4. Policy and Process Issues
It is the purpose of this chapter to identify issues relating to both policy and process which could usefully be the subject of public debate.
Policy Issues
Policy issues which arise from the discussion in the previous chapter include the extent to which competition policy considerations should be incorporated into trade remedy analysis, and in particular whether the application of trade remedies should take account of net national benefit considerations.
In addition, a number of areas can be identified where competition policy concepts differ from those used in anti-dumping, and where consideration could be given to the extent to which such concepts might be introduced into anti-dumping. These include the use of economically-based product market definitions when considering "like products" and "industry"; and accepting competition-based defences, such as meeting competition, when considering causality.
A further issue is the extent to which some actions currently taken under the Dumping and Countervailing Duties Act in New Zealand, might more appropriately be dealt with as safeguard action, and if so, what kind of changes might be necessary to safeguard laws and procedures.
Net National Benefit
Currently a trade remedy investigation considers price and volume effects and looks at "injury" to domestic producers. However, an assessment of net national benefits would explicitly consider the positive effects of cheaper goods on domestic consumers and downstream industries. This section looks at some of the issues involved in such an assessment.
For the reasons outlined in the previous chapter, it would not be appropriate to consider this kind of approach in cases involving subsidies by foreign governments, or where dumping is made possible through high trade barriers or other distortionary situations in the country of export. This would reflect a policy conclusion that trade at artificially low prices distorts resource allocation in a manner which is not in the public interest.
In cases where dumping does not fall into either of the "market isolation" or "mercantilist" categories, a comparison of the two situations, with and without the dumping shows the static effects. These are that when the price of a good falls (as is generally the case for dumped goods) consumers’ welfare will increase because this lower price implies an increase in their real purchasing power. Part of this benefit will be at the expense of the profits of domestic producers (because it will be associated with a fall in consumption of domestic production, and a fall in the price of that which continues to be consumed). But this loss to domestic producers is a transfer to consumers. Assuming the welfare of consumers and producers is valued equally, this transfer does not alter net national welfare. In addition, part of the gain to consumers will not generally be offset by another loss. It will be a gain to the country as a whole, coming from access to lower priced goods, and the movement of displaced resources to other areas [Technically, too, it is also possible that if the sector has low levels of effective protection relative to other sectors of the economy, a tariff may counterbalance this and raise national welfare. However, government policy is generally to remove distortions (say, remove other tariffs) rather than introduce compensating distortions (introduce an additional tariff).].
As this analysis does not include all relevant factors it is possible, in theory, that the gains to consumers will not represent a net gain to the country as a whole. Anti-competitive pricing, or substantial adjustment costs could invalidate this conclusion. Also, it is by no means clear that the imposition of anti-dumping duties will, in fact, lead to an increase in price to the extent of the remedy. To the extent that it does not, then the consumer benefits are consequently reduced.
Significant technical resources would be required for an accurate quantification of the gains to consumers and the costs to producers from marginal changes to production. For example, assessing the consumption and production effects accurately requires an estimate of the responsiveness (elasticity) of these activities to price. Calculating such values may be difficult.
The costs of adjustment in the domestic industry affected by dumped or subsidised goods have often been cited. Viner suggests that:
The possible losses to domestic producers from an influx of temporary cheap foreign goods are obvious: disorganisation, and even collapse, of the domestic industry may result, with serious losses of invested capital and serious unemployment of labour. [Viner (1926).]
However, the frequency with which adjustment problems are referred to belies the difficulties in identifying and quantifying them.
In theory, the judgements of whether to intervene in response to adjustment costs associated with dumping or subsidisation should involve:
- The identification of any economic adjustment costs (as opposed to transfers) that local industry (capital and labour) will incur as result of the cheap imports;
- The quantification of these costs;
- The calculation of the extent to which various possible forms of intervention by the Government will reduce the costs of adjustment;
- The calculation of the costs of these interventions (in terms of the opportunity and distortionary cost of the resources required);
- A comparison of the benefits of the intervention (from the third step above) with the cost of intervention (from the fourth step above), and a decision to intervene if the benefit outweighs the cost.
In practice there are a number of difficulties with this approach, which make it inoperative in this "ideal" form.
A major issue in assessing the adjustment costs associated with dumping is the difficulty distinguishing them from those caused by an underlying lack of competitiveness, or from shocks from other sources. If dumping is causing material injury it is likely that other problems are also present.
