October 01, 2018 ILN Fall 2018

Trends in Trade Remedies Around the Globe

By Jonathan O’Hara, Renee Dopplick, and Lisa Page

Tensions over global trade are rising, as is the attention on the role and effectiveness of the World Trade Organization (WTO) to reduce trade-distorting policies and strengthen international trade cooperation. The G20 countries, at their meeting in Argentina in September, reached consensus that there is an urgent need to reinvigorate the international trading system and reform the WTO. The WTO’s future will have significant impacts on the multilateral framework for trade. The WTO oversees global rules for trade and plays a core role in resolving international trade disputes among its 164 members. The United States is among the proponents for reforming the WTO, with President Trump threatening at the end of August to withdraw from the organization if improvements are not made. President Trump has also stated that the United States would block this year’s reappointment of four of the seven judges on the WTO Appellate Body, which resolves disputes of unfair trading practices, unless progress is made on its restructuring.

President Trump’s threat of potential withdrawal followed the United States launching five separate WTO disputes in July against China, the European Union (EU), Canada, Mexico, and Turkey for imposing new tariffs in response to U.S. tariffs on imports on steel and aluminum. The United States asserts that its steel and aluminum tariffs are consistent with its right to protect U.S. national security interests under international trade rules and that the other countries are responding with retaliatory tariffs in breach of the WTO’s General Agreement on Tariffs and Trade (GATT).

To help facilitate the path forward for negotiations of WTO reforms, Canada in September proposed a draft discussion paper, titled “Strengthening and Modernizing the WTO.” Canada will convene a ministerial group to discuss proposed reforms of the WTO on October 24 and 25, 2018, in Ottawa. The meeting will include trade ministers from Australia, Brazil, Chile, Japan, Kenya, Mexico, New Zealand, Norway, Singapore, South Korea, Switzerland, and the EU.

Among the major areas targeted for reforms is the WTO’s dispute settlement system. The policy rationale underlying trade remedies, such as anti-dumping measures, can be contentious. On the one hand, a government’s right to protect its industries from unfair trade seems laudable. On the other, trade remedies are sometimes alleged to have a protectionist element. The WTO dispute settlement process exists, in part, to help strike the appropriate balance pursuant to commitments under the WTO Agreement.

As stakeholders look at ways to strengthen and reform the WTO dispute settlement system, what can we learn from two decades of domestic anti-dumping investigations? Have investigations increased alongside the growing complexities of our global economic system? Are countries with emerging economies using trade remedy rules against larger trading countries, or do we find them largely disadvantaged, or even potentially absent? Are some countries more active than others in commencing investigations or imposing trade remedy measures?

This article spotlights six key findings gleaned from the data of thousands of anti-dumping investigations from 1997 through 2017. Anti-dumping complaints, broadly speaking, are brought when products are being imported at an allegedly unfairly low price, generally lower than in the exporter’s home market. The article takes an in-depth look anti-dumping investigations and WTO anti-dumping disputes for a sample of countries with developed and emerging economies. The study sample included eight G20 members: the United States, the EU, Canada, and the five so-called BRICS countries of Brazil, Russia, India, China, and South Africa. The BRICS countries have met as a group annually since 2009, with South Africa joining in 2010, and represent how emerging economies have adapted to international trade rules under the WTO.

To assess trends in anti-dumping proceedings by WTO members, we analyzed data from more than 4,500 anti-dumping investigations from 1997 through 2017, obtained from the WTO’s Integrated Trade Intelligence Portal. The analysis considers definitive anti-dumping measures brought by or that came into force for each of the eight jurisdictions by all WTO members. The analysis also includes WTO dispute resolution matters where the eight jurisdictions participated as a party, either as complainant or respondent. It does not include cases where they were only asserting their third-party rights.

The vast majority of the anti-dumping measures examined was initiated and concluded during the time period of 1997 until 2017; however, certain isolated cases were initiated prior to this period and were brought into force or withdrawn in the examined period. To help assess trends over time, the two decades were divided into three periods: 1997─2003, 2004─2010, and 2011─2017.

