Anti-dumping measures

One of the exceptions is that members can take action against imports in order to protect their markets against dumping. Dumping is defined simply as selling at an unfairly low price, which to an economist means that the commodity is exported at below cost or at a lower price abroad than at home. Dumping may be "persistent". In this case there is a continuous tendency for a firm to pursue this practice. Dumping may also be "sporadic". In this case the enterprise only occasionally exports at below cost or at a lower price than domestically. Dumping can also be "predatory". Here, the enterprise exports at below cost or a lower price abroad than at home temporarily, so as to drive foreign producers out of business. After this has been achieved, the enterprise subsequently resorts to raising prices.

Under the WTO governments are permitted to act against dumping where there is evidence of "material injury" to competing domestic producers as a result of dumping. For this purpose, therefore, governments have to establish three necessary conditions, before they can act against dumping namely 1) that dumping is taking place 2) the extent of the dumping or by how much lower is the export price importer's to the competitor's home price, and, 3) the extent of injury to domestic producers. Typically, the action governments take would require charging an extra import duty on the dumped item. If the extent of injury caused by dumping however is small, for example the margin of dumping is less than 2 per cent of the export price of the product or the volume is less than 3 per cent of total imports of that product, no action can be taken. Anti-dumping measures also typically expire after five years in force.

The treatment of subsidies

The WTO also regulates the use of subsidies and the responses countries can take to them. Three classes of subsidies are recognized. One is "prohibited subsidies." These are subsidies that require the beneficiaries to meet certain export targets or to use domestic goods instead of imported ones. These are prohibited because they seek deliberately and specifically to distort international trade in the subsidised product. Another class is "actionable subsidies." Here, the objecting country has to demonstrate that the subsidy adversely affects its interest in one of three ways. It either hurts the domestic industry of an importing country, or it hurts a rival exporter of the product who competes with the subsidised product in their markets, or it prevents exporters from competing in the domestic market of the subsidised producer.

The third class is "non-actionable subsidies". These subsidies are non-specific, or if they are specific, they focus on areas like industrial research, pre-competitive development activity, assistance to disadvantaged regions, or curtain forms of assistance designed to ensure adaptation of new environmental laws and regulations. These subsidies cannot be challenged under the WTO's dispute settlement procedure and countervailing duties therefore cannot apply.

The WTO permits the least-developed countries, that is, countries with less than $1000 per capita GNP, to be exempted from the disciplines applied to prohibit export subsidies. Other developing countries have to get rid of these by 2003. In general, however, it disciplines the use of subsidies; makes the term more precise; stipulates actions countries can take in response to subsidies, and, lays down the dispute settlement procedure to be followed where these exist. The WTO rules in this regard apply to both agricultural and manufacturing goods, but as we have noted earlier in this series when there is a conflict, it is subject to the regime in place for the WTO's Agreement on Agriculture.

Import surge

The WTO also allows members to apply "safeguards" or to restrict imports temporarily in response to injury or the threat of injury caused by what is termed a "surge" in imports. An import surge can either be a real absolute increase in imports or an increase in import share in a shrinking market (where there is no absolute but only a relative increase). These safeguards are expected to replace the practice of "grey area measures". These grey area measures cover importing countries using bilateral negotiations to "persuade" exporting countries to "voluntarily" restrain their exports. Many famous ones existed with the USA for products such as textiles, automobile, steel, and semiconductors. A "sunset clause" is in place that sets time limits on this practice.

Our brief survey shows that the exceptions are uniquely designed to enforce the rule that, under the WTO, the presumption is always in favour of freer and freer trade. All the "exceptions" are tightly regulated and subject to a dispute settlement procedure with powers of effective enforcement. In this way, as the old saying goes, "the exceptions prove the rules."

Protection by stealth: The WTO and non-tariff barriers to trade

Last week we examined the treatment of anti-dumping, subsidies and import surges as exceptions to WTO’s rule of unswerving support for freer trade and the removal of all barriers to trade. Although trade barriers are permitted under these heads, we showed that the ways in which they are administered do not provide escape hatches from WTO’s obligations to freer trade. There are however, other serious hindrances to trade, which do not reside in the traditional tariffs and quotas, but in such areas as the technical, legal, and bureaucratic structures of trade. These are called non-tariff barriers to trade and the WTO has also sought to provide safeguards against their abuse.

