Ambassador Guillermo Valles Galmés of Uruguay, Chair of the World Trade Organization (WTO) Negotiating Group on Rules, recently circulated a draft text of proposed revisions to the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement) and the Agreement on Subsidies and Countervailing Measures (SCM Agreement).

The proposed revisions stem from the agreement among WTO members at the 2001 Conference in Doha, Qatar to clarify and improve the Anti-Dumping Agreement and the SCM Agreement, and to consider the issue of fisheries subsidies. Since then, discussions have stalled, so the proposed revisions are intended to push negotiations to the next "text-based" phase and to facilitate broader discussions among the entire WTO membership.

The proposed revisions address a range of issues, from disclosure to anti-circumvention measures and WTO oversight of its members. One of the more contentious issues is the U.S. practice of using "zeroing" in its calculation of antidumping duties, which the proposed revisions would generally continue. The proposed changes, and some of their implications, are reviewed below.

Anti-Dumping Agreement

The Anti-Dumping Agreement governs both the procedure of investigations, including the provision of notice and the collection and disclosure of evidence, and the substantive basis upon which the final determinations are made. Procedurally, the proposed revisions provide for more and more meaningful information disclosure during investigations.

For example, the proposed text provides that public notices issued after an investigating authority has determined there is sufficient evidence to justify the initiation of an antidumping investigation will be required to include:

The names of the known exporters and foreign producers of the subject goods

The domestic like goods

The producer of the domestic like goods supporting the application

Next steps to be taken in the investigation process

The procedural timelines of the investigation

The periods of data collection.

Additionally, public notices issued after the imposition of provisional measures would be required to explain the analysis underlying the preliminary determinations on dumping and injury, including the manner in which the margins of dumping have been established. These changes, if adopted, would improve interested parties’ understanding of the investigation being conducted, the case they have to meet, and the nature of the determinations made.

Further, the proposed revisions would make it mandatory for investigating authorities to inform exporting firms of the authority’s intention to conduct an on-the-spot investigation, and to provide sufficient notice of the visit. At present, such notice is not mandatory.

Changes are also proposed to the provisions concerning duty enforcement. The draft rules enable members to take new steps against the circumvention of antidumping duties. The draft text would allow an investigative authority to apply an existing antidumping duty to another product from the country subject to the duty if it is determined the importation of the product takes place in circumstances that constitute circumvention of the duty. Further, the application of the antidumping duty can be extended to "parts" or "unfinished forms" of the imported product if, amongst other things, they constitute at least 60% of the total value of the import to which the antidumping duty applies. If circumvention is found to exist, the new rules also permit the duty to be applied retroactively to the date the circumvention review was initiated. Some commentators have suggested that these proposed rules are unsatisfactory, because they would make it more difficult to prove circumvention than is currently required by some national laws.

The proposed revisions would significantly enhance the WTO’s oversight over compliance by its members under the Anti-Dumping Agreement. The proposed rules provide for "periodic reviews" of members’ antidumping policies and practices. While the reviews are not intended to serve as the basis of duty enforcement, the practical effect of a negative review might well lead to adverse trade consequences for a member and its domestic businesses.

Proposal To Permit Zeroing

The most controversial aspect of the proposed antidumping rules is the allowance, in most circumstances, of the use of "zeroing" methodology to determine the margin of dumping. The U.S. is the primary user of zeroing and its use has drawn fierce criticism from WTO members. Zeroing is often criticized for creating an inflated dumping margin because it ignores the instances where a product’s export price is actually higher than its domestic price.

There are two main zeroing formulas: (a) "model" zeroing is an average to average comparison of export price and normal value; and (b) "simple" zeroing determines a weighted average margin based upon transaction to transaction comparisons of export and home prices.

The most contentious aspect of the draft text in respect of the zeroing issue is that it would permit simple zeroing in original investigations, in direct contrast to recent WTO rulings, and allow the use of both model and simple zeroing in all subsequent reviews. If adopted, these provisions would essentially reverse an early 2006 WTO Appellate Body ruling that declared the use of zeroing is itself a violation of the Anti-Dumping Agreement.