Overview of Dumping and Anti-Dumping Proceedings

“Dumping” occurs where a company exports a product at a lower price than the price it normally charges in its domestic market. Under the WTO Agreement, dumping is not illegal; however, members are allowed to take certain actions to counteract the dumping.

The country receiving the dumped product can implement an “anti-dumping measure,” which is a government’s response against dumping, usually through an extra duty on a particular product from the exporting country in order to bring the price to its “normal value.” A normal value generally reflects the selling price in the exporter’s domestic market. An anti‑dumping duty aims to protect domestic industries by rectifying the trade-distortive effects of dumping and reestablishing fair trade.

Action against dumping is only permitted where there is material injury to the competing domestic industry. The member government must show that dumping is taking place, calculate the extent of the dumping by comparing the lower export price to the exporter’s domestic market price, and show that dumping is causing or threatening to cause injury. A detailed investigation is conducted into whether the alleged dumping is hurting the industry in the importing country, evaluating all relevant economic factors.

There are specified procedures for anti-dumping case initiations, investigations, and presentations of evidence from all interested parties. After five years from the date of imposition, an anti-dumping measure must expire unless there is evidence that ending the measure would lead to injury, which may lead to a renewal of the anti-dumping finding.

Finding #1: The Number of Anti-Dumping Proceedings Declined

The number of investigations initiated by the sample countries provides an interesting snapshot of how assertive their domestic industries are when it comes to combating allegedly unfair trade practices. The eight jurisdictions, as a group, experienced a downward trend in the number of anti-dumping investigations. In the third period of 2011 to 2017, there were 14% fewer proceedings brought across the eight jurisdictions than in the first period during 1997 to 2003. This suggests that the domestic industries in these jurisdictions became less assertive in their rights against unfair trade practices or that they faced fewer cases of unfair dumping into their economies. This decline in the number of proceedings, however, could see a reversal over the next several years in response to the recent increase in trade remedy cases in 2017 and 2018.

Finding #2: India, the United States, and the EU Ranked Among the Top WTO Members to Initiate Anti-Dumping Proceedings

The G20 members in this study initiated more than half the global total of anti-dumping proceedings since 1997. India was the world leader in initiating anti-dumping investigations, with 17% of the global total. The United States accounted for 12% of the global total, and the EU totaled 9%. Combined, the United States, the EU, and Canada initiated 25% of all anti‑dumping investigations, whereas the BRICS countries initiated 35%.

Finding #3: The BRICS Countries Contributed Significantly to the Global Number of Anti‑Dumping Proceedings

The BRICS countries collectively initiated just over one-third of the global total of all anti‑dumping proceedings. Further, each of the BRICS countries initiated anti-dumping proceedings well above the WTO member average.

Interestingly, when looking at the breakdown of anti-dumping investigations initiated by the BRICS countries, the country with the largest economy and population, China, was third within the group in terms of proceedings initiated. Both India and Brazil, with much smaller gross domestic products (GDPs), initiated more anti‑dumping proceedings than China. Russia also initiated disproportionately fewer investigations; however, that low number may have more to do with the country’s disproportionately high success rate and the fact that Russia only joined the WTO in August 2012.

Finding #4: Success Rates for the Initiating Party Remained High for Anti-Dumping Proceedings

Overall, the initiating parties have, more often than not, concluded that the dumping-related trade practices of exporters in another member state qualify as unfair. The average global success rate for WTO members was 70% across the twenty years.

Among the United States, the EU, and Canada, the increase in the number of investigations during 2011–2017 was not rewarded with a higher success rate; rather, the success rate further declined, falling to 60% and yielding an average twenty-year success rate of 68%, just below the global average. One possible contributing factor could be that proceedings became more contentious, with respondents to investigations becoming more sophisticated in defending themselves.

