International trade provides countries with mutual benefits. It promotes globalization and allows businesses all over the world to achieve economies of scale by purchasing goods and services, which may be more cost effective, from other countries and capitalize on selling goods which involve low (labour) costs. Trade measures are required to enforce laws and obligations so all countries can benefit and grow. The Geneva based organization, otherwise known as The World Trade Organization (WTO), helps international trade flow smoothly by imposing rules and regulations pertaining to tariffs and trade between member nations. The system attempts to remove trade barriers worldwide, promotes world peace, stimulates economic growth, encourages good government, and the basic principles to make life easier for all.(1) The organization includes agreements such as: GATT, GAT, TRIPs, Anti-Dumping Agreement, Subsidies & Countervailing Measures Agreement, SPS Agreement, and an Agreement on Safeguards. These agreements allow all WTO member countries to have a fair shake when playing on the big field. Focusing on two agreements of the WTO, The Anti-Dumping Agreement and the Agreement on Safeguards are used as protective measures which promote fair trade while protecting the domestic market against imports. Although they have the same purpose, there are many differences between the two measures. A safeguard may be imposed when trade is working too well, wherein anti-dumping measures are taken when trade is not working.
Safeguards are considered “emergency actions”(2), “here, the injury has to be serious”(3) This measure applies to all WTO members wherein the restriction against certain goods applies to all WTO members importing this good to, for example Canada. Safeguard actions are used in situations where trade is fair; however, can be requested by the Canadian government to restrict certain imports because despite being fair, the imports are injuring the Canadian industry. Although the goods are not being dumped nor are they being subsidized, a safeguard can be put into place when a good is being flooded into the domestic market and jeopardizing it. A safeguard would be considered in this type of situation in hopes to buy time so the domestic company can still exist. The restriction of the particular good is temporary and only for a short time with the option to file another safeguard after 24-months (upon approval). However, if a safeguard remains for more than 6 years, compensation must be provided to the importing countries (unlike with anti-dumping measures). The prime objective for a government to take on such an action would be to give domestic companies time to adjust and catch up to the imported “technology” and become more competitive.
To commence a safeguard case, it must be requested by either the domestic company or the government. In regards to the CITT’s role, only recommendations can be made in a safeguard case wherein it is not binding until government approval whereas automatic measures are taken in an anti-dumping/countervailing case. For a safeguard to apply there must be an increase in imports which are unforeseen and harm should be caused by the sudden surge. The domestic company should be able to provide evidence proving the harm with information such as: lose of market share, dropping sales, etc.
Dumping is an illegal act wherein a country fails to abide by the WTO agreement. It occurs when a product is flooded into a market, causing injury to the domestic industry due to unfair trade practices. Dumping can cause damage and be identified in one of three forms, which include causing: injury, threat of injury, or retardation. To file a complaint against this form of unfair trade and commence an anti-dumping case, firstly, the Canadian company (assuming the Canadian company is the complainant) must be able to present evidence of material injury as reduced sales, market loss, lower inventory turnover, etc. Once it is clear that material injury has been caused due to the imports from the developing country which is offering their goods at extremely low prices, the complaint is taken to the Canada Customs and Revenue Agency. At this point, investigation is done and if unfair is suspected, a preliminary duty is levied. The CCRA is responsible for conducting a questionnaire and collect information regarding both parties involved: the importer and the exporter. If dumping is occurring, SIMA determines the margin of dumping in order to increase the duty levied accordingly. At this point, all information gathered is sent to the CITT for the final verdict, which is determined by the tribunal. If in fact, dumping was evident, duty would be, most likely, increased which ultimately will cause the importing company to higher prices to make up for this additional cost. This promotes fair trade and if dumping was actually the case, the Canadian company should be able to get back up. In an anti-dumping case only one other source is inquired. The two parties involved are the respondent and the complainant.
An example of anti-dumping is demonstrated in the relatively, recent case involving Canada and the U.S. Although the dispute has now been settled, in 2002, Canada was accused for flooding the U.S. market with softwood lumber. Investigators found that Canadian softwood lumber was being unfairly subsidized by the government and then being dumped in the U.S. at prices which were below normal value. The selling of lumber below normal value created issues, in which it was claimed that the effects of Canada’s lower priced lumber was causing material injury to the United States’ industry. Once this was discovered, the U.S. government imposed import tariffs in order help eliminate/lessen the effects of Canadian competition by creating a barrier as it, “raises the price in the importing country relative to the price in the exporting country and it reduces the volume of trade.”(4) This protection measure was put into place to defend the American lumber industry by significantly marking-up the Canadian softwood lumber prices through import tariffs. Ultimately eliminating Canada’s lower price advantage.
In conclusion, the key differences between anti-dumping and safeguards are that anti-dumping is enforced to eliminate illegal trade which causes injury to the domestic industry whereas safeguard measures are imposed to protect the domestic industry against an unforeseen increase in imports which does not involve any illegal acts. Another difference is the number of sources involved, an anti-dumping case involves only one source, for example, Canada (complainant) and the dumping country whereas safeguards require inquiries of many different countries and all sources of imports must be studied to truly understand the nature of the global industry.
Copyright © Esha Abrol, Canada. 2008
References
(1) Global Entrepreneurship book. FITT Skills. Version 4.1. Version 4.1. Forum for International Trade Training Inc. 2002.
(2) WTO. Retrieved March 1, 2007
Web site: http://www.wto.org/english/tratop_e/safe_e/safeint.htm
(3) WTO. Retrieved March 6, 2007, from UNDERSTANDING THE WTO: THE AGREEMENTS Web site: Retrieved February 26, 2007, from UNDERSTANDING THE WTO: THE AGREEMENTS Web site: http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm8_e.htm
(4) WTO. Retrieved March 4, 2007, from DISPUTE SETTLEMENT: DISPUTE DS277 Web site: http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds277_e.htm
Legal Aspects of International Trade book. FITT Skills. Version 4.0. Forum for International Trade Training Inc. 2003.
Thompson, Robert (2007).Globalization and the benefits of trade. Chicago Fed Letter.Chicago . Iss. 236, pg. 1, 4 pgs.
WTO. Retrieved March 1, 2007, from Agreement on Safeguards Web site: http://www.wto.org/english/docs_e/legal_e/25-safeg.wpf WTO. Retrieved March 1, 2007, from AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES Web site: http://www.wto.org/english/docs_e/legal_e/24-scm.wpf