Although the draft text would ban model zeroing in original investigations, members have pointed out that such a restriction would only be cosmetic as the U.S. has already abandoned the use of model zeroing at this stage and, therefore, it does not represent any real U.S. compromise.

The International Response

In response to the publication of the draft text, a joint statement from Brazil, China, India and Japan, supported by the European Union (EU) and Canada, warns that if the WTO does not prohibit the use of zeroing, the current achievements realized in respect of trade liberalization may be nullified.

U.S. lawmakers and commentators, on the other hand, have criticized the draft text on the basis that initial and continued antidumping enforcement will become more difficult. For example, the draft text incorporates a Canadian proposal requiring that initial investigation authorities take into consideration the views of domestic interested parties that might be affected by the imposition of an antidumping duty, such as the industrial users of the imported product and consumer organizations. In Canada, many of these interests, particularly consumer groups, have not had any official influence on the investigation process to date. Arguably another burden in respect of antidumping enforcement is that the draft text would absolutely terminate all antidumping duties, without the possibility of further extension, after 10 years. The original life span of antidumping duties would be five years, subject to extensions up to the 10-year limit. Canada already has in place a five-year antidumping duty termination system, but duties can be extended indefinitely if warranted.

Subsidies and Countervailing Measures Agreement

While the draft text does contain some changes in relation to subsidies, Ambassador Valles Galmés stated that he has not proposed significant revisions to the SCM Agreement because WTO members should focus on antidumping negotiations for the time being. However, he indicated that there is broad acceptance among WTO members that changes to the Anti-Dumping Agreement should be mirrored in the SCM Agreement.

Despite Ambassador Valles Galmés’ comments, the draft text does contain a few notable changes to the SCM Agreement. For example, the draft text would clarify, along the lines of a recent Appellate Body decision, that the "benefit" component of the "subsidy" definition means a benefit to the recipient in relation to what is commercially available in the marketplace. Additionally, as a response to concerns expressed by EU members in respect of the "dual-pricing" of natural gas by Russia, the draft text proposes the introduction of provisions specifically tailored to govern regulated pricing practices.

Fisheries Subsidies

Although there are no significant revisions to the existing SCM Agreement, Ambassador Valles Galmés has proposed new rules in respect of fisheries subsidies, as a proposed annex to the SCM Agreement. The stated objective of the proposed fisheries rules is to conserve global fisheries resources and to encourage fisheries management. The prospect of operating under a new WTO fisheries subsidies regime is of potentially great significance to governments and industry in Canada and globally.

The proposed rules place fisheries subsidies, with exceptions, within the category of prohibited subsidies under the SCM Agreement. Subsidies related to the acquisition, construction or repair of fishing vessels is prohibited under the draft text, as are subsides in respect of port infrastructure and income support for fishing workers.

Not all subsidies related to fisheries would be prohibited. Exceptions include subsidies aimed at reducing fishing-related environmental impact, increasing conservation and sustainable use, and the re-education, retraining or redeployment of workers. The proposed rules are silent in respect of aboriginal participation in fisheries, which may be significant to Canada and other countries.

Finally, under the proposed rules, member states would be treated differently according to their stage of development. Least developed countries would not be subject to the fisheries subsidies prohibitions, while developing countries may be exempt in limited circumstances.Given that there are currently no provisions relating to fisheries subsidies, it may take considerable time and effort to develop consensus among WTO members on this issue.

Conclusion

The proposed changes to the Anti-Dumping and SCM Agreements are too far from achieving consensus among WTO members to be considered individually significant. However, the themes inherent in the proposed revisions are consistent:

Investigating authorities would be pushed to provide greater disclosure of information, analysis and timelines

More parties would be empowered to participate in the process

Anti-circumvention measures would become more globally consistent

Periodic reviews by the WTO of its members’ compliance with the Agreements would Enhance peer pressure to conform with the requirements of the Agreements

Increase the likelihood of complaints over publicized examples of non-compliance. Put Most broadly, the proposed rules raise the bar on international trade regulation, and will Likely lead to considerable further discussions amongst WTO members.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Specific Questions relating to this article should be addressed directly to the author.

By Cliff Sosnow, Roy Millen and Christopher Jackson © 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin Blakes Bulletin on International Trade - February 2008.

11 February 2008

Source: www.mondaq.com