Technical regulations and standards

There are five such potential categories of hindrances to trade. One we know of well in Guyana from frequent reporting in the press, that is, the barrier of ‘technical regulations and standards.’ The WTO recognizes that countries have rights to adopt standards for products sold in their countries, as they consider necessary. These standards usually cover areas of human, animal, and plant life, as well as the environment and consumers interests. The problem is that these standards vary from country to country, with the result that the risk of using standards as a cover for regulating trade is always high. If abused, these standards can became serious barriers to trade and are now described in the literature as ‘non-tariff protectionism.’

To control this situation the WTO contains an Agreement on Technical Barriers to trade. This Agreement seeks to bring about a situation in which all regulations, standards and the testing and certification of these, do not become disguised protection. The WTO’s Agreement seeks to put in place a ‘Code of good practice’ for arriving and applying approved technical standards by governments.

Private persons and non-governmental organisations are then encouraged to use the same principles as applied to governments.

The important issue in regard to standards is reasonableness and certainty. If firms and individuals know the standards and if these are applied uniformly and fairly, they will not become impediments to trade, but might in fact encourage trade because of the emphasis they place on quality assurance.

Import licensing

A second non-tariff barrier is import licensing. Again we are familiar with this because of its widespread application in Guyana in the 1980s. As is the case with Guyana, import licensing has been considerably curtailed. In the developing countries this curtailment was one of the programme conditionalties for IMF/World Bank support for structural adjustment programmes (SAPs). Under the WTO, when import licensing is permitted, it has to be simple, transparent, and predictable. Governments are obligated to publish and disseminate widely all the required information as regards when and how licences are to be acquired. Countries are also obligated to notify the WTO when import licensing is introduced or if existing procedures are to be changed.

The ultimate aim of the WTO is to end all import licensing. In cases where it continues, its operations should be automatic and aimed at minimizing the burden to the importer. Bureaucratic delays are frowned upon, and normally it is expected that it should not take more than 30 days to deal with an application and 60 days when all applications are considered at the same time.

Rules of origin

The third non-tariff barrier we consider today arises from the ‘rules of origin’ used to define where a product was made. Again this is a very familiar concept to us in Guyana, as perennial efforts to define the ‘rules of origin’ for CARICOM products have dogged us. This is a particularly thorny issue, because most of our manufactured products in the Region involve the simple processing of imported raw materials or packaging of imported components and/or ingredients.

Thus some local toilet paper manufacturers just count the number of sheets of paper, wrap the roll, and package it. Some local canned agricultural products merely re-package imported ingredients. In all these instances, since the domestic input into the production process is so limited, the real origin of the product is in dispute. Moreover, CARICOM’s rules of origin apply to CARICOM members not to non-members.

The WTO has not resolved this maze of issues. Its primary objective is more limited. It requires all members to make their rules of origin transparent, and that in doing so they seek to avoid restricting, distorting, or disrupting trade. Commitments are also extracted from them that the administration of the rules of origin would be “consistent, uniform, impartial and reasonable.” To ensure this, the WTO requires members to take the positive approach and to state what conditions confer origin, as against the former practice of stating what conditions do not confer origin.

All this is of course virgin territory for an international agreement. The WTO’s objective at this stage is quite modest. Its long-term expectation however, is that the agreement will grow to the point where all members have common or harmonised rules of origin. This means that the practice of different free trade areas setting their own rules of origin will eventually come to an end. At the moment therefore, this area of the WTO Agreement is still very much a work in progress.

Next we shall continue this examination of the non-tariff barriers.

De-regulate or manipulate: The WTO myth of freer trade

Over the past three weeks we have considered a number of important areas of global trade, areas to which the average person pays little attention. We have dealt with WTO rules regarding anti-dumping measures, subsidies, import surges, customs valuation, pre-shipment inspection, trade-related investment measures, technical regulations and standards, import-licensing, and rules-of-origin. As we saw these areas focus on matters pertaining to the legal basis, administration, implementation, and regulation of trade. That is why at first glance they appear somewhat removed from the economics of trade and as having only a secondary effect on trends in global trade.

