WTO Safeguards, Adjustment and Exceptions

WTO & Safeguards

Unilateral action may be permitted as a safeguard in unforeseen circumstances where there are imports in such quantities or conditions such as to cause serious injury to domestic producers of similar goods. Obligations may be modified or suspended. Conditions apply.

Article XIX of GATT provides:\”If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession.\”

Prior to taking such action, the state party  must give notice to the other state parties which have a substantial interest as exporters of the relevant product, and give them the opportunity to consult in respect of the proposal. There may be a negotiated concession or compensation. If this is not achieved, the affected state may unilaterally suspend substantially equivalent concessions or other obligations.

The terms of the GATT safeguarding provisions are in some respects vague and subject to abuse. They represented a traditional escape clause found in earlier trade agreements. In practice, prior notice was not given of measures, many of which where debatable in their application. The requirement to make concessions was not always justified.

Bilateral voluntary export restraint agreements and orderly marketing agreements had been negotiated and entered, which further circumvented the GATT safeguard provisions, by means of tacit state approval.

Efforts were made in subsequent Rounds  of negotiation to provide clearer provisions.  Ultimately the below mentioned Agreement on Safeguards  has ought to ensure that the key provisions are more precise and less susceptible to misuse.

Agreement on Safeguards

Following failure in that regard in the Tokyo Round in the 1970s,  the Uruguay Round led to an Agreement on Safeguards was entered between all WTO members.

The essential objective behind the UR Agreement on Safeguards was to encourage member countries to make use of the conventional safeguards over anti-dumping and VERs.  To this end, it abolishes the use of VERs.  It required the VERs in force at the time of the establishment of the WTO to be phased out over a period of four years.  For future, the Agreement explicitly states that a WTO member state \”shall not seek, take or maintain any voluntary export restraints, orderly market arrangements, or any other similar measures on the import side.\”  Unfortunately, since the only way to enforce this provision is through a challenge by the \”victim\” in the WTO and the \”victim\” in this case is the initiator, it is doubtful the VERs will disappear altogether.  Indeed, recently, the United States has been gone on to introduce new VERs on the imports of steel from Brazil.

The Safeguarding Agreement provides that the states may impose a safeguard measure only following a determination that the increased imports have caused or threatened to cause serious injury to the domestic industry that produces like or directly competitive products. The determination must be based on a reasoned decision based on an established procedure and following investigation of the relevant factors. It must be on the basis of objective evidence of the existence of a link between the imports and injury.

“Serious injury” is defined as a significant overall impairment in the position of the domestic industry. The threat of serious industry injury must be such as to be clearly imminent. It must be based on facts and not conjecture or possibility. Objective data are required, in particular, in relation to the increase in imports, market share, changes in sales patterns, changes in productivity and losses in employment.

States may investigate whether increases in imports are causing or may cause serious injury to a domestic industry. No decision may be made unless the procedure demonstrates on the basis of objective evidence that the increased imports have caused or threaten serious injury.The measures may be by way of tariff or quota. Even in the above circumstances, measures may only be applied to the extent necessary to prevent or remedy serious injury and to facilitate adjustment

Safeguard measures may be applied to the imported product concerned. It may be by way of quota. In such case, the quota is to be allocated between those state parties who have a  substantial interest in supplying the product concerned on the basis of supplies by that state during the previous representative period.

A State may apply discriminatory treatment in allocating the quota if it can demonstrate that imports from the state concerned increased disproportionately relative to the increase of total imports of the product concerned. The departure must be justifiable and the conditions must be equitable to all suppliers.

The position is measured with reference to the time when the state importing which wishes to apply a safeguard measure made a binding tariff or other commitment in relation to the product concerned. Increased imports refer to the trend over the particular period rather than to the beginning and end only.

The increase must be sufficiently recent, sharp and significant both as to quantity and quality such as to cause serious injury. Serious injury is a higher measure than material injury used otherwise. It appears that the increase in imports need not be the only cause of the serious injury.

The exports which are considered in the determination of the injury and those included in the safeguard measures must be the same.

Safeguarding Measures and Disputes

A member shall apply safeguard measures only for such time as may be necessary to accomplish the permitted objectives, i.e. preventing serious injury and facilitating adjustment by domestic industry.

The safeguard measures may be taken for up to four years. This period may be extended and continue if it is shown to be necessary in order to  remediate serious injury and there is evidence that the industry is adjusting.

The four-year period may be extended on the basis of a new investigation only to a maximum of eight years and then on the basis of a determination that the safeguard measure continues to be necessary and there is evidence that the industry is adjusting.

Safeguard measures are to be liberalised progressively during the period of their application. A new safeguard may not be applied for an equivalent period.

Usual Reciprocity Suspended

In principle, when a state suspends any existing commitment, it must negotiate with the interested exporting party states in relation to compensation. If this is not successful, it may withdraw equivalent concessions. The right of members to do so does not extend to the first three years of the safeguard measures, provided the measures were taken as a result of an absolute increase in imports and if the measures conform to the provisions of the Agreement.

The right of exporting states to suspend equivalent concessions may not be exercised during the first three years when a safeguard measure is in effect, if the measure was taken as a result of an absolute increase in imports and the measure conforms to the Agreement. Accordingly, they have less leverage to seek further trade concessions in return, by so doing in this period.

Developing Countries

Developing countries are given greater scope to impose restrictions to promote infant domestic industries and assist in balance of payment problems. They are not required to make reciprocal commitments in trade negotiations. Developed countries are to give high priority to allowing non-reciprocal reduction and elimination of trade in products from less development countries.

A General System of Preferences was introduced pursuant to these obligations. Some states have adopted their own special preferences under a waiver and laterally under a general exception to the most favoured nation requirement.

Exceptions

There are exceptions to the obligation to implement GATT measures on the basis of where they are necessary

• to protect public morals, human or animal health,
• secure compliance with the laws and regulations that are not inconsistent with GATT,
• to protect national treasures,
• for the conservation of natural resources.

None of these measures may be an arbitrary or unjustifiable form of discrimination relative to comparable circumstances or be a disguised restriction on international trade.

Voluntary Export Restraints

Grey measures such as the voluntary export restraint have been employed in the past. The targeted countries agree to limit their exports of a product to the country seeking import restriction to an agreed level. The measures are therefore discriminatory.

The Agreement on Safeguards sought to encourage members to use of the conventional safeguards over anti-dumping and VERs. It prohibited the use of VERs. It required existing  VER  be phased out over a period of four years. A WTO member state \”shall not seek, take or maintain any voluntary export restraints, orderly market arrangements, or any other similar measures on the import side.\”