Dumping is broadly said to occur when the price of a product when sold in the importing country (known as the "export price") is less than the price of that product in the market of the exporting country (known as the "normal value").
This is an unfair trade practice which can have a distortive effect on international trade. Anti dumping is a measure to rectify the situation arising out of the dumping of goods and its trade distortive effect. Thus, the purpose of anti dumping duty is to rectify the trade distortive effect of dumping and re-establish fair trade. The anti dumping is an instrument for ensuring fair trade and is not a measure of protection per se for the domestic industry. It provides relief to the domestic industry against the injury caused by dumping.
The normal value is generally the price of the product at issue, in the ordinary course of trade, when destined for consumption in the exporting country market. In certain circumstances, for example when there are no sales in the domestic market, it may not be possible to determine normal value on this basis. The Agreement provides alternative methods for the determination of normal value in such cases.
One of the most complicated questions in anti-dumping investigations is the determination whether sales in the exporting country market are made in the "ordinary course of trade" or not. One of the bases on which countries may determine that sales are not made in the ordinary course of trade is if sales in the domestic market of the exporter are made below cost. Home market sales at prices below the cost of production may be considered as not made in the ordinary course of trade", and thus may be disregarded in the determination of normal value when those sales are made at prices that are below per unit fixed and variable costs plus administrative, selling and general costs, they are made within an extended period of time, and they are made in substantial quantities. Sales are made in substantial quantities when (a) the weighted average selling price is below the weighted average cost; of (b) 20% of the sales by volume were below cost. Finally, sales made below costs may only be disregarded in the determination of normal value where they do not allow for recovery of costs within a reasonable period of time. If sales are below cost when made but are above the weighted average cost over the period of the investigation, the Agreement provides that they allow for recovery of costs within a reasonable period of time.
In the case where there are no sales in the exporting country of the product under investigation, it is not possible to base normal value on such sales.
In the case where there are sales in the home market but may low in volume that they do not permit a proper comparison of home market and export prices, it is not possible to base normal value on such sales. The level of home market sales is sufficient if home market sales constitute 5 per cent or more of the export sales in the country conducting the investigation, provided that a lower ratio "should" be accepted if the volume of domestic sales nevertheless is "of sufficient magnitude" to provide for a fair comparison. Two alternatives are provided for the determination of normal value if sales in the exporting country market are not an appropriate basis. These are (a) the price at which the product is sold to a third country; and (b) the "constructed value" of the product which is calculated on the basis of the cost of production, plus selling, general, and administrative expenses, and profits.
The export price will normally be based on the transaction price at which the foreign producer sells the product to an importer in the importing country. However, this transaction price may not be appropriate for purposes of comparison.
There may be no export price for a given product, for instance, if the export transaction is an internal transfer, or if the product is exchanged in a barter transaction. In addition, the transaction price at which the exporter sells the product to the importing country may be unreliable because of an association or a compensatory arrangement between the exporter and the importer or a third party. In such a case, the transaction price may not be an arms-length market price, but may be manipulated, for instance for tax purposes. In such cases, an alternative method of determining an appropriate export price for comparison is needed.
In circumstances where there is no export price, or where the export price is unreliable due to an association or compensatory arrangement between the exporter and the importer or a third party, an alternative method may be used to determine the export price. This results in a "constructed export price", and is calculated on the basis of the price at which the imported products are first resold in an independent buyer. If the imported product is not resold to an independent buyer, or is not resold as imported, the authorities may determine a reasonable basis on which to calculate the export price.
A fair comparison of the export price and the normal value must be made. The fair comparison requires that the prices being compared are those of sales made at the same level of trade, normally the ex-factory level, and of sales made at as nearly as possible the same time.
The calculation of the margin of dumping is based on the following methods: (a) the comparison of the weighted average normal value to the weighted average of all comparable export prices, or (b) a transaction-to-transaction comparison of normal value and export price. (c) A different basis of comparison can be used if there is "targeted dumping": that is, if a pattern exists of export prices differing significantly among different purchasers, regions or time periods. In this situation, if the investigating authorities provide an explanation as to why such differences cannot be taken into account in weighted average-to-weighted average or transaction-to-transaction comparisons, the weighted average normal value can be compared to the export prices on individual transactions.
The definition of the term "subsidy" is based on three basic elements: (i) a financial contribution (ii) by a government or any public body within the territory of a Member (iii) which confers a benefit. All three of these elements must be satisfied in order for a subsidy to exist
The "financial contribution" may take different forms:
a direct or potential transfer of funds (e.g. grants, loans, equity injection or loan guarantees)
government revenues (which are otherwise due) foregone or not collected (e.g. tax credits)
government provision of goods and services (other than general infrastructure)
government purchase of goods
any of the above functions performed by a private body (e.g. a bank) on the instruction of the government.