Adjustment costs are dependent on the path of adjustment, which will generally be uncertain. This is most obvious for labour, where the likelihood of any individual being re-employed is difficult to predict. It is also true for capital equipment where the alternative uses are not always known, but still may exist. Given that the adjustment path is uncertain, the value of the intervention is also likely to be surrounded in considerable uncertainty.
It is difficult to accurately predict and quantify the success of intervention aimed at mitigating adjustment costs. However, there are guidelines which suggest:
- The most effective interventions (mitigation at least cost) will be those which most directly address the fundamental concern, and thus
- Adjustment problems should be addressed on the basis of their nature (what sort of problem it is), not on the basis of their cause.
For example, there may be a potential unemployment problem when a firm goes out of business. This may be due to employees lacking skills, lacking information about alternative forms of employment, or lacking means to shift to take up alternatives. The most effective interventions in this instance will be those which encourage appropriate training, transfer of information on job opportunities, or relocation. Wage subsidies would be a less effective intervention, production subsidies less effective again, and finally, tariffs would be the least effective. It is clear from this that successful intervention requires accurate diagnosis of the underlying problems.
Assessing the costs of intervention is extremely difficult to do accurately. Two components are included in these costs. The first is the value of the activity in which the resources would have been used had the intervention not required them (this is the "opportunity cost": the resources must be taken from someone doing something). This value is foregone. In addition, there are costs associated with raising revenue. These include the administrative costs of collection and any changes in behaviour that occur as a result (a reduction in work as a result of income tax, or reduction in consumption as a result of a sales tax).
If the intervention is one funded from tax revenue, then the relevant costs are those relating to taxation. If for some reason it was decided to impose a tariff, the costs to consumers and downstream producers would have to be considered, as this is the group which would be paying for the intervention.
If dumping is short term, i.e. if it is clear that the cheap imports are temporary, it is not clear why the firm should be forced out of business, with the attendant adjustment problems. If the lack of profitability is likely to be short term, markets would be expected to be prepared to supply necessary bridging capital. It should be noted that it is not the temporary distortion of competitive advantage that is per se a problem with dumping. Rather, it is the possibility that the dumping will force costly adjustments that are unwarranted in the medium term, and it is reasonable to assume that capital markets will generally not force such unwarranted adjustments. Thus, the burden of proof should rest with those arguing the contrary in any particular situation.
If capital markets are making incorrect judgements, and are not prepared to provide bridging capital to fundamentally competitive firms, the question then arises as to what, if anything, the Government can usefully do to improve the situation. Successful Government intervention would require that it hold information about the particular firms’ prospects superior to that held by the providers of capital. This is unlikely.
For all these difficulties, a practical assessment process for adjustment costs could involve the following steps:
- Identification of the adjustment problems that are likely to arise from the dumping, both in the short and the medium term;
- Quantification of the costs associated with these problems as far as is feasible;
- Identification of the type of assistance that is most appropriate to deal with the problem identified;
- An assessment of the likely benefits of the remedial measures (this could draw on the experience of the benefits from existing measures);
- An approximate valuation of the cost of the remedial measures (this could draw from costings of existing measures);
- A decision based on a comparison of costs and benefits.
Considerations relating to how and when the public interest should be taken into account are also relevant:
For a public interest clause to be effective, it is important that it allows potentially negatively affected parties to defend their interests by giving them not only the opportunity to present their arguments to investigators, but also the legal standing to do so. They should have access to the information presented by the import-competing industry seeking protection in making their case. Public-interest clauses should come into play at the same time that injury to producers and the causal link between dumping and such injury is established. [Hoekman and Mavroidis (1996), p.46.]
Since safeguard action does not per se involve artificially low prices, it could be appropriate to use a net national benefit test to determine whether safeguard action should be taken and in what form.
Other Competition Issues
The international replacement of anti-dumping laws by a competition policy approach is not considered a viable option in the foreseeable future. However, there are other competition policy elements which could be considered for inclusion in trade remedy actions.
The use of a competition policy definition of markets to include, essentially, substitutable products (as is the case for safeguard actions), could have the effect of broadening the scope of the goods (and the industry) under investigation and so reduce the likelihood of an affirmative determination. Such an approach might also be able to take greater account of the impact on upstream producers, e.g. tomato growers producing for canned tomatoes, grape growers producing for wine-makers, who are excluded from consideration under the current law and international rules. However, it must also be recognised that the narrowness of the like goods definition may also serve as a limitation on the inappropriately broad coverage of anti-dumping duties. For similar reasons, the extension of "industry" to include suppliers or downstream customers could also expand the scope for anti-dumping and countervailing actions beyond that currently envisaged by the WTO Agreements.