The BRICS countries, as a group, had an average success rate of 74%, above the global average, but the trend has been consistently downward during the twenty years, dropping from 85% in the first period to 64% in the third period. Notably, Brazil, which was the country least likely to implement an anti-dumping measure following an investigation, still saw an average success rate above 60%. Given how often BRICS countries were targeted by anti-dumping investigations by developed countries, the group may become increasingly sensitive to anti-dumping measures.

United States: The 65% success rate for the United States for the twenty years was slightly below the average 68% for the United States, the EU, and Canada, as a group. When looking across the three time periods studied, the U.S. success rate fluctuated, whereas the group’s success rate trended downward. The U.S. success rate of 65% for the first period was well below the group average of 74%. However, in the second time period ending in 2010, its success rate rose to 80%, well above the group’s success rate of 67%. During the final period ending in 2017, the U.S. success rate of 55% was below the combined U.S., EU, and Canada average of 59%.

European Union: Both the success rate and the number of investigations steadily declined during the twenty years. The EU started strong with an 84% success rate through the end of 2003, well above the group average of 74%. The success rate then fell to a low of 58% for the period ending 2017. Despite the reported rise of EU populism and the Brexit decision from 2016, the EU has momentum in moving to trade liberalization, and, to that end, practitioners will want to monitor the EU-Canada Comprehensive and Economic Trade Agreement (CETA), which entered into force on September 27, 2017.

Canada: Canada had an average success rate of 71% across the twenty years, despite its significant drop to 50% during the period of 2004-2010. The rebound in the third period ending in 2017 suggests that Canadian industry may have become better at recognizing and documenting unfair dumping practices and then working more effectively with investigating authorities. Canada had a higher average success rate than the United States, yet Canada also initiated fewer investigations. Among the eight members analyzed, only South Africa and Russia initiated fewer investigations.

Brazil: Latin America’s largest country, in size and population, saw its anti-dumping investigations more than double, but it did not see a proportional increase in successful proceedings. Brazil’s relatively steady success rate of 63% was far below the BRICS group and global averages. The number of successful anti-dumping investigations, however, steadily rose. Whether it stays on that upward trend remains to be seen.

Russia: The true outlier among the BRICS countries, as far as anti-dumping investigations were concerned, was Russia. As stated earlier, Russia joined the WTO in August 2012. Thus, the absence of comparative data makes it difficult to compare Russia’s performance of success with the other countries. For the available data, Russia had a success rate of 93% on 41 investigations.

India: With an average success rate of 75%, India heavily influenced the BRICS countries’ average success rate of 74% because India initiated almost half of the anti-dumping investigations for the group. Yet, India’s success rate was not constant; rather, India’s success rate for the proceedings it initiated fell from 85% to 61% over the twenty years. India initiated roughly the same number of investigations during the second and third periods yet saw decreased success in each period.

China: China’s average success rate of 80% for complaints it initiated was above both the 74% average for the BRICS countries and the global average of 70%. China’s success rate started at a strong 89%, dipped slightly, yet continued to remain well above the global average.

South Africa: South Africa experienced a steep and steady decline in the number of anti‑dumping proceedings brought during the twenty years and a fluctuating success rate. Its success rate of 96% plunged to 31% during 2004 to 2010 before climbing back to 59% in the third period ending in 2017. Among the BRICS countries, South Africa held the record for initiating the fewest proceedings in one of the time periods and the lowest success rate in one of the time periods. The strong decline in the number of proceedings suggests that the country decided to move away from anti-dumping investigations as a response to certain trade practices or was finding itself the victim of unfair practices far less often.

Finding #5: China Was the Most Frequently Targeted

Many WTO members have been the targets of diverse anti‑dumping investigations. China, however, was targeted far more frequently, with a quarter of all anti-dumping investigations targeting China. In contrast, the other BRICS countries collectively were targeted in roughly a tenth of all investigations. The United States, the EU, and Canada collectively were targeted in only 4% of proceedings. Notably, countervailing proceedings were not included in the analysis. As such, given the frequency with which certain governmental investigating authorities have concluded that the Chinese government subsidized its domestic producers, China may well have been targeted in an even greater proportion of countervailing proceedings.