Nothing, however, could be further from the truth. In reality the importance of these areas of global trade is as great as, if not greater than, that of the familiar indicators of trade such as cost of production, selling price of the product in question, transport costs, taxes and tariffs. What our examination of these revealed is that governments can manipulate these areas within existing WTO-rules in order to protect their domestic enterprises. The developed countries have been exceptional in this regard, exploiting every conceivable legal opportunity, while more or less staying within the rules.

Survey Results

A recent survey (2001) of the impact of sanitary and phytosanitary measures (SPS) on developing countries exports to the European Union conducted by Prof. Henson and others at the Centre for Food Economics Research at the University of Reading, England reveals this. Using a Likert scale of 1-5, where (1) is "very significant" and (5) "very insignificant", and surveying exporters and government officials from low- and middle-income countries, their results showed that these respondents ranked SPS requirements as the most significant barrier to their exports to the EU. In the same survey, the second ranked item was "other technical-requirements", which tied with transport and direct export costs for this position. In effect therefore the SPS requirements were perceived as a greater impediment than the competitive price at which the product could be sold in the European Union.

What is particularly remarkable about this situation is that the idea behind setting standards and regulations for products and the processes by which they are produced is to secure quality, safety, and technical efficiency for consumers and users. Unfortunately, however, the influence of corporate interests over the negotiations of their governments in the WTO has created a system of "regulatory capture" particularly within the developed countries. By this is meant that we have a situation where the regulations and institutions designed to protect the consumer and ensure product quality, have been 'captured" by the very industries they have been established to oversee and in turn these industries turned the regulations and standards into a device to protect corporate interests.

This practice has become very successful and it is now growing at an alarming rate. Thus prior to the formation of the WTO, there were about 15-25 annual notifications to the GATT of new technical barriers including health and safety and product standards that member countries were introducing. By the end of the 1990s the annual number of such notifications had increased dramatically to over 400.

OECD Report

According to an Organisation for Economic Cooperation and Development (OECD) Report published last year, low and middle income countries claimed that more than half of their potential exports of fresh and processed fish, meat, and vegetables into the EU were "barred" from doing so because of their alleged "non-compliance" with the SPS requirements.

It is little surprise therefore, that these barriers are ranked over tariffs and even quotas as obstacles developing countries face when seeking to improve their exports to the EU.

Under the WTO, agreements have been reached to minimize these abuses, but regrettably they nevertheless continue unabated. The obvious question to ask therefore is: why has there been no retaliation on the part of the developing countries? The simple answer is that these practices are not only costly but also requires considerable human resources to establish and administer. The developing countries do not have this capacity.

The blunt truth is that despite pious pretensions otherwise, the manipulation and abuse of the WTO rules by the developed countries pervades every area of the Agreement. This happens even in areas where the protection is straightforward, for example the use of tariffs and quotas. Thus take the case of anti-dumping measures, which we had considered a few weeks ago. In recent times the number of "anti-dumping investigations" instituted by governments has risen dramatically. This has led to the belief among observers that most of these measures are being pursued not so much as to prevent dumping as for the real purpose of disrupting import supplies in order to protect domestic producers. Most of these WTO "investigations" of anti-dumping measures have been instituted by the developed countries and four other large developing ones, namely India, Argentina, Brazil and South Africa.

Conclusion

It is difficult to forecast what will be the outcome of the present situation in regard to these non-tariff/technical/administrative/regulatory barriers to trade, which I have identified over the past few weeks. One thing however, is certain. Their prevalence means that we do not have anything near to a system of freer trade across-the-board, as it is frequently touted. What we have is a situation in which the de-regulation of trade proceeds under the WTO, but the manipulation of trade by governments and corporate interests steadily increases. This process however, is uneven. It is more significant in some areas of global trade (e.g. agriculture) than in others (manufactures).

It nevertheless continues across the board, unabated. As this process unfolds, the start-up costs of new export businesses are rising dramatically, mainly on account of technology and marketing costs. This rise in start-up costs is an impediment for new firms to enter into certain industries and become significant exporters.

