What are the instruments used in Trade remedies?

Posted on 11 June 2022 Category : For Beginners

Instruments used in Trade remedies

Trade remedies are trade policy devices that enable governments to take remedial action against imports which are resulting material injury to a domestic industry. The trade remedies are used to correct the competitive imbalances created by unfair trade practices. They can be introduced under specific circumstances, for providing protection from imports beyond the protection granted by the tariff schedules negotiated as part of GATT. The WTO (World Trade Organization) identifies three main types of import restraints as trade remedies:

Antidumping measures.
Countervailing duties.
Safeguard measures

The object of these duties is to protect against the situation arising out of unfair trade practices i.e to offset the injurious effect of international price discrimination.

1. Anti-Dumping Measures

The WTO Agreement on Antidumping regards that products are "dumped" when companies export them at prices lower than those at which they offer in their home market. Dumping is not illegal in itself; it becomes unlawful as soon as it brings about injury to local businesses in the importing country. Dumping is an action by a company. In other words, it is a predatory pricing model where the exporter or a company exports and prices its products beneath production costs or underneath what they offer for in their home market.

So, Anti-dumping duties are for battling ‘dumping’, that hurts the domestic makers of the importing nation.

We can define Anti-Dumping Duty as a trade levy imposed by any government on imported products which have prices less than their fair normal values in their domestic market. It varies from product to product and from country to country. The Anti-dumping duty is calculated to bridge the gap back to a fair market value.

In India, anti-dumping duty to be levied is recommended by Union Ministry of Commerce while the Union Finance Ministry imposes it.

The identification of dumping involves a price comparison between a product's "normal value" and its "export price".

The parameters by which damage to the domestic industry is to be evaluated in the anti dumping proceedings are such economic indicators having a bearing upon the condition of industry as the magnitude of dumping, and the decrease in sales, selling price, profits, market share, production, utilisation of capacity etc.

In fact, anti-dumping is an instrument for ensuring fair trade and is not a measure of protection per se for the domestic industry.

Anti dumping and anti subsidy duties are levied against exporter / country in as much as they are country specific and exporter specific

2. Countervailing duties (CVDs).

Countervailing duties are tariffs applied to balance (countervail) the effect of export subsidies conceded by the government of an exporting country. Countervailing duties (CVDs) counteract subsidies by national authorities that unfairly enable their companies to export at a lower price.

It is also known as anti-subsidy duties, are trade import duties imposed under World Trade Organization (WTO) guidelines to neutralize the negative effects of subsidies. They are imposed after an investigation finds that a foreign country subsidizes its exports, harming domestic producers in the importing country. The duties are calculated to duplicate the value of the subsidy.

The terms ‘Subsidies and countervailing duties’ are used together as the measures of countervailing duty that are taken against the subsidies accessible to exporters of foreign countries.

Subsidy may be in the nature of direct or indirect grant on production or exportation of goods and also includes any special subsidy on transportation of any specific product. It is the government that acts either by allowing subsidies directly or by requiring companies to subsidize certain customers.

Countervailing duties (duties offsetting subsidies) do two things: they discipline the use of subsidies, and manage the actions that countries can take to counter the impacts of subsidies.

The main difference is that dumping is an action carried out by a firm, while subsidies are actions undertaken by governments.

3. Safeguard measures

A WTO member may limit imports of a product temporarily as to take “safeguard” action if its domestic industry is harmed or threatened with injury caused by a surge in imports.

The circumstance for which the invocation of defensive and protective measures termed as ‘Safeguard measure’ have been provided for, are in cases where the increase in import of any commodity is in such increase and under such conditions which causes or threaten to cause serious damage to domestic producers of similar or directly competitive products.

In other words, a safeguard measure is a temporary tariff or quota used to shield a domestic industry from foreign exporters. This tariff is imposed so as to guarantee that imports in excessive amounts do not hurt the domestic industry. When imposed, a safeguard measure should be applied only to the extent necessary to prevent or remedy serious injury and to help the industry concerned to adjust.

These measures don't neutralize an unfair practice, however enable countries to suspend import surges temporarily in order to allow local industries time to adjust in accordance with increased foreign competition on national markets.

WTO permits, through its safeguard clause, to impose temporary and nondiscriminatory Safeguards measures on imports that are making injury to domestic producers.

A safeguard measure should not last more than four years, although this can be extended up to eight years, subject to an assurance by competent national authorities that the measure is required and that there is evidence that the industry is adjusting.

The difference between anti-dumping duties and safeguard measures is that the former may only be imposed when foreign exporters are engaged in anti-competitive practices while the latter may be imposed on exporters that have a ‘fair’ competitive advantage. It is not that the safeguards are non-discriminatory measures, as they are equally applied to all the trade partners.

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