WTO rules for protection of industry

Published May 23, 2005 12:00am

IN an attempt to keep pace with the process of globalization under WTO regime and the lenders’ conditionalities, Pakistan has exposed its domestic industry to harsh foreign competition. As a result, even some of its efficient export-oriented and import substitution industry is being adversely affected. The main factor affecting the industry being cut in tariff protection, which has considerably been slashed over past few years to 25 per cent and would now further be reduced to 20 per cent in the budget for 2005-06, the unwarranted access to Chinese goods, and the rampant under-voicing. The grant of proposed MFN status to India will aggravate the situation.

Authorities need to adopt a strategic policy to identify and protect these industries. Although GATT/WTO’s rule-based system advocates globalization and free trade, at the same time it also permits the member countries to take measures to protect their domestic industry in specific situations. These measures are commonly known as ‘trade remedy measures’ (TRM), invoked by the members countries under their national legislation but within framed in terms of the GATT/WTO legal frame work. The TRM enable a WTO member country to protect its domestic industry (i) against unfair trade, (ii) increased imports, and (iii) to provide additional protection to its new or infant industry to pursue the economic development.

Protection from unfair practices: The GATT rules deal with two types of “unfair” trade practices which can distort conditions of competition. First, the competition may be unfair if the exported goods benefit from subsidies. Second, the conditions of competition may be distorted if the exported goods are dumped in foreign markets. However, in common parlance, it is usual to designate all low-cost imports as dumped or subsidized imports which is not correct.

The ‘agreements on anti-dumping measures’ (ADM) and ‘subsidies and countervailing measures’ (SCM) authorize members to levy compensatory duties on imports of products that are benefiting from unfair trade practices. An importing country can levy countervailing duties on subsidized imports and anti-dumping duties on dumped imports only if it is established, on the basis of investigations that such imports are causing “material injury” to a domestic industry.

Investigations for the imposition of such duties are ordinarily initiated on the basis of a petition made by or on behalf of an industry, alleging that imports are causing it material injury.

The basic rule which the agreements on ADM and SCM lays down is that anti-dumping and countervailing duties be levied only where it has been established on the basis of investigations that, (i) there has been a significant increase in dumped or subsidized imports, either in absolute terms or relative to production or consumption, (ii) prices of such imports have undercut those of the like domestic product, have depressed the price of the like product or have prevented that price from increasing, and (iii) injury is caused to the domestic industry or there is a threat of injury to the domestic industry of the importing country.

The two agreements further specify that, in determining whether such imports are causing injury to the domestic industry, relevant economic factors having a bearing on the state of the industry have to be taken into account. Furthermore, for anti-dumping or countervailing duties to be levied, it must be clearly established that there is a causal link between dumped or subsidized imports and the injury to the domestic industry.

Where the problems being encountered by the domestic industry are caused by such factors as “contractions in demand or changes in the pattern of consumption” and cannot be directly attributed to dumped or subsidized imports, anti-dumping or countervailing duties cannot be levied. Such duties must not be levied where such imports are adversely affecting only a few producers. They can be levied only when it has been established that the imports are posing problems to the producers whose collective output of the product constitutes a major proportion of the total domestic production of the industry.

The relevant GATT Agreements are: (i) Article VI- anti-dumping and countervailing duties, GATT 1994, (ii) Article XVI – Subsidies, GATT 1994, (iii) agreement on implementation of Article VI and agreement on subsidies and countervailing measures under the WTO. The national legislation includes Anti-Dumping Ordinance, 2000 and Countervailing Duties Ordinance, 2001.

