Anti-dumping and Subsidy
Issues in Agricultural Trade
Presentation by G. Tereposky
Thomas & Partners
CATPRN Workshop
6 March 2005
Overview of Presentation
1.
2.
3.
4.
5.
6.
Introduction
What is “dumping”?
What is “anti-dumping”?
What is a “subsidy”?
What is the difference between between
subsidy disciplines and “countervailing
measures”?
Are anti-dumping and subsidy issues best
addressed at the regional trade agreement
level or the multilateral level?
Overview of Presentation
6.
7.
8.
Example of anti-dumping issues that are
relevant to the agricultural sector
Example of subsidy issues that are relevant
to the agricultural sector
Negotiating dynamics - What makes
economic sense is not always negotiable
Introduction
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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
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Anti-dumping Agreement (WTO)
Agreement on Subsidies and Countervailing
Measures (WTO)
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Agreement on Agriculture (WTO)
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GATT 1994 (WTO)
Introduction
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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”?
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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”?
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“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”?
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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”?
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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”?
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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”?
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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”?
„
a)
b)
Article 9 - Export Subsidies subject to
reduction commitments
the provision by governments or their
agencies of direct subsidies, including
payments-in-kind
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)
f)
internal transport and freight charges on
export shipments, provided or mandated by
governments, on terms more favourable
than for domestic shipments
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”?
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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”?
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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”?
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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”?
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„
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?
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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
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“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:
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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
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extended period of time should normally be
one year but shall in no case be less than six
months
made in substantial quantities when:
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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
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“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:
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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 -
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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
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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
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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
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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)
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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
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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
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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)
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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
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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)
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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
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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
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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