Critical Analysis of Special and Differential Treatment under the Antidumping Agreement

Pragati BhaskarYerlekar, Ph.D Research Scholar, RTM Nagpur University

Abstract

Today the developing countries are the major players in the world trade. However, in the phase of gradual reduction of trade barriers and liberalisation of trade, the developing countries faced difficulties to face the challenges of the new trade regime. They became vulnerable to the problems of the new multilateral trading system. They were required to adapt to the new framework and at the same time were concerned about their economy which was not equipped to face the challenges. They raised concern regarding their special situation as developing countries and sought special and differential treatment (S&D) acknowledging their status as such. They finally succeeded in seeking the same; however, the journey was not easy. This paper traces out in brief the history of efforts of the developing countries in getting incorporated (S&D) clause in the agreements of the WTO and a critical analysis of the (S&D) clause inserted in the Antidumping Agreement.  In spite of the tiresome endeavor of the developing countries this noble provision has not been operationalized in its true perspective. This paper discusses with the help of case history as to how the developed countries are not adhering to their obligation and the resultant efforts of the developing countries for operationalizing this provision.

Introduction

The Special and Differential treatment (S&D) is the most promising feature of the multilateral trading system from the perspective of the developing countries. It allows a deviation from the Most Favoured Nation (MFN) Clause within the framework of the multilateral trading system. It permits some preferential rights and concessions to the developing countries considering their stage of economic development.  Basically, the multilateral trading system under the WTO is based on the principle of non-discrimination. However, developed countries are at a much higher level of economic development as compared to the developing countries. Thus, treating the unequals equally amounts to discrimination in one sense. Therefore, S&D provisions have been adopted to give some relief to the developing countries with a view to create level playing field.

S&D under GATT

The General Agreement on Tariffs and Trade (GATT) was established in 1947. About 11 of its founder members were developing countries1. In spite of that GATT in its original form did not have any provision regarding developing countries. Thus, the developing countries started raising their concern to accommodate their special situation by considering the challenges faced by them in International trade. At the twelfth session of the GATT Contracting Parties, held at Ministerial level in 1957, agricultural protectionism, fluctuating commodity prices and the failure of export earnings to keep pace with import demand in developing countries were identified as undesirable features of the international trading environment. A Panel of Experts was established under the chairmanship of Prof. Haberler to examine trends in international trade in light of these concerns. The 1958 Haberler Report confirmed the view that developing country export earnings were insufficient to meet development needs and focused primarily on developed country trade barriers as a significant part of the problem, although the report also criticized some developing countries trade barriers. In response to Haberler report, GATT Contracting Parties established three committees to develop a coordinated Program of Action Directed towards an Expansion of International Trade. Committee III focused on barriers to exports maintained by developed countries. By 1963, Committee III had drawn up an eight-point Plan of Action, which among other things called for a freeze on all developed country trade barriers on products of interest to developing countries and the removal of all duties on tropical and other primary products. The Program of Action became part of the Kennedy Round (1964-1967) and was never implemented to a significant degree2. However, with the establishment of United Nations Conference on Trade and Development (UNCTAD), decolonization in African and Asian countries and the Cold War, the numeric strength of the developing countries had increased. They succeeded in lobbying and in placing their issues on the discussion table of GATT with force. This resulted in enactment of Part IV of the GATT in 1965 which consisted of three Articles on Trade and Development3. Article 36 expressed the need for positive efforts designed to ensure that less-developed contracting parties secure a share in the growth in international trade commensurate with the needs of their economic development4. Considering  the dependence of many less-developed contracting parties on the exportation of a limited range of primary products, need was felt to provide in the largest possible measure more favourable and acceptable conditions of access to world markets for these products5. The developed contracting parties were expected, to accord high priority to the fullest extent possible to the reduction and elimination of barriers to products currently or potentially of particular export interest to less-developed contracting parties, including customs duties and other restrictions which differentiate unreasonably between such products in their primary and in their processed forms6. Article 38 called for the contracting parties to collaborate jointly to further the objectives set forth in Article 36 in order to provide improved and acceptable conditions of access to world markets for primary products of particular interest to less developed contracting parties. However, the Agreement was silent as to how the set out goal was to be achieved. None of the provisions of Part IV legally bound developed countries to undertake specific actions in favour of developing country contracting parties7. There was no mechanism to negotiate legal commitments in their favour.

The developing countries had to wait until Tokyo Round for formal recognition of their special status. The Tokyo Round Code contained a very significant provision with respect to the developing countries. At that time, developing countries found the 1967 Kennedy Round provisions were insignificant to answer their problems. As the developing countries pushed their demand further, developed countries agreed to give special regard to the situation of developing countries. Thus, the code recognized that special regard must be given by developed countries to special situation of developing countries. It laid foundation of special and differential treatment for Developing Countries. However, it did not specifically exempt the developing countries from the Code’s general provisions. It was only a general promise. No concrete provisions were made.