The defence that dumped goods are meeting the competition can be taken into account by the New Zealand authorities in their assessment of whether the dumping of imports is causing injury to domestic producers. In this assessment, the impact of volume increases as well as price effects is considered in the context of the impact of those effects on a range of factors and indices. However, price relativities are often not simple, and must take into account product variations as well as differences in consumer perceptions, distribution policies and other relevant factors.
Essentially, the issue is one of causality. For anti-dumping remedies to be applied, material injury must be attributable to dumping or subsidising. The dumping or subsidisation need not be the major or only cause of injury, but it must be material of itself.
Another issue relates to the identification of pricing behaviour which, while not predatory in the strict sense of the term, has elements of anti-competitive behaviour. Thus, as identified at the beginning of this chapter, certain actions such as export subsidies or high protective barriers or other distortionary situations such as lack of competition or domestic subsidies, all of which have some degree of government involvement, would be subject to anti-dumping or countervailing remedies. Dumping activities which do not come within this description could be considered in terms of their impact on competition in the importing market, i.e. involving a net national benefit test, or could be similarly evaluated in a safeguard context. In essence, this approach would introduce into trade remedy analyses a requirement to give greater attention to the market situation in both the exporting and importing countries, and to take fuller account of the competitive situation in each market.
One method of implementing increased elements of a competition approach that has been suggested is:
... to obtain agreement that allegations of dumping are first investigated by the anti-trust authorities of the exporter’s home country. These would determine whether the exporting firm or industry engages in anti-competitive practices or benefits from government-created or supported entry barriers. The bench-mark used in such investigations would be the exporting firm’s home country competition laws. The importing country’s competition authorities would be invited to participate in the investigation, and would be provided with all relevant data collected and used. If anti-competitive behaviour is found to exist, a remedy would be applied that would benefit the foreign import-competing industry. If the importing country’s competition authorities disagree with the conclusion of the investigation by the competition offices, it would have the option of invoking WTO-dispute settlement mechanisms or initiating an anti-dumping investigation. However, a necessary condition for the latter would be that the importing country’s competition authorities have concluded that significant barriers to entry exist in the exporter’s home market. If not, anti-dumping would be prohibited. Countries would always be free to bring a so-called non-violation complaint, alleging that government measures (in this case lax enforcement of competition policies) nullified or impaired legitimate expectations regarding market-access conditions. In this case, multilateral mechanisms are left to determine the facts of the matter. [Hoekman and Kostecki (1995), p. 257ff.]
This approach would require an appropriate degree of confidence in the competition policies of other countries and a level of acceptance of the processes used. It is unlikely that a sufficient degree of confidence or acceptance has been reached with regard to sufficient of the countries involved in trade remedy actions to permit the successful adoption of such an approach, although with increasing familiarity and convergence of competition policies, it may provide some guidance to the future. In this context, the work in APEC on competition policy issues is very relevant.
Safeguard Action
Reference has been made to the difference between safeguard action and anti-dumping and countervailing duty actions, and to the extent to which safeguard action could formally involve a greater degree of consideration of the net national benefit. The mechanisms by which this could be achieved are primarily process issues which are considered in the next section.
Process Issues
Process issues include consideration of the processes which arise from the policy issues discussed above, and also issues which have arisen as a result of experience in the administration of the current legislation.
The Review of post-1996 tariffs, carried out in 1994, included in its terms of reference the note that submissions would be accepted from interested parties on the operation and policy of temporary safeguards, and the relationship between tariff policy and policies on anti-dumping and countervailing, taking into account the changes implied by the GATT Uruguay Round.