The playing field in global trade is therefore becoming more uneven, with the consequence that, the greater is a country or region's capacity to manipulate trade, the greater is the gains from trade of that country or region.

Raising the barriers to developing countries exports

Last week I referred to a survey conducted by Prof. Henson and others at the University of Reading, which looked at the impact of sanitary and phytosanitary measures (SPS) and technical barriers to trade (TBTs) on the exports of developing countries to the European Union (EU). The study showed that respondents ranked these requirements as the most significant barriers to their exports to the EU. SPS barriers were ahead of such factors as transport costs and direct export costs. In response to that article one of my regular overseas readers sent me useful information excerpted from a joint study conducted by the Commonwealth Secretariat and the International Trade Centre, which I shall share with readers today.

This study covers six countries: Jamaica, Kenya, Malaysia, Mauritius, Namibia and Uganda. It examines three issues, namely, the extent to which these countries were developing their national standards to meet international norms, how were they implementing the SPS and TBT agreements of the WTO, and the impediments they met when exporting to the EU.

Raising the Barriers
A number of interesting results emerged. One that is particularly striking is the claim that EU countries are imposing SPS standards that are higher than the "international standards" which govern particular products. It will be recalled that under the WTO member countries are obligated to base their TBT and SPS measures on "international standards" if they limit imports from other countries. These standards are for the exclusive purpose of protecting human, animal, and plant life and health through uniform global norms, but the study found that the six countries believe they have been used against them as a protective mechanism by the EU.

Further, the study also found that in several instances the SPS barriers imposed by EU members on the imports of the six countries were higher than the standards in force for domestic producers, and that these standards had been raised from time to time.
These findings are significant, but remarkably the study reported that developing countries hardly ever raised objections in the WTO's SPS Committee! When action was taken it was at the bilateral level. Such bilateral action however, was often frustrating as the importing country tended to delay its response to the objection and when it did respond, it delayed revising the measures when that was found to be necessary.

Capacity and Standards

The study did find that developing countries were making efforts and had some capacity to deal with the most immediate and important risks their products faced, when this became necessary. For example, we know of the efforts Guyana has made to regulate the fruit fly in fruit and vegetable exports and foot-and-mouth disease in meat exports. Jamaica also responded quickly and effectively to complaints about pesticides residue in vegetables and ground provisions and insect pests on hot peppers sent to the USA.

There is also the most famous case of Jamaican ackees. After being banned from the US market, in order to be re-admitted producers had to implement through the Jamaican authorities a US-approved system in which prior approval was given to ackee processors that conformed to the system requirements. At last count, four processors have been approved. In the case of fresh produce, a pre-clearance arrangement is now in place. This was initially funded by USAID, but now a levy is put on exports to finance the programme. What this particular case has uncovered is that Jamaican ackee producers, through the pre-clearance arrangement, have a distant competitive advantage over regional competitors, because with pre-clearance exporters do not face the risk (and cost) of rejection of the product at US ports.

The study also found that generally the developing countries had national standards in place. The most widely used system for food is the Codex Alimentarius, while the standards and codes of the World Organisation for Animal Health are the basis for national standards for animal health. There were however, instances where countries found it difficult to maintain these food and animal health standards.

The problematic situation is in the area of plant health, as the international standards here relate more to definitions/methodologies/administrative procedures for conducting risk analysis, than on controlling specific pest risks, as the International Plant Protection Convention is still at an early stage of its standards-setting programme.

Recommendations
One of the major recommendations of the study is the need for the transfers of more human and financial resources to the developing countries to help develop their technical capacity to meet their obligations as well as to take full advantage of their rights under the SPS Agreement. It was pointed out that this technical assistance is an entitlement, since under the agreement countries had agreed to "facilitate the provision of technical assistance to developing countries". To date most of the assistance given has been found to be "fragmentary" and not well integrated into national activities. The study therefore recommended greater assistance focussed on problem-solving and information dissemination.

