WTO Trade Remedies

According to the WTO rules, the members can also temporarily depart from some of their basic WTO obligations in order to remedy a situation of unfair competition or a surge of imports, when these cause injury to the domestic industry, subject to specific requirements.

The three types of trade remedies that WTO Members are allowed to apply are as follows:

• Anti-dumping measures
• Countervailing measures and
• Safeguards measures.

These trade defence mechanisms can be used temporarily to shield vulnerable sectors from the consequences of trade liberalization in certain circumstances. The three trade remedies allow WTO Members to impose customs duties above the bound levels. In addition, safeguard measures may adopt the form of quantitative restrictions. The conditions applicable to the three types of trade remedies are similar, particularly in the case of anti-dumping and countervailing measures.

Anti-Dumping Measures

Dumping is a form of price discrimination, which takes place when the price of a product when exported to another country is less than the price of that same product when sold in the market of the exporting country. For example, China supplying the computer chips to European Union at a rate which is even lower than that in China itself.

Please note the following points:

• When products are exported at a dumped price, they enter the importing market with a competitive advantage considered unfair if they cause injury to the domestic industry producing like products. This means that in case of a dispute, it has to be proved in the WTO that the particular import caused Injury to the domestic industry.
• As a result, Members are allowed to apply anti-dumping measures to compensate for the unfair competitive advantage. The application of anti-dumping measures is subject to specific substantive and procedural requirements set forth in Article VI of the GATT and the Anti-dumping Agreement.
• A bargain sale, in the sense of ordinary trade, is not dumping.
• The country’s imposition of an anti-dumping duty is determined by the dumping margin–the difference between the export price and the domestic selling price in the exporting country. By adding dumping margin to export price, the dumped price can be rendered a “fair” trade price.

Subsidies and countervailing measures

The Agreement on Subsidies and Countervailing Measures (the SCM Agreement) – addresses two separate but closely related matters

• The multilateral disciplines on the use of subsidies
• The conditions under which Members may apply countervailing measures.

Subsidies have been provided widely throughout the world as a tool for realizing government policies, in such forms as grants (normal subsidies), tax exemptions, low-interest financing, investments and export credits. There are six primary categories of subsidies, divided by purpose:

• Export subsidies,
• Subsidies contingent upon the use of domestic over imported goods,
• Industrial promotion subsidies,
• Structural adjustment subsidies,
• Regional development subsidies,
• Research and development subsidies.

By beneficiary, there are two primary categories:

• Subsidies that are not limited to specific businesses or industries (non-specific subsidies), and
• Subsidies those are limited to specific businesses and industries (specific subsidies).

Subsidies as barriers to Trade

Although governments articulate ostensibly legitimate goals for their subsidy programmes, it is widely perceived that government subsidies may give excessive protection to domestic industries. In such cases, subsidies act as a barrier to trade, by distorting the competitive relationships that develop naturally in a free trading system. Exports of subsidized products may injure the domestic industry producing the same product in the importing country. Similarly, subsidized products may gain artificial advantages in third-country markets and impede other countries’ exports to those markets.

Because of this, for industrial goods, the WTO agreements prohibit export subsidies and subsidies contingent upon the use of domestic over imported goods, as having a particularly high trade-distorting effect. Even for subsidies that are not prohibited, it allows Member countries importing subsidized goods to enact countermeasures, such as countervailing duties if such goods damage domestic industry and certain procedural requirements are complied with. For agricultural products, it requires obligations such as reducing export subsidies and domestic supports.