Concern was expressed in a number of submissions about the prevalence of allegedly dumped goods entering the New Zealand market, and whether current legislation and administrative practices permitted a sufficiently quick and robust response. Major themes of these submissions included proposals for threshold duties to replace anti-dumping action, and concerns about the cost and difficulties of actions. Additionally many of the submissions concluded that the current legislation had many negative aspects and was unworkable for the following reasons:
- Time taken to conduct an investigation is lengthy and any outcome is too late, since the domestic industry by that stage is suffering significant material injury;
- The cost involved in preparing an application and the ongoing investigation costs to the domestic industry are high;
- Difficulties of gathering of historical data for evidence of injury through dumping;
- Concerns that with the size of the New Zealand market, companies involved in an investigation could not remain anonymous, and may suffer retaliation from customers;
- Because of the size of the New Zealand economy that once any action under the legislation had been implemented it was often too late for any form of recovery;
- Difficulties in obtaining information in relation to overseas prices.
A smaller number of submissions suggested that steps taken to reduce tariffs should not be thwarted by trade remedies. Access to such remedies should be made more restrictive and integrated with general competition policy. Other submissions considered that the trade remedy legislation has been shown to be effective and well administered, and noted that trade remedies are preferable to tariff protection because they are more suited to targeting specific industries than is the current tariff regime.
The Review noted, with regard to proposals for threshold duties to replace anti-dumping duties, that such duties would be incompatible with Article VI of the GATT 1994 and the AD Agreement, since the proposals would, in effect, seek to impose anti-dumping duties without first having gone through the investigative process required to establish whether goods are dumped, and whether or not the dumping is causing injury. The review also noted that the concerns expressed by the textile, apparel and footwear sectors appeared to relate more to low-cost imports than to dumping.
On the cost and difficulty of bringing anti-dumping actions, the Review noted that the revised AD Agreement now specified the information required for an application to be considered (now reiterated in the New Zealand legislation), and pointed out that this need only be information that is reasonably available to applicants. The costs involved in preparing an application relate to the time taken and the resource used, while a decision to use consultants for this purpose is a commercial judgement for the firm or the industry to make. The Review also acknowledged the problems caused by customer retaliation against firms or industries making applications, but suggested that self-initiation by authorities was not necessarily the answer, since any such action would still need to rely on co-operation from the industry.
In 1995, concerns were raised with the Ministry of Commerce by the Manufacturing Advisory Group (MAG) about the time taken by the Ministry to consider applications for trade remedy action, and the approach taken by the Trade Remedies Group to the consideration of injury. The Trade Remedies Group agreed to adopt time limits of 5 days for consideration of whether an application is properly documented, and 25 days for the subsequent consideration of whether an investigation should be initiated. No such time limits were suggested for subsidy applications because of the need to consult with the government of the exporting country before initiation. The Trade Remedies Group also prepared a paper on injury, which is largely reproduced below.
Concerns have also been raised about the form of anti-dumping duty, and the ability for duties to be circumvented. Additional process issues relate to administrative issues, including the choice between a public inquiry or an administrative investigation approach.
Injury
The Trade Remedies Group’s approach to injury is summarised in Chapter 2. The main concerns expressed about this approach have been in relation to its failure to take into account the situation which would exist in the absence of the dumped goods in assessing injury.
The Trade Remedies Group interprets the Dumping and Countervailing Duties Act 1988 and the WTO Agreements as requiring a finding that injury is caused by the dumping or subsidisation of goods, not simply by the imported goods irrespective of the existence or extent of dumping or subsidisation. The existence of increases in import volumes, price undercutting, or declines in market share for example, are not considered to be injury per se, but when all of the available evidence is considered a conclusion as to whether or not injury can be attributed to dumping or subsidisation can be reached.
The Trade Remedies Group follows the generally accepted interpretation of similar provisions in the WTO Agreements, that in order for material injury to be determined there must be either or both of volume effects and price effects, and that those effects must lead to an impact on the industry in terms of the factors and indices set out in section 8 of the Act. Also, the injury caused by factors other than dumping or subsidisation must not be attributed to dumped or subsidised imports.
Thus, an investigation could establish that there may be both volume and price effects, but an analysis of the consequent impact on the industry could lead to the conclusion that the industry is not suffering material injury, particularly if important indices of that impact, such as output, sales, and profits, are not showing any actual decline. A determination of whether or not there is material injury caused by dumping or subsidisation is based on consideration of all of the factors involved, and an assessment of the extent to which the totality of the evidence leads to the conclusion that a domestic industry is being materially injured by the dumped or subsidised goods. The existence of a decline in one or several of the injury factors or indices does not require a determination that material injury is being caused by the dumping or subsidisation of imports, if the totality of the evidence does not support such a conclusion.
