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Regulating Unfair Competition
and Unfair Trade
Chapter 11
© 2005 West Legal Studies in Business/Thomson Learning
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Free Trade & Protectionism
• Move beyond simple labels
• Understand connection between
international and national law
• GATT/ WTO & national law
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GATT Escape Clause: remedy
when there is no intent to harm
• Article XlX- allows escape from previous
promises, 11/94 Agreement on Safeguards
• Many countries have provisions in national
law that parallel GATT’s Escape clause
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GATT 1994 Agreement on
Safeguards
• “Products imported in such increased
quantities and under such conditions as to
cause or threaten to cause serious injury
to the domestic industry that produces like
or directly competitive products”
• Countries should notify WTO Safeguards
committee
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GATT 1994 Agreement on
Safeguards
• Administrative inquiry
• WTO Committee on Safeguards
• Argentina Safeguard Measures on Imports
of Footwear, Dec. 1999: Argentina had not
shown that increased imports were the
cause of serious harm to domestic
footwear
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GATT 1994 Agreement on
Safeguards
• What is U.S. position?
• What happens if a country differs from the
WTO’s position?
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Relief from injury caused by
Imports
• No wrong doing
• Some “intent’ to cause injury
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US Escape Clause: Section
201 of Trade Act
• WHAT? “article being imported in such
increased quantities as to be a
SUBSTANTIAL cause of SERIOUS
INJURY or threat thereof to domestic
industry producing an article LIKE or
DIRECTLY COMPETITIVE with the
imported article”
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Who Enforces?
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Complaint filed with ITC (bipartisan)
Hearings
Recommendation to the President
President decides whether to implement
Example: Harley Davidson case
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Steel Imports- 2001
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June 2001, Bush asks ITC to investigate
Clinton had refused to take such action
ITC decided OCT. 2001 found serious injury
White House must decide after further hearings
Steelworkers? Free Trade agenda?
President Bush imposed quotas WTO 2003
found U.S. in violation. and lifted them
December 2003.
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Remedies under
US Escape clause
• President’s options:
– temporary-4-8 yrs.
– 50% tariff increase
– tariff rate quotas
– absolute quotas
– Auctioned import license quotas
– Trade adjustment assistance
– negotiated agreements
• orderly market agreements(gov. to gov.)
• VRA: gov. to supplier
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Trade Adjustment Assistance
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File with the Dept. of Labor
Direct cash payments to workers
Job retraining for workers and relocation
Help for companies as well
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Unfair Imports: all countries have
statutes patterned after GATT
• Dumping- antidumping duties
• Subsidies- countervailing duties
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Dumping
• What is it? selling products in foreign
country for less than the price charged in
producer’s home market
• Price discrimination
• What is wrong with this?
• Purpose to drive out competition
• Criticism?
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Dumping outlawed by GATT
• 1994 Antidumping Agreement
• GATT says dumping is at less than normal
value
• US states dumping is a sale at less than
“fair value”
• Normal value- export price= dumping
margin
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Dumping
• Export price= price w/o shipping charges
sold to unrelated buyer in importing
country
• Constructed price
• Pesquera Mares Australes Ltd v. U.S.
(Chilean salmon) : violated U.S.
antidumping laws by selling foreign
salmon at less than fair value
• Used sales in Japan to compare
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Mechanics of Dumping
Investigation
• ITA determines whether dumping exists
• ITC determines extent of injury
• You can win but still lose. How? If the
dumping margin calculated is small
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WTO will play role
• WTO Dispute Settlement body
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How to calculate when dealing with
products from non market economies?
• Bulk Aspirin from the People’s Republic of
China 2000
• The ITC found injury to US producers of
aspirin but the ITA in calculating the
dumping margin cut the antidumping
duties to zero. Rhodia testified that without
the duties its business disappeared.
Rhodia closed its U.S. plant and moved to
China.
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Subsidies
• 1994 Agreement on Subsidies and
Countervailing Measures
• Unfair Imports
• Consistent with GATT
• Remedy = COUNTERVAILING DUTIES
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What Is a Subsidy?
• Government confers a benefit on a domestic
firm and provides income, price support or
financial contribution (not collecting a tax,
providing grant or loan at favorable rate)
providing investment capital, Furnishing goods
or services like a road
• Prohibited subsidies: export subsidies or import
substitution subsidy
• Some subsidies are permitted as part of
government’s responsibility to fund social
programs and provide growth
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WTO may investigate
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Cause injury
Nullification and impairment of rights
Serious prejudice to another
Specific
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Subsidy
• Prohibited subsidies: export or import
substitution subsidies
• Domestic subsidies: government programs
generally permissible as part of legitimate
responsibility of government to direct
industrial growth and fund social programs
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US investigation
• ITA- Does subsidy exist
• ITC- Material injury?
• NOTE THAT THE STANDARD MATERIAL
INJURY IS LOWER THAN THE SERIOUS
INJURY REQUIRED UNDER ESCAPE
CLAUSE
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U.S. Countervailing Measures
Concerning Certain products from the
EC (steel) 2002
• EC challenges U.S. use of “same person” test.
The panel found that the U.S.violated the WTO
Agreement on Subsidies and Countervailing
measures (SCM).
• Subsequently in 2003, the ITA changed its rules.
The presumption is rebuttable if the company
can show that the government sold its interest ,
retains no control and it was an arm’s length
transaction at fair market value.
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Judicial Review?
• Countervailable duties and Antidumping
duties may be reviewed by the CIT (both
final determinations and negative injury)
• Limited review in Escape Clause
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Conclusions
• Complex interrelated international and
national regulations
• Businesses will face these issue at
home and abroad
• What role WTO will play in the future?
• Role of politics- reflections?
• Other news items?
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