Cautious New Rules Text Reflects Persistent Divisions

31 December 2008

On 19 December, the chair of the Negotiating Group on Rules released a long-awaited revision of his first draft on changes to WTO disciplines on anti-dumping and non-agricultural subsidies. On all contentious points, the new text discards previously proposed amendments to existing provisions.

The rules negotiations have been characterised from the start by a stark divide in Members' objectives. The US, often supported by Egypt, has focused on the need for stronger provisions to ensure that countries do not circumvent anti-dumping measures, while most other Members active in the negotiations have concentrated on amendments that would impose new limits to the frequency and duration of anti-dumping investigations and duties.

Similar fault lines exist on changes to subsidy and countervailing disciplines between major exporters and importers, including new provisions aimed at eliminating/limiting subsidies that contribute to fleet overcapacity and overfishing.

The first rules draft (TN/RL/W/213), released by Ambassador Guillermo Valles Galmés in November 2007, gave rise to serious criticism from many WTO Members, who maintained that it did not accurately reflect views expressed in the negotiations. In particular, the majority of the membership objected to proposed text that would have allowed the use of ‘zeroing' in calculating dumping margins. Divisions were also clear on a number of other trade remedy provisions and the provisions proposed by the chair for disciplining fisheries subsidies (Bridges Year 11 No.1 page 7).

The second paper (TN/RL/W/236) takes a much more cautious tack. In his introduction, chair Valles noted that he had received a ‘clear message' from delegations that new texts should reflect a new, bottom-up approach. Ambassador Valles acknowledged that he lacked an ‘adequate basis' to propose a new balance, and had therefore provided draft legal language "only in those areas where some degree of convergence appears to exist." He added that "not only are there large gaps where on issues of great importance to delegations no solutions are proposed;  but few, if any, of the textual proposals that can be found in these new texts can be considered to attract consensus support."

On fisheries subsidies, the chair did not even try to present an amended version of the November text's Annex VIII, opting instead for a ‘roadmap' of questions that should guide further discussions.

Zeroing

A product is considered to be dumped if it is exported at less than the average price charged for a similar product in the exporting company's home market.  Zeroing occurs when anti-dumping investigators only take into account in their calculations those instances where the home market price is lower than the export market price, but assign the value of zero to cases where the home market price is higher. The method thus inflates the amount of dumping found. The United States is the main WTO Member still using this controversial method in some of its anti-dumping investigations (see related article on page 11).

As it currently stands, the Anti-dumping Agreement (ADA) does not forbid zeroing as such. A myriad of dispute settlement rulings have, however, condemned the method's use in specific instances. These findings have been hotly contested by the US, which has made the explicit acceptance of zeroing in the ADA text one of its key priorities in the rules negotiations. On the other side of the divide, a large number of both developed and developing countries want all forms of zeroing clearly outlawed.

Faced with an impasse, the chair removed from his second draft the provision that would have allowed the use of zeroing in sunset and administrative reviews, as well as original investigations under certain conditions. While the anti-zeroing camp drew some comfort from the deletion, many regretted that the chair had reverted to the original ADA language instead of reflecting their demand for an explicit prohibition of zeroing.

The Office of the US Trade Representative expressed ‘deep disappointment' that the chair had "eliminated the limited language on zeroing contained in the November 2007 text. As we have said repeatedly, the United States cannot envision an outcome in the rules negotiations that fails to adequately address this critical issue." David Hartquist, executive director of the Committee to Support US Trade Laws, said the new paper showed "how far removed the negotiations are from anything acceptable to Congress or to those who must rely on US trade remedy laws."

Other Trade Remedy Concerns

The chair also refrained from suggesting new provisions on other controversial issues. Among these was the automatic termination of anti-dumping measures after a given period of time. The chair explained within brackets that there was ‘sharp disagreement' on this issue, ranging from delegations that favour automatic termination after five years without any possibility of extension and those that reject the principle of automatic termination altogether.

Similarly, the paper made no attempt to propose compromise language on whether anti-dumping authorities should take into account the views of domestic interested parties - such as importers and retailers - who would be affected by the imposition of an anti-dumping duty (favoured by many countries frequently targeted by anti-dumping investigations but opposed by the US), or the inclusion of stronger anti-circumvention disciplines (one of the main US priorities with strong opposition from China and Hong Kong in particular).

On the latter issue, the chair noted that Members continued to disagree on whether specific rules on anti-circumvention were necessary in the first place and, if so, "whether numerical thresholds are desirable, whether findings of dumping, injury and causation should be required and whether anti-circumvention measures should be company-specific or country-wide."

In addition, the chair noted that further discussions were necessary on developing country proposals on enhancing special and differential treatment, including technical assistance to help them implement anti-dumping and subsidy disciplines .