The Uruguay Round concluded with the establishment of the World Trade Organisation (WTO). It gave birth to new multilateral trading system. The developing countries which had grown in number until Uruguay Round became aggressive over their rights. They succeeded in lobbying for concrete S&D provisions in almost all the agreements negotiated at that time. As a result, a specific provision came to be inserted in those agreements formally acknowledging special and differential treatment to the developing countries.

Special and Differential Treatment under Antidumping Agreement

Developing countries have been active participants in WTO Dispute Settlement Proceeding involving antidumping issues. Though they have become significant players in the world trade, they have to abide by the same rules, and they have the same rights and obligations as their counterparts in developed countries. There is one exception in the form of Article 15 of Antidumping Agreement (ADA) which is result of persistent efforts of the developing countries during the negotiations for the antidumping code.

ADA provides for Special and Differential Treatment (S&D) for developing countries as enshrined in Article 15. It is recognized that special regard must be given by developed country Members to the special situation of developing country Members when considering the application of anti-dumping measures under this Agreement. Possibilities of constructive remedies provided for by this Agreement shall be explored before applying anti-dumping duties where they would affect the essential interests of developing country Members. Under the Tokyo Round Antidumping Code, in EC- Cotton Yarns,8Brazil had challenged the failure of the EC to apply this provision. Brazil argued that special and differential treatment clause imposed two obligations. The first obligation was to have special regard to the special situation of developing countries when considering the application of measures under the Agreement. The second obligation was to explore constructive remedies. The EC had breached its obligation under the Agreement by not giving ‘special regard’ to the ‘special situation’ of Brazil and not exploring the possibility of constructive remedies proposed by Brazilian exporters. The panel concluded that it was clear from the words ‘possibilities’ and ‘explored’ that the investigating authorities were not required to adopt constructive remedies merely because they were proposed9.

Also in US – Steel Plate,10the Panel opined that Article 15 does not create binding obligation on the Members. The dispute was regarding imposition of anti-dumping measures by US on certain cut-to-length carbon steel plate from India. The sole Indian respondent was the Steel Authority of India, Ltd. (SAIL). India argued that USDOC violated the first sentence of Article 15 of the ADA by failing to give special regard to India’s status as a developing country when considering the application of antidumping duties. India also maintained that Article 15 requires an investigating authority to articulate in its final determination how special regard was exercised. India asserted that the United States violated the second sentence of Article 15 of the ADA by failing to explore the possibilities of constructive remedies provided for the Agreement before applying the duties in this case as she did not consider a proposal made by SAIL for a suspension agreement  with USDOC.

Though the panel expressed agreement with India to some extent, it opined that the Members cannot be expected to comply with an obligation whose parameters are entirely undefined. The first sentence of Article 15 imposes no specific or general obligation on Members to undertake any particular action. The panel also rejected the suggestion that special regard must be given throughout the course of the investigation. It considered that the phrase ‘when considering the application of antidumping measures under this Agreement’ refers to the final decision whether to apply a final measure, and not intermediate decisions concerning such matters as investigative procedures and choices of methodology during the course of the investigation11.

However, in the EC – Bed Linen,12Panel brought this provision in action. Until the Bed Linen case, no WTO panel had discussed this provision in its true perspective. In this case EC had initiated antidumping action against imports of cotton type bed linen form India. India asserted that the European Communities acted inconsistently with Article 15 of the ADA by not exploring possibilities of a constructive remedy prior to the imposition of antidumping duties and by not reacting to detailed arguments from Indian exporters pertaining to Article 15. India maintained that, despite repeated and detailed arguments by the Indian parties stressing the importance of the bed linen and textile industries to India’s economy, the European Communities failed to even mention India’s status as a developing country, let alone consider or comment on possibilities of constructive remedies. India also pointed out that Texprocil, the Cotton Textiles Export Promotion Council of India, acting on behalf of Indian producers and exporters, had communicated to the European Communities its desire, and that of its members, to offer price undertakings. India alleged that this offer was rejected by the European Communities without substantive consideration13.

However, the European Communities stressed that the difficulty that frequently arises in relation to undertakings that of effective supervision, can also apply in the case of developing countries. In this case, the European Communities argued that the reason for not accepting undertaking was that none had been offered by the exporters within the time limits set by the EC Regulation. Under EC procedures, undertakings may be offered during the 10 day period following the disclosure of the confidential final dumping margin calculations for investigated producers. The offer from Texprocil referred to by India was made on the last day14.

The United States and Japan, the developed country Members expressed view as third party that Article 15 of the ADA provides procedural safeguards, but it does not require any particular substantive outcome, or any specific accommodations to be made on the basis of developing country status.  Article 15 imposes no specific obligations on developed country Members15.