Pakistan has so far levied anti-dumping duties against imports from the respective countries on the following products:
 

Sr. No.  Product Country %age 
i. Tin Plate South Africa 27
ii. Sorbitol  France  96
    Indonesia  26
iii. Glacial Acetic Acid Taiwan 13.77
iv. Acrylic tow Uzbekistan 12.71
v. PVC Korea 40.18
    Iran  31.06
vi. Urea Formaldehyde China Under 
  Moulding Compound    Investigation


Pakistani products on which anti-dumping duties have been levied by respective countries include:

 

Sr. No. Product Country %age
i. Bed Lenin      EU 13.1
ii. PET Resin      EU  
  (Later withdrawn     
  by the EU) 14.80     
iii. Poplin     Peru 14
iv. Match sticks    Egypt 26


No case, on account of countervailing measures was filed by the industry.

Safeguard measures: The WTO regime provides safeguard measures and actions to protect domestic industry in case of surge of imports.

The agreement on safeguards authorizes importing WTO Member countries to restrict imports for temporary periods if, after investigations carried out by the competent authorities it is established that, (i) imports are taking place in such increased quantities (either absolute or in relation to domestic production) as to cause serious injury to the domestic industry that produces like or directly competitive products and, (ii) the increased imports should be the result of unforeseen developments and the effect of the obligations of the member in GATT 1994.

It provides that such measures, which could take the form of an increase in tariffs over bound rates or the imposition of quantitative restrictions, should normally be applied on an MFN basis to imports from all sources.

The agreement states that the objective of the government in imposing safeguard measures should be to promote “structural adjustment” and to “enhance rather than limit competition in international markets”. To this end it provides that such safeguard measures should be applied only for temporary periods to enable the affected industry to take steps to adjust itself to the increased competition that will follow the removal of those measures. Structural adjustment could take the form of the adoption of improved technology or modification of the production processes.

The relevant GATT agreements are (i) Article XIX- Emergency Action on Imports of Particular Products – GATT 1994, (ii) Agreement on Safeguards under the WTO. The national legislation is the Safeguard Measures Ordinance, 2002.

The GATT recognizes that the attainment of the objectives of the WTO agreement will be facilitated by the progressive development of their economies, particularly of those member countries, the economies of which can only support low standards of living and are in the early stages of development.

It may be necessary for those member countries, in order to implement policies of economic development designed to raise the general standard of living of their people, to take protective or other measures affecting imports, and that such measures are justified in so far as they facilitate the attainment of WTO objectives.

Therefore the member countries can enjoy additional facilities which enable them to maintain sufficient flexibility in their tariff structure to be able to grant the tariff protection required for the establishment of a particular industry for economic development.

A member country coming within the scope of the Article XVIII – C on “governmental assistance to economic development” may have recourse to the provisions set out in this Article, if it finds that governmental assistance is necessary to promote the establishment of a particular industry with a view to; (i) raise standards of living of its people, (ii) ensure employment, (iii) develop full use of the resources, and (iv) attain any of the government policies for economic development.

The relevant GATT agreement on this account is Section C of Article XVIII on Governmental Assistance to Economic Development – GATT 1994. There is no national legislation so far on this account. However, the government can take action under the Article XVIIIC if so required.

A government wishing to provide higher protection through the imposition of restrictions is expected to notify the WTO Secretariat of the (i) particular industry or industries, either existing, new or infant, for the development of which such higher protection is necessary, (ii) the nature of the proposed restrictive measure (increase in tariffs that are bound against further increases, imposition of quantitative restrictions on imports or the introduction of a licensing system etc.), and (iii) the special difficulties that imports pose for the development of such industries.

The notification must be made before the measure is introduced. In exceptional cases, where delay in the introduction of the measure is expected to pose special difficulties to the industry concerned, the notification can be made immediately after the measure is imposed. Pakistan has not yet initiated any action under the Agreement on Safeguard Measures and the Article XVIIIC of GATT 1994.

Pakistan’s industry has been operating under high tariff walls during the past. This provided unintended huge protection even to some of the inefficient industries. These inefficient industrial sectors are now finding it difficult to operate under the globalization and reduced tariff protection. However, by and large they have rendered the scarce resources which have gone into their consumption as unproductive. These resources need to be reallocated to more efficient export oriented and import substitution industrial sectors.


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