A deeper look at anti-dumping investigations brought by the other seven members analyzed in this study showed a notable dynamic. With the exception of South Africa and India, investigations saw a boost in success rates when the target was China. The United States enjoyed an especially pronounced boost of 15% in its success rate. Canada, which targeted China the least proportionally, still targeted China in a fifth of its proceedings, and those proceedings were successful in 81% of its proceedings against China. The other BRICS countries targeted China in a quarter of their proceedings, a combined percentage rate similar to the combined percentage rate of the United States, the EU, and Canada. Further, those four BRICS countries, on the whole, were more likely to impose definitive anti-dumping measures against China. South Africa was an outlier as the only one to see a reduced success rate against China, whereas India saw no difference in its success rate. India maintained its average success rate of 75% for its 193 proceedings against China. India initiated the most proceedings against China of any G20 member in this study and more than the other BRICS countries combined. Also of interest, Russia brought eleven proceedings against China, the fewest proceedings, but succeeded every time.

Also notable is that, while the United States, the EU, and Canada targeted China at a similar percentage rate as the global average, they targeted the other BRICS countries at a higher rate than the global average. They also targeted each other at a much lower rate than the global average. In a similar pattern, the BRICS countries, other than China, targeted the United States, the EU, and Canada at a rate well above the global average, with success rates slightly higher than the group average. Those four BRICS countries also rarely targeted each other, and, when they did, the success rates of the investigations considerably dropped. These patterns suggest a developed country versus developing country split.

Finding #6: The United States and the European Union Were More Likely to Be Respondents at the WTO Panel Stage

In proceedings where the first stage of consultations between the parties fails to settle the dispute, the WTO Dispute Resolution process provides members with the opportunity to bring the dispute before a panel, with members appearing as a complainant or a respondent. The panel stage has produced mixed results for the eight members analyzed in this study, with some leveraging the process for their benefit and others needing to accept that their duties were found to be inconsistent with the WTO Agreement.

What immediately jumps out is that the United States, while having initiated only eight complaints relating to dumping at the panel stage, was brought in front of a panel on a dumping matter an additional fifty-two times by other WTO members. This was far more than the other members in this study. The EU ranked second, appearing thirty-one times as the respondent. WTO panels have upheld a significant number of complaints against U.S. and EU anti-dumping practices. Both the United States and the EU had a less than 50% success rate in WTO disputes where they were either the complainant or the respondent. In contrast, Canada and South Africa both had great success at the panel stage, winning more than two-thirds of the time when they appeared as a complainant or a respondent.

What’s Ahead?

An analysis of anti-dumping investigations from 1997 until the start of 2018 suggests that international economic developments over the period, including increased globalization and the global economic crisis in 2008, did not translate into a materially higher number of anti-dumping investigations. Rather than a rise in investigations initiated, or an increase in successful investigations, the overall number of proceedings had been falling, along with the overall success rate.

This study is based on data reported to the WTO from 1997 to 2017. Because of the time required to prepare and apply for, as well as complete, a trade remedy investigation, the full extent of sensitivity to trade remedy concerns may become apparent only over the next few years. These next few years are likely to be very different from the twenty-year average.

With the increasing trade tensions, international trade attorneys will want to follow WTO reform proposals. WTO Director-General Roberto Azevêdo has stated publicly, including in his remarks to the G20 trade ministers in September, that he welcomes initiatives to improve the WTO. The G20 members likely will further discuss WTO reforms at the G20 Leaders’ Summit to be held November 30–December 1, 2018, in Buenos Aires.

Given the changing trade environment, companies should consider structuring their operations and supply chains to minimize the impact of potential trade disruptions. Companies and their legal teams also should understand in advance the options for leveraging defensive trade measures available to them and include those in their risk management plans.

Jonathan O’Hara

Jonathan O’Hara is a Partner and Co-Chair of the International Trade Group at McMillan LLP in Ottawa, Canada.

Renee Dopplick

Renee Dopplick is an attorney in Washington, D.C.

Lisa Page

Lisa Page is an articling student with McMillan LLP in Ottawa.