The matters which the Secretary is required to have regard to in considering the economic impact of dumping or subsidisation include actual and potential declines in a range of factors and indices. This covers the situation where there is an actual decline, or where a decline is potential and thus threatening injury. In the case of threat, the requirements of the WTO Agreements regarding a determination of threat of injury must be observed. While neither the Act nor the Agreements exclude consideration of other factors, where the examination of the evidence does not establish an actual or potential decline in the listed factors and indices, any other evidence suggesting that material injury is being caused to an industry by the dumping of goods would need to be particularly persuasive, and not inconsistent with matters that might be assessed. However, the Trade Remedies Group does not rule out that such a situation might exist, and is always prepared to consider positive evidence which might justify a determination that dumping is causing material injury.
The WTO Agreements require that a determination of injury be based on positive evidence. In situations where an industry is not facing actual or potential declines in key indicators of its economic situation, but is arguing that it would have made higher profits if the dumped or subsidised goods were not in the marketplace (the "but for ..." approach), it could be difficult to provide positive evidence to establish that this constituted material injury caused by dumping or subsidisation. In this context, causality is of key importance. Injury caused by factors other than dumping or subsidisation must not be attributed to the dumping or subsidisation of goods, nor can injury caused by other factors be regarded as weakening the industry so that it is more vulnerable to dumping or subsidisation, and thus permit a finding that material injury is caused by dumping. In the absence of evidence of injury from any of the factors specified in the Act relating to economic impact, and without other persuasive positive evidence that dumping is causing injury, the Trade Remedies Group would be unnecessarily exposing itself to challenge if it were to rely on the factor of profits not reaching a particular expected level, when this did not amount to an actual or potential decline.
It is important to note that each investigation must be approached on the basis of the facts pertaining to that particular case. An approach which may be relevant in one case will not necessarily be appropriate in another case.
The position taken by New Zealand is very similar to that of other administrations.
Remedies
The level of duty cannot exceed the margin of dumping or the amount of subsidy. Duties are applied on an ad valorem basis, as a specific rate, or on the basis of a reference price which relates to the normal value or to a non-injurious level. In New Zealand anti-dumping cases since 1988, duties based on the margin of dumping have been imposed in 23 cases, and lesser duties in 4 cases (three of them involving plasterboard from Thailand).
In most cases where the margin of dumping was applied, the price differential in favour of the imported goods was significantly higher than the margin of dumping, suggesting that there were other causes of injury. Nevertheless, the objective of the trade remedy legislation is to remove the injurious impact of dumping or subsidisation, irrespective of whether other causes of injury are more significant.
Lesser Duties
The Trade Remedies Group’s approach to the application of the lesser duty rule is defined by Section 14(5) of the Act, which provides:
In exercising the discretion under subsection(4) of this section, the Minister shall have regard to the desirability of ensuring that the amount of anti-dumping or countervailing duty in respect of those goods is not greater than is necessary to prevent the material injury or a recurrence of the material injury or to remove the threat of material injury to an industry or the material retardation to the establishment of an industry, as the case may require.
The purpose of a lesser duty, and hence a non-injurious price, is to determine whether a duty less than the margin of dumping is sufficient to remove the material injury or prevent the recurrence of material injury caused by the dumping. This requires an assessment of the extent of injury attributable to the dumping. In this context, it should be noted that the Trade Remedies Group considers that injury is material if it is more than immaterial and if the industry is worse off, i.e. if, as a result of the dumping and the volume and price effects attributable to the dumping, there are adverse economic consequences for the industry, in terms of an actual and potential decline, or other adverse effects, in the injury factors and indices identified in Article 3 of the AD Agreement.
In determining whether or not the lesser duty rule should be applied, the first step is to ascertain the situation which would apply in the absence of the dumping of the goods and the injury attributable to the dumping.
The main impact of dumping is indicated through price effects and the consequent impact on sales and profits. Accordingly, initial indications of the extent of injury attributable to dumping can be established through (a) the margin of price undercutting, or (b) the level at which the industry’s prices are non-injurious.
If the margin of price undercutting exceeds the level of undercutting that would be present if the goods were not dumped, then this provides prima facie evidence that a lesser duty would not be appropriate. However, if the margin of price undercutting is less than the margin of dumping, then further consideration must be given to the application of the lesser duty rule.
The second approach is to establish a non-injurious price, being the price that would apply in the absence of the injurious dumping. Ideally, such a price should be based on market considerations, such as the prices which prevailed before dumping affected the market.