In order for a financial contribution to be a subsidy, it must be made by or at the direction of a government or any public body within the territory of a Member. Thus, the subsidy disciplines apply not only to measures of national governments, but also to measures of sub-national governments and of such public bodies as state-owned companies.
A financial contribution by a government is not a subsidy unless it confers a "benefit." A 'benefit' is conferred if any of the above financial contributions are provided on terms more favorable than those available on the market. The existence of a benefit is to be determined by comparison with the market-place (i.e., on the basis of what the recipient could have received in the market).
Assuming that a measure is a subsidy, it nevertheless is not subject to countervailing measures unless it has been specifically provided to an enterprise or industry or group of enterprises or industries. The basic principle is that a subsidy that distorts the allocation of resources within an economy should be subject to discipline. Where a subsidy is widely available within an economy, such a distortion in the allocation of resources is presumed not to occur.
Thus, only "specific" subsidies are subject to countervailing measures. There are four types of "specificity" within the meaning of the SCM Agreement:
Enterprise-specificity. A government targets a particular company or companies for subsidization;
Industry-specificity. A government targets a particular sector or sectors for subsidization.
Regional specificity. A government targets producers in specified parts of its territory for subsidization.
Prohibited subsidies. A government targets export goods or goods using domestic inputs for subsidization.
An example of a specific, 'countervailable' subsidy would be a subsidy which is limited to a particular sector, such as the steel sector. In contrast, a subsidy which is broadly available to all industries is not considered specific.
Safeguard measures are defined as "emergency" actions with respect to increased imports of particular products, where such imports have caused or threaten to cause serious injury to the importing Member's domestic industry. Such measures, which in broad terms take the form of suspension of concessions or obligations, can consist of quantitative import restrictions or of duty increases to higher than bound rates.
The guiding principles of safeguard measures that such measures must be temporary; that they may be imposed only when imports are found to cause or threaten serious injury to a competing domestic industry; that they (generally) be applied on a non-selective (i.e. most-favoured-nation, or "MFN") basis; that they be progressively liberalized while in effect; and that the Member imposing them (generally) must pay compensation to the Members whose trade is affected. Thus, safeguard measures, unlike anti-dumping and countervailing measures, do not require a finding of an "unfair" practice, (generally) must be applied on an MFN basis and (generally) must be "paid for" by the Member applying them. In addition to that, safeguards apply to all imports of the product under consideration from all countries on an MFN basis.
The conditions under which safeguard measures may be applied are: (i) increased imports and (ii) serious injury or threat thereof (iii) caused by such increased imports.
The determination of increased quantity of imports that a Member must make before it may apply a safeguard measure can be of either an absolute increase or an increase relative to domestic production.
The "serious injury" is a significant overall impairment in the position of a domestic industry. In determining whether serious injury is present, investigating authorities are to evaluate all relevant factors having a bearing on the condition of the industry. Factors that must be analyzed are the absolute and relative rate and amount of increase in imports, the market share taken by the increased imports, as well as changes in level of sales, production, productivity, capacity, utilization, profits and losses, and employment of the domestic industry. The "Threat of serious injury" is threat that is clearly imminent as shown by facts, and not based on mere allegation, conjecture or remote possibility.
A determination of serious injury cannot be made unless there is objective evidence of the existence of a causal link between increased imports of the product concerned and serious injury. Further, when factors other than increased imports are causing injury to the domestic industry at the same time, such injury must not be attributed to increased imports.
When imposed, a safeguard measure should be applied only to the extent necessary to prevent or remedy serious injury and to help the industry concerned to adjust. Where quantitative restrictions are imposed, they normally should not reduce the quantities of imports below the annual average for the last three representative years for which statistics are available, unless clear justification is given that a different level is necessary to prevent or remedy serious injury.
A safeguard measure should not last more than four years, although this can be extended up to eight years, subject to a determination by competent national authorities that the measure is needed and that there is evidence the industry is adjusting. Measures imposed for more than a year must be progressively liberalized.
To some extent developing countries’ exports are shielded from safeguard actions. An importing country can only apply a safeguard measure to a product from a developing country if the developing country is supplying more than 3% of the imports of that product, or if developing country members with less than 3% import share collectively account for more than 9% of total imports of the product concerned.