Executive Summary
Trade remedies - anti-dumping and countervailing duties and safeguard action - are measures taken against imports which are injuring specific industries. Such actions, and the mechanisms through which they are considered and applied, should be consistent with the Government's objectives of encouraging economic growth through the operation of open and competitive markets. Such actions must also be consistent with New Zealand's international obligations as set out in the relevant WTO Agreements.
Recent global economic trends include the growing integration of the production of goods and delivery of services across borders, the increasing complementarity of trade and investment, the acceleration of technological change, the progressive integration of capital markets, and the growing role of human capital as a source of competitive advantage. This globalisation of economies has led to increased international specialisation and a high degree of interdependence between national economies which has seen the need for a policy framework which considers the effects of policies on markets and their participants, irrespective of the nationalities of the firms or products involved. One such framework is based on the contestability of markets, which provides a basis for considering policy coherence at the domestic and international level.
New Zealand is seen as a moderate user of trade remedy actions, having conducted seventy anti-dumping investigations, ten countervailing duty investigations, and four safeguard inquiries since 1982. A large proportion of these cases have not resulted in a trade remedy being applied. In more recent years, New Zealand's trade remedy activity has focused more on Asian countries, reflecting the increasing share of New Zealand's trade held by these countries, which is in turn indicative of the effect of Government policies to remove import licensing and reduce tariff protection, as well as of the shift in world production and trade patterns.
New Zealand's trade remedy legislation was reviewed comprehensively in 1986 in the context of major changes to industry assistance mechanisms, and more recently in 1994, when changes required by the new WTO Agreements were implemented. There remains a continuing debate about the ability of trade remedies to provide an effective and swift response to "unfair" or "disruptive" imports. Because current procedures do not require the consideration of the effectiveness of anti-dumping duties or other trade remedies in dealing with the impact of imports, or an analysis of the net national benefit of such actions, there is also the opposing view that use of trade remedies is protectionist, and inconsistent with the Government's policy of trade liberalisation and effective competition in local markets.
Anti-dumping is subject to strong criticism, particularly when it is contrasted with the objective of market contestability and the operation of competition laws. The economic analysis of trade remedies suggests that in each instance, the key questions are situational, and often come down to a balancing of interests to determine the net national benefit. Currently, New Zealand trade remedies policy does not provide for such balancing. A wider framework which takes account of these different interests is that used for the regulation of domestic competition. The use of a competition policy net national benefit approach essentially involves a consideration of whether low (or competitive) import prices are distorted (artificially low), or are the result of sustainable, competition-enhancing profit maximising behaviour. This leads to potential differences in approach according to the type of behaviour for which a trade remedy is sought. For example, safeguards, by definition, deal with instances where prices are not artificially low, while subsidies reflect government intervention, and could therefore be regarded as providing an "artificial" advantage. Dumping, however, may or may not be distorted. To the extent that competitive prices reflect the operation of market forces, then the use of a net national benefit test and any associated remedy, provided it is WTO-consistent, would seem appropriate.
New Zealand's economic policy is focused on increasing national welfare. This is achieved only through the promotion of economic efficiency. Anti-dumping duties may be applied only if the dumping is causing material injury to domestic producers of like goods. This focus on producers may not be a good proxy for net national benefit since the adverse impact of dumping on producers might be outweighed by benefits to consumers and downstream producers. New Zealand's competition law has as its primary objective the promotion of economic efficiency, which tends to lead to appropriate prices at a level of output desired by society, provides incentives on management to innovate or otherwise produce output at lowest possible cost, and minimises the unproductive use of resources to secure or defend market power.
In addition to the consideration of the appropriate policy framework for trade remedy policy, the process by which trade remedies are analysed and applied is also an issue to be addressed. Such procedural issues include consideration of the processes which arise from the adoption from the policy framework adopted, and also issues which have arisen as a result of experience in the administration of the current legislation. Also, if the policy framework for trade remedies does require greater consideration of the impact on competition and consumers, then some reconsideration of the existing administrative arrangements might be appropriate. In particular, any process must be transparent, timely and cost effective in achieving the desired results. Similarly, the nature of the remedy provided needs to be considered within the same framework, and in particular whether border measures or some other form of adjustment assistance is more appropriate. This is especially relevant to safeguard action.
The Government's overall economic strategy aims to maximise national welfare. Carrying this through into trade remedy policy (as in competition policy), would require some modifications to the way in which the policy operates. Such modifications could include the identification of the cause of low prices or import surges, and the introduction of a public interest test where these do not result from foreign government actions.
The Government has agreed that trade remedies should be considered in the context of the net national benefit, and that the basis for such a consideration, as well as other matters relating to the administration of trade remedies, should be the subject of a review.
This paper is intended to provide a basis for developing a framework for the future operation of trade remedy policy, including a basis for New Zealand's active participation in the development of international rules in this area. Policy issues which are put forward for discussion include:
- How the application of trade remedies could take account of the interests of consumers or other producer considerations (net national benefit);
- The extent to which competition policy considerations should be incorporated into trade remedy analysis;
- The nature and extent of adjustment assistance where firms encounter problems coping with supply shocks of international origin;
- Whether a common framework and administrative structure can be developed to cover all forms of trade remedy action; and
- Any issues relating to the administration of New Zealand’s anti-dumping legislation, such as process matters and injury determinations.
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