Where such an approach may not be appropriate then alternative approaches could be used, such as constructing a price on the basis of current costs and pre-dumping profit rates, or the current profit rates obtained by industries producing goods in the same general category.
The level of profitability is generally used as a normative indicator of injury, since that is considered the most useful indicator of the health of an industry, and is the factor which combines the economic impact of price and volume effects of the dumped or subsidised imports, and the industry’s reaction to them.
Having established the non-injurious market price, the equivalent dutiable value for the goods is established. This will normally involve deducting from the non-injurious market price those cost elements between the dutiable value (usually FOB) and the market level. The relevant market level is taken as the first point of competition in the New Zealand market, i.e. ex-factory for domestic producers, and ex-importer’s store for imported goods, which is similar to that normally used for the price undercutting comparison. The cost elements in the formula to calculate the dutiable value will normally include freight costs, importation costs and fees, including transport from wharf to importer’s store, normal duty, any other costs associated with importation but not with distribution, and a margin for the importer.
The approach used does not seek to make judgements about what different businesses regard as an appropriate level of profit or any price or profit entitlement beyond the factually determined price or profit level achieved before the impact of dumping, or on another reasonable and appropriate basis.
Where prices or profit levels applying before the dumping occurred are used, they will normally be appropriate only when the pre-dumping situation is fairly recent. In the case of a review, or where there has been a significant period of time between the pre-dumping situation and the time of the investigation or review, an alternative approach may be required to determine the appropriate level of a non-injurious price.
The approach used by the Trade Remedies Group reflects that taken by the ADA in Australia. In discussing the level of profit to be used in determining an "unsuppressed selling price", the ADA has noted, "In assessing this margin of profit the ADA will look to the market for guidance; that is, the margin will usually be determined on the basis of the profits, if any, that were being achieved before the market was affected by dumped imports." [Evaporated Milk from Canada , ADA Report No. 6, June 1989. It should be noted that this case involves an investigation rather than a review. The full quote is as follows: The unsuppressed selling price (USP) may be determined on the basis of a satisfactory return on funds invested or may be arrived at by examining the Australian industry’s cost to make and sell, and then adding the margin of profit that should be achieved by the industry in a market not affected by dumping. In assessing this margin of profit the ADA will look to the market for guidance; that is, the margin will usually be determined on the basis of profits, if any, that were achieved before the market was affected by the dumped imports.]
New Zealand has applied the lesser duty rule in only four cases, three of which involved closely related products from the same country. This reflects the fact that in most cases the economic position of the industry will be only partly ameliorated by the removal of the dumping.
Circumvention
International debate on the circumvention of anti-dumping duties has centred on the assembly of parts, minor alterations to goods, and to changes in the countries supplying the goods. In New Zealand, to the extent that actions are considered to be a problem, they can be, and have been, dealt with by carrying out new investigations. This position is based on the principle that anti-dumping duties can be applied only in cases where an investigation has established that particular goods from a particular market are being dumped and causing material injury to domestic producers of like goods. Such duties cannot be applied to different goods, since a different industry could be involved, or to different markets.
In New Zealand, concerns have been expressed about the ability of exporters and importers to evade duty, and particularly in cases where the Trade Remedies Group establishes duties on the basis of a reference price. It is argued that this approach means that importers can create fictitious values for duty, and use the difference between the actual and fictitious prices to subsidise prices in the New Zealand market.
In fact, section 3(2) of the Act sets out the basis for determining whether or not transactions are at arm’s length, which covers the scenario outlined above, and if they are not, then export prices can be constructed on the basis of the first arm’s length sale in New Zealand.
It should be noted that the objective of an anti-dumping duty is to remove the injurious impact of dumping on the New Zealand industry. The objective is not to collect anti-dumping duty. If exporters increase their prices to a non-dumped level, or if other parties order their business affairs so that they obtain the benefit of any difference between the non-injurious or non-dumped price level and the price charged by the producer in the exporting country, then provided the non-injurious or non-dumped price level in New Zealand is maintained, and provided there is no hidden reimbursement or compensation to buyers in New Zealand, the Trade Remedies Group does not consider that there is any circumvention.
