is surplus sugar that does not benefit from direct export subsidy payments. It cannot be sold in the EU market and must either be stored or exported. Most C sugar is exported.
Examples of subsidy issues that are relevant to the agricultural sector Panel finding: The cross-subsidization taking place through the cumulative effect of various measures involved in the operation of the EC sugar regime, including high prices charged to domestic consumers, enables C sugar producers to produce and sell C sugar. In the Panel's view, there is a payment in the form of transfers of financial resources from the high revenues resulting from sales of A and B sugar, for the export production of C sugar, within the meaning of Article 9.1(c) of the Agreement on Agriculture.
Negotiating dynamics - What makes economic sense is not always negotiable Entrenched regimes and interests make it difficult to negotiate changes, even if they make sense from an economic perspective Domestic governments respond to domestic pressure Countries have varying levels of leverage in trade negotiations on agriculture issues the US and EU essentially control the agenda