While dealing with the rival arguments, the panel observed that Article 15 does not require that  ‘constructive remedies’  must be explored, but rather  that the ‘possibilities’ of such remedies must be explored, which further suggests that the exploration may conclude that no possibilities exist, or that no constructive remedies are possible, in the particular circumstances of a given case. However, it agreed that refusal to consider the desire of the Indian exporters to give price undertakings constituted a failure to ‘explore possibilities of constructive remedies’ and therefore concluded that the European Communities failed to act consistently with its obligations under Article 15 of the ADA. The panel further provided guidance that the imposition of a lesser duty or a price undertaking would constitute ‘constructive remedies’ within the meaning of Article 15. The panel followed its observation in EC- Cast Iron from Brazil.16It propounded that the concept of ‘explore’ cannot be understood to require any particular outcome with respect to the substantive decision that results from the exploration17.

Though the panel did not specifically highlight that the provision is of mandatory nature, it compelled the developed countries to think in the line of its observations. The arguments advanced by the developed countries before the panel clearly show that they are reluctant to give due consideration to the special situation of the developing countries. The findings of the panel have compelled them to think in that line. The Panel has given the WTO Members a hint of what could constitute a ‘constructive remedy.’ Be it so, it has been once again highlighted that there are some grey areas in the WTO antidumping regime of which the issue of special and differential treatment is one important part. It underlined the urgent need to operationalise this provision.

Later Developments18.

At Doha Ministerial in 2001, the developing countries consistently raised the issue of S&D. Many proposals were tabled and discussed. Though the negotiations were initiated, they could not be completed due to rival interests. Therefore, the Doha Development Agenda was carried forward to the next Ministerials with a hope to derive consensus on material issues including S&D.  At Cancun (2003), ministers were asked to endorse and immediately implement a subset of the numerous proposals for special and differential treatment as well as to set a new deadline for resolving outstanding special and differential treatment and implementation issues. For some developing countries, progress on these issues at Cancun was key to their willingness to negotiate in other areas. However, developed and developing countries fundamentally disagreed in their interpretation and use of special and differential treatment. Many developing countries wanted an expansion of special and differential treatment. A total of 24 special and differential treatment proposals, including some related to implementation issues, were included in the draft Cancun Ministerial Declaration sent to next Ministerial.

Since beginning the provisions of special and differential treatment were the top priority for the developing countries. Thus, the General Council had proposed to provide for a mechanism. On that line, Special and Differential Treatment monitoring mechanism was agreed to be set up. The purpose of the proposed mechanism is to evaluate the utilization and effectiveness of these provisions and to propose actions to strengthen and improve them. The mechanism is to apply to all special and differential treatment provisions in WTO agreements. As per a draft text issued in 2011, it is expected that recommendations or proposals for initiating negotiations in other WTO Bodies on special and differential treatment provisions would be reviewed in the Mechanism. However, the mechanism is not a negotiating body. Even after one and half decade’s negotiations on this subject, Members could not come to agreement on the actual establishment of this mechanism.

Conclusion

It is the need of the hour that provision of S&D should be treated as mandatory provision and special and differential treatment should be accorded from initial stage, right from the stage of initiation of investigation. The provision as to S&D needs to be made operational in practice and should not remain only as a paper provision. There is need to concretise this rather vague provision. The Member countries are required to find out more constructive remedies to make this provision operational. Increasing de minimis margin for developing countries, mandatory lesser duty rule, price undertakings, extension of time limits and provision of technical assistance etc. may be considered as parameters for giving effect to this provision. When such measures are considered, then only this provision could be implemented effectively.

  1. These countries were Brazil, Burma, Ceylon, Chile, China, Cuba, India, Lebanon,         Pakistan, Rhodesia and Syria []
  2. Alexander Keck and Patrick Low, “Special and differential treatment in the WTO:  Why,    When and How?” World Bank Staff Working Paper ERSD-2004-03, at page3 available at <https://www.wto.org/english/res_e/reser_e/wpaps_e.htm> retrieved on 2 September, 2015 []
  3. Ibid []
  4. Article 36.3 of  GATT []
  5. Article 36.4 []
  6. Article 37 []
  7. Constantine Michalopoulos, “The Role of Special and Differential Treatment for developing Countries in GATT and the World Trade Organization”, World Bank Policy           Research Working Paper 2388, Washington DC: World Bank available at https://openknowledge.worldbank.org/bitstream/handle/10986/19819/multi_page.pdf retrieved on 14 August, 2015 []
  8. EC- Imposition of Antidumping Duties on Imports of Cotton Yarn from Brazil, GATT    Panel Report, para 584, adopted by ADP Committee, October 30, 1995, ADP/137 42S/17 []
  9. Ibid Panel Report para 584 []
  10. United States – Anti-Dumping and Countervailing Measures on Steel Plate from India, WT/DS206/R adopted on 29 July, 2002. []
  11. Ibid para 7.110 – 7.111 []
  12. European Communities – Antidumping Duties on Imports of Cotton Type Bed Linen from India, WT/DS /141/R adopted on 12 March, 2001 []
  13. Ibid Panel Report para 6.219 []
  14. Ibid para 6.221 – 6.222 []
  15. Ibid para 6.224 – 6.225 []
  16. European Communities – Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/R []
  17. Ibid para VII.9 []
  18. Refer WTO Documents and Resources, available at <https://www.wto.org/english/res_e/ res_e.htm > []