In particular it identified major targets for assistance. One of these is the need to enhance the capacity of developing countries to utilise the "channels of dispute resolution" in the agreement. A second is to avoid a one-size-fits all approach and to tailor assistance to each country's needs, since the developing countries are not a uniform group with the same technical and other capacities. A third target is to be selective and focus on market access for products with real export potential.

Finally the study recognised that the trend is for standards to get tougher, not easier, and that this has to be factored into assistance programmes. In this regard a more regional than national approach to providing technical assistance under the agreements may have merit.

This study reinforces the point made in earlier weeks that these technical, sanitary and phytosanitary barriers to trade are real impediments. They are of greater significance to us than the more traditional focus on cost of production, transportation, tariffs and price when determining the region's capacity to export products, particularly agricultural ones, in the age of globalisation and liberalisation.

WTO: Plurilateral agreements and trade policy reviews

This week we shall consider briefly two areas of the WTO Agreement. The first looks at the plurilateral agreements, which are of limited significance but are mentioned for the sake of completeness. The second covers trade policy reviews - a potentially major dimension of the WTO Agreement.

Plurilateral Agreements
WTO agreements are subscribed to by all members of the WTO, except for four agreements known as “plurilateral agreements”, which apply to a limited number of members. These are the Agreement on Trade in Civil Aircraft, Government Procurement, the International Dairy Agreement, and the International Bovine Meat Agreement. The last two ended in 1997 as the participating members felt that the issues they were created to address were better covered under the Agreement on Agriculture and the Sanitary and Phytosanitary Agreement.

Additionally, the coverage of these agreements extended only to a small number of countries and omitted several major exporters of dairy products. This made their usefulness very doubtful.

The Agreement on Civil Aircraft was actually entered into since 1980 and it now has 24 signatories. It removes import duties on all aircraft except military aircraft. It also allows the same privilege to civil aircraft engines, parts, components, and sub-assemblies of these as well as flight simulators. The Agreement contains measures to prevent government offering “inducements” to purchase and subsidies for their domestic civil aircraft sector.

The Agreement on Government Procurement was also entered into force as far back as 1981. It was re-negotiated in the Uruguay Round where it was extended to include services (including construction) and to sub-national tiers of government (regional, local and district) as well as public utilities. This agreement has 25 signatories. Its principal aim is to open up government procurement to international competition by making the applicable laws, procedures, and practices governing these more transparent and less protective of domestic industry or discriminatory to foreign products or suppliers.

All these agreements are of minority interest, but remain important to the overall scope and workings of the WTO Agreement. Efforts are underway to extend the government procurement provisions to include all WTO members.

Trade Policy Reviews
The WTO Agreement has built into its operations a trade policy review mechanism.

This trade policy review mechanism complements another important feature of the Agreement - regular notifications, which I had referred to some time ago in this series. Notifications refer to the undertaking of member countries to inform the WTO and fellow-members at the outset of their membership and subsequently on a regular basis of specific measures, laws, or policies, which affect their trade. Some of these notifications are required annually (e.g. subsidies) and some are semi-annual (e.g. anti-dumping actions). These notifications therefore contribute towards providing information to individuals and companies involved in trade about the conditions under which trade of the particular country takes place.

The trade policy reviews actually commenced in 1988 under the GATT, which preceded the formation of the WTO in 1995. At that time it focused on trade in goods. However, with the new agreement their scope has been expanded substantially, covering not only trade in commodities but also trade in services and intellectual property. The idea behind these reviews is similar to the “regular notifications” as they are designed to ensure transparency and compliance with the WTO Agreement by all member countries in their trade regulations, procedures, and policies.

The Trade Policy Review Body is an authoritative body. It has the same composition as the WTO General Council. There can be no doubting therefore, the importance attached to the reviews. While reviews focus on the laws, policies, and practices of the member country concerned, they also take into account the broader economic environment and the overall developmental situation of the country. The frequency of the reviews vary. For the four largest trading countries/group, that is the European Union, the USA, Japan, and Canada, the reviews are done about once every two years. The next 16 largest trading countries are reviewed about once every four years. And, the remaining countries are reviewed about once every six years, with the possibility of a longer time interval between reviews for the least developed countries.