978-1285427041 Chapter 11

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CHAPTER 11

REGULATING IMPORT COMPETITION AND UNFAIR TRADE

CASES IN THIS CHAPTER

Argentina—Safeguard Measures on Imports of Footwear

Heavyweight Motorcycles, & Engines & Power-Train Subassemblies

Pesquera Mares Australes Ltda. v. United States (Chilean Salmon)

Bulk Aspirin from the People’s Republic of China

United States—Countervailing Measures Concerning Certain Products from the European

Communities (European Steel)

TEACHING SUMMARY

As the previous chapter shows, the principles of non-discrimination, MFN, and quota elimination

seek to liberalize trade throughout the globe. Nevertheless, sometimes trade, be it deemed fair

or unfair, may have negative effects on an importing country’s market. For example, producers

in one country that sell excess products in a foreign country at below market level prices may

face duties to counteract their dumping. Some government subsidies of products sold in export

markets may be unfair to foreign producers whose injuries can lead to countervailing duties.

Thus, where trade materially injures a domestic market, the rules of GATT allow countries to

protect their domestic markets through narrowly tailored safeguards, escape clauses, and

antidumping duties.

Additional Background: Material Injury Test. Under GATT (Art. VI, par. 6), before

antidumping or countervailing duties may be imposed, the importing nation must determine that:

(1) the dumped or subsidized imports caused a material injury (or threatened a material injury)

to the domestic industry producing the like product or that (2) the imports have materially

retarded the development of the domestic industry. While the injury test long existed under U.S.

antidumping law, it had not existed under countervailing duty law. It has since been added.

Although injury is considered in various contexts, the investigation of injury does not proceed

along the same lines in every context. Injury investigation in a dumping or countervailing duty

case is simpler than the injury analysis in an escape clause proceeding. The former does not

require that various causes of injury be compared to see which is the most important. Instead, it

simply asks whether the unfairly traded imports cause or threaten a material injury or retard the

industry. In other words, concurrent causes do not foreclose the remedy of countermeasures.

This assessment is made using one of two tests. Under the bifurcated version of the injury test,

one need only determine the relevant domestic industry, assess it for material injury, and, if

injury is seen, determine the cause. By contrast, the unitary approach first identifies the harm

caused by unfair imports and then decides whether that harm is material. The ITC has

traditionally followed the unitary approach. Question for Discussion: All things being equal,

which approach to injury analysis is more likely to favor the complaining domestic industry?

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Chapter 11: Regulating Import Competition and Unfair Trade

1. What is the role of a WTO panel in reviewing the safeguard investigations conducted by

a national administrative agency?

2. What kind of “increased quantities” of imports must be found by the investigating

authority in order to impose safeguard measures?

3. Locate the Agreement on Safeguards and read Article 2.Why did Argentina’s exemption

for footwear imported from MERCOSUR countries violate the WTO Agreements?

Answer : Argentina did not evaluate two of the factors listed in Article 2, namely capacity

utilization and productivity for the affected industry. Other factors to be evaluated

include: the share of the domestic market taken by increased imports, changes in the

level of sales, production, profits and losses and employment.

Heavyweight Motorcycles, & Engines & Power-Train Subassemblies

1. In the early 1980s, Honda entered the U.S. motorcycle market with the slogan “You meet

the nicest people on a Honda.” During the next two decades, the Japanese company not

only made motorcycling acceptable and fun but it also introduced motorcycles known for

quality, dependability, and easy starting. By 1982, Japanese motorcycles had reached

their peak sales in the United States. In the meantime, Harley Davidson was plagued with

quality and image problems. Do you think this should have been considered in the ITC’s

recommendations or considered by President Reagan?

2. Assume that a domestic firm is not competitive in price and quality with foreign firms, but

that it is protected from competition by high tariffs. What are the effects of the protection on

the firm in the short term? How might it affect the firm’s competitiveness in the long term?

3. President Reagan later rejected recommendations to place quotas on footwear because of

estimates it would have cost American consumers $3 billion in increased tariffs, and

because there was no indication it would have helped American manufacturers return to

competitiveness. How important do you think cost is to a president’s decision?

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use.

Chapter 11: Regulating Import Competition and Unfair Trade

4. Although the administrative process is handled through a bipartisan, independent

commission (the ITC), why is the process still very political?

1. What is the purpose of comparing the price of salmon sold in the United States to that

sold in Japan?

2. Why did Mares Australes not want the ITA to compare the price of salmon sold in the

United States to the price of the “super premium” salmon it sold in Japan?

3. Explain the problem confronting the ITA in determining “foreign like product.” How did the

court define that term?

4. What are the function of U.S. antidumping duty laws? Explain.

5. While many U.S. jobs were unfortunately at stake in the proceedings, do you not see

irony in the fact that U.S. laws were used to protect a French multinational (Rhodia)

from low-cost dumping by a Chinese company, all while maintaining higher aspirin

prices for American consumers?

1. What is “privatization” and how might it affect a subsidies case?

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use.

Chapter 11: Regulating Import Competition and Unfair Trade

2. Why did the ITA conclude that the EC steel mills were the “same legal person”?

3. What factors should be considered in determining whether the European mills were still

benefitting from earlier subsidies?

6. Answer This question calls for student opinions and conclusions based upon outside

research.