Administrative Issues
If trade remedy responses to supply shocks caused by imports are to take greater account of the impact on competition and consumers in the provision of effective and appropriate remedies, 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. Further discussion should address the merits of the options available, from the introduction of a full-blown public and all-encompassing inquiry process, to the bringing together to a greater or lesser degree of existing processes and programmes, including the scope for a greater degree of co-ordination of adjustment assistance.
This section briefly outlines administrative issues which arise from the preceding discussion in this Paper.
Public Inquiry or Administrative Process?
Currently, dumping and subsidy investigations are carried out administratively by the Trade Remedies Group of the Ministry of Commerce. Temporary safeguard investigations are carried out by a Temporary Safeguard Authority, serviced by the Trade Remedies Group, and can contain some aspects of a public inquiry process.
Issues to be considered in deciding between a public inquiry and an administrative investigation include the capacity of the process:
- To be transparent;
- To allow free access and give objective treatment to all groups;
- To respond rapidly;
- To be cost effective.
A public inquiry process is likely to be more transparent and freely accessible, while an administrative process is likely be faster and less costly [See Laird and Sampson (1987)] .
An approach adopted in some administrations is a full-blown public inquiry process. This is used in the US (the International Trade Commission) and Canada (the Canadian International Trade Tribunal). Such bodies hold public hearings to which all parties have access and for which legal representation is usual. In addition to the cost of the process to public funds, there are additional costs for participants. However, provided such a body has a sufficient quantum of work to justify its fixed costs, enhanced transparency and improved access are benefits to set against the increased costs.
Currently all final decisions on the application of trade remedies are made at Ministerial level. This seems appropriate in the case of an administrative process. The question arises, however, whether a public inquiry process could take final decisions without reference to an executive authority, such as a Minister. Decisions by such an executive authority might not be regarded as being sufficiently transparent, accessible and accountable. An argument against the inquiry process making final decisions would be the Government’s need to ensure that the public inquiry process made decisions consistent with other aspects of Government policy.
Relationships and Co-Ordination
Any new or amended process for conducting trade remedy investigations could involve activities which have some similarity to those currently conducted by other groups, namely the Commerce Commission in its investigations of anti-competitive practices, and those groups currently administering business and labour market assistance. This raises the question of how to ensure that the expertise of these groups in these areas is utilised, how to ensure consistency of approach, and how to avoid duplication of processes. Care would need to be taken to ensure consistency with the WTO Agreements to ensure that no actions were taken which were inconsistent with those rules.
More specifically, consideration would need to be given to whether some stages of the investigation and assessment process should be undertaken by groups other than the trade remedies administrators, although it is noteworthy that most of the current expertise and experience in these areas is contained within the Ministry of Commerce, and that the Trade Remedies Group is currently adopting processes which utilise these resources.
The development of such a process would also need to take into account the broad range of adjustment assistance programmes, and the need for co-ordination between these programmes.
Safeguard Action
The current Temporary Safeguard Authority (TSA) approach has some of the advantages of a public inquiry process, and would be sufficient to meet most of the requirements of the SG Agreement. However, it currently goes only half way. A TSA advises only on whether imports are causing injury and recommends a remedy without carrying out any detailed consideration of the impact of the remedy on parties other than the immediately affected industry. It is a Ministerial decision whether to implement the remedy. Indeed, Cabinet processes are involved where the action requires an amendment to the standard protection (a change in tariff).
This raises further questions as to whether a temporary safeguard measure should be clearly separated from normal border protection instruments, for example by applying a supplementary and temporary special duty similar to an anti-dumping duty, and whether the temporary safeguard process should contain within it the mechanism for applying remedies, such as the mechanism provided in the anti-dumping legislation.
To the extent that the determination of whether injury is caused by imports is based on a factual analysis, there would appear to be no reason why it needs to be done by a separate authority, instead of by the same investigative body which carries out a similar investigation and analysis process with similar criteria in relation to dumping and subsidy investigations. Another aspect of this question is whether injury to an industry should remain the focus of a safeguard investigation, or whether it should extend to consideration of the net national benefit involved.
Any consideration of how a trade remedy process could apply or link with processes, including existing programmes, for providing assistance to firms or workers, would need to take account of the Government’s overall industry assistance policy.
Legislative Framework
The appropriate legislative framework is dependent both on the finality of the decision of the investigative process, and on its relationship to other groups’ activities. Issues to consider include the desirability of a single trade remedy process, and the mechanism to be used for the application of any safeguard measures; whether to utilise existing mechanisms or to establish specific trade remedy solutions.
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