Subsidy Issues

One of the major points of contention with the regard to the Agreement on Subsidies and Countervailing Measures (SCM Agreement) concerns the establishment of a benchmark to determine the benefit accruing to loss-making, non-creditworthy state-owned enterprises through government loans and guarantees. China firmly opposes such a provision, while the US is among its warmest backers. The revised text only notes within brackets that while the proponents would like to "clarify the agreement's treatment of an important form of trade-distortive financing, some delegations are concerned over how the key concepts could be defined, and others are categorically opposed, including because they see such a provision as discriminating against state-owned enterprises."

No changes are proposed to the SCM Agreement's Article 27.6 on when a developing country is deemed to have reached export competitiveness in a given product and must therefore phase out any export subsidies granted to the product. Views continue to differ on this issue, including on whether and/or under what circumstances a developing country could be allowed to reintroduce export subsidies for products that have lost their competitiveness.

Consensus is also lacking on a whether the benchmark for determining the value of a subsidy granted by government agencies through export credits, export credit guarantees and export insurance programmes should be changed from cost-to-government to benefit-to-recipient. In its submission to the retaliation arbitrator in the cotton dispute, the US has strongly argued that cost-to-government is (and should remain) the only correct standard to use (see page 13), but the chair noted that "those favouring such changes [presumably including Brazil, ed.] consider that the current provisions work to the disadvantage of developing Members and are inconsistent with the agreement's general definition of ‘subsidy'."

Fisheries Disciplines

The Hong Kong ministerial declaration called on the Negotiating Group on Rules to "strengthen disciplines on subsidies in the fisheries sector, including through the prohibition of certain forms of fisheries subsidies that contribute to overcapacity and over-fishing." It also instructed delegates to make ‘appropriate and effective' special and differential treatment for developing and least-developed countries an integral part of the negotiations, "taking into account the importance of this sector to development priorities, poverty reduction, and livelihood and food security concerns."

The November 2007 draft provided a detailed legal text - Annex VIII of the SCM Agreement - for a new agreement on fisheries subsidies. That text would have prohibited government support to the construction, operating and fuel costs of vessels, and port infrastructure ‘exclusively or predominantly for activities related to marine wild capture' fishing, including storage and processing facilities. Some subsidies would have been permissible for all countries, provided that they maintain an international-standard fisheries management system. These included payments aimed at boosting fishing vessel safety without increasing fishing capacity, reducing the environmental impact of fishing, or re-training fisheries sector workers.

The text would have exempted  least-developed countries (LDCs) from the disciplines altogether, and allowed  non-LDC developing countries to provide otherwise-banned subsidies, including those that boost capacity, to small-scale fisheries in territorial waters characterised by non-mechanised fishing, family- or association-based fishing operations, catches consumed largely by fishing families, and the absence of a ‘major employer-employee relationship'.

However, it soon became clear that many governments considered the proposed disciplines too strict. Canada, the EU, Japan and Norway said Members should be allowed to subsidise bait, fuel, insurance and port infrastructure in certain cases, as well as offer assistance to small-scale fishermen affected by high oil prices. India objected to the conditions attached developing country subsidies to small-scale fishing, such as limiting boat length to 10 metres, the requirement that the boats' fishing activities must be targeted at ‘particular, identified stocks' that have been "subject to prior scientific status assessment conducted in accordance with relevant international standards, aimed at ensuring that the resulting capacity does not exceed a sustainable level."

In his introduction to the 19 December 2008 text, the chair noted that "differences among delegations [went] to the very concepts and structure of the rules" put forward in Annex VIII a year earlier. Instead of revising that text, he proposed a ‘roadmap for discussion', consisting of fundamental questions that must be clarified for the negotiations to move forward. These included general considerations, such as why, in view of the Hong Kong mandate, a particular kind of subsidy should or should not be prohibited, and reflection on how to ensure that exemptions from disciplines do not compromise the integrity of the mandate, i.e. that any permitted subsidies would not in practice contribute to overcapacity or overfishing.

The chair proposed to start off discussions in February on which subsidies should be prohibited, based on a ‘common understanding' that they contribute to overcapacity and overfishing. Among specific questions, he proposed that participants reflect on whether any conditionalities should be attached to prohibited subsidies, and whether otherwise permitted subsidies should be prohibited in ‘unequivocally overfished' fisheries.

Later in the process, delegates are slated to address questions related to exceptions from the general subsidy disciplines that are conditional to the existence of fisheries management systems (including whether such a conditionality should apply in the first place); the need (or not) for specific provisions on scientific expertise in disputes involving fisheries subsidies; and special and differential treatment, including whether it would be appropriate that SDT exceptions for non-LDC developing countries be "broadest and subject to the fewest conditions for subsidies to the smallest-scale, closest to shore, and least-commercial fishing operations, with exceptions becoming progressively narrower and subject to more conditions as the subsidised operations become larger-scale, further from shore, and more commercial."

This article is published under
31 December 2008
Even though the WTO has ruled that zeroing is not compliant with international trade rules, America refuses to change the way it calculates dumping margins. With the new year should come a new...
Share: 
31 December 2008
The latest negotiating text, released on 6 December, shows that WTO Members remain far apart on participation in sectoral liberalisation initiatives on industrial goods, as well as preference erosion...
Share: