We all know that trade barriers are major constraints on a firm’s ability to expand its business overseas. It is obvious that the barriers –both tariff and non-tariff- can raise the cost of exporting and sometimes even totally prohibitive. Although antidumping is the most widely used trade remedies in international trade, it has lately also been used a a non-tariff barrier to protect local industries. When an Asian or a country from other region successfully exported their products to the United States or Europe for example, domestic steelmakers will often demand for tough measures including the imposition of antidumping duties. Mr Edmund W Sim from Hunton & Williams LLP, presented a revealing paper on what the Asian steel exporters can expect from antidumping measure in Steel Outlook 2007 Conference, held in Singapore recently. This article summarises his thoughts and opinions.
United States, Canada, Australia, and European Union are the most frequent users of trade remedies. The common measures include antidumping duty, countervailing (anti-subsidy) duty and safeguard measures. The laws allow domestic steelmakers that believe overseas competitors are selling a steel product at below cost or below ‘normal market value', to request the government to impose additional tariff to protect them. The problem is that the government may determine costs on the basis of little or no evidence.
There is a general preference to litigate disputes and negotiate solutions and implement them quickly. However, Asian countries usually try to resolve trade disputes through diplomatic means. Interestingly, the proliferation of trade remedies is now a global trend with more Asian countries also resorting to using trade remedies. This is because Asian governments are under pressure to protect their domestic steel industry.
There are three criteria to be investigated in an antidumping allegation: dumping, material injury or threat of material injury, and the causal link between the two. In simple term, dumping occurs when the export price is below the normal value. The definition turns to be more complex as the export price can be constructed and the normal value can either be constructed or replaced by a third-country price. Further problem arises when it is impossible to distinguish between the state and the private sectors in countries like China, Vietnam, and others.
In an antidumping litigation, investigating authority will consider some factors such as volume of imports, lost of sales, price suppression and depression, import penetration level, and relationship of the dumping margin to the margin of underselling. Similar methods are used for assessing countervailing duty.
Furthermore, a subsidy may include all financial contribution by the government benefiting the steel company such as loans, tax holidays, tax deductions, duty exemption for equipments, duty drawback, or government supplied goods and services. Likewise, a safeguard is a temporary measure to give “breathing room” to local steel industry. The measure can be imposed on all imports or for imports from a specific country.
Despite its discouraging impacts, some positive lessons can be learnt from protectionism. Litigation can lead to more predictable outcomes as WTO and regional trade rules would provide consistency. It is always good when rule of law is encouraged and private sector has a say in a dispute resolution process. However, non-transparent process, bureaucratic obstacles, bias in favour of domestic industry, extraordinary influences, non-tariff barriers (industrial standards, import permits, licensing, etc) are the negative side of the issue.
American style of litigation would normally comprise substantial documentation of all steps of the process, more legalistic and less political influence. Compromise results are not encouraged and the process is costly for all parties. In contrast, European style is less transparent with little documentation of process, more prone to political influence, legal reasoning less accepted, and political compromise more likely to happen. Taiwan, Philippines, Korea, and China tend to follow American style while Indonesia, Malaysia, Japan, and India are more into European style of litigation.
The important question is how to deal with “unfair trade” allegation in the export destination country. The most important thing is to make friends and allies in the targeted country. Moreover, it is advisable to use rational arguments to defend the market and perhaps to get professional advice in both local and global jurisdictions. It is also wise to seek assistance from home country government in dealing with any international trade dispute.