|Contingent protection is a term used to indicate that a country may temporarily break away with its normal course of import policy (in case the country is a WTO member, break away from its obligation arising from tariff binding and MFN treatment), imposing higher protection against importation of one or more goods from one or more countries. Three types of action fall under contingent protection: Antidumping, countervailing duties, and emergency safeguard protection.
Definitions vary, but commonly a company is said to engage in dumping if it exports a product at a price lower than the price it charges in its home market or the market of another country. Action against dumping is allowed under Article VI of the GATT in the form of antidumping duties (AD). Antidumping has been a major bone of contention in international trade relations. Perspectives on this issue vary widely, ranging from the perception that antidumping is an appropriate response to an activity that is condemned by the GATT to the view that antidumping is straightforward protectionism without any economic justification. One reason behind the controversy is that predation, which is the standard economic rationale for antidumping, has rarely anything to do with antidumping as it is practiced today. Although antidumping action has always been allowed by the GATT, the WTO has moved to discourage arbitrary and protections use of antidumping by establishing an Agreement on the Implementation of Article VI of the GATT. The agreement, among other things, clarifies the circumstance under which AD is allowed (proof of material injury to the importing country) and establishes the rules for calculating the amount of dumping and the duration of AD measures.
Countervailing duties (CDs) are those duties that a country may impose against imports of a certain goods from a specific country if the exporting country has been directly or indirectly subsidizing its exports. CDs are justified on the economic ground that subsidies that affect trade are a source of distortion of world trade. The GATT disallows the use of subsidies and allows countervailing action. However, in order to reduce the possibility of abuse of the system by charging extra duties, the new WTO Agreement on Subsidies and Countervailing Measures provides a more precise definition of subsidy and distinguishes between various types of subsidies. In particular, the Agreement introduces the notion of "specific" subsidy (as opposed to general subsidy) which is the kind of subsidy subject to WTO discipline. Least-developed countries and developing countries with less than $1,000 per capita GNP are exempted from the discipline on prohibited export subsidies. Other developing countries are given until 2003 to get rid of their export subsidies. Least-developed countries must eliminate import-substitution subsidies (i.e. subsidies designed to help domestic production and avoid importing) by 2003 - for other developing countries the deadline is 2000. Developing countries also receive preferential treatment if their exports are subject to countervailing duty investigations. For transition economies, prohibited subsidies must be phased out by 2002
Safeguard measures are referred to those measures that a country may adopt to restrict imports of a product temporarily if its domestic industry is injured or threatened with injury caused by a surge in imports. The very vagueness of the terms "surge in imports," "injury," or "threat of injury" implies that safeguard measures can and have easily become instruments of protection. In the past, moreover, countries resorted to other "gray area" means of protection such as "voluntary export restraints" or other means of sharing the market. Compared to its predecessor, namely Article 19 of the GATT, the new WTO Agreement on Safeguards breaks new grounds by further curtailing the protectionist use of safeguard measures. It prohibits "gray area" measures, and sets time limits (a "sunset clause") on all safeguard actions. It requires that safeguard measures already taken before the WTO came into being - under Article 19 of GATT 1947 -end eight years after the date on which they were first applied or by the end of 1999, whichever comes later. The WTO agreement also sets out requirements for safeguard investigations by national authorities, the emphasis being on transparency and on following established rules and practices. It also sets out criteria for assessing whether "serious injury" is being caused or threatened, and the factors which must be considered in determining the impact of imports on the domestic industry. 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. When a country restricts imports in order to safeguard its domestic producers, the exporting country (or exporting countries) can seek compensation through consultations. If no agreement is reached the exporting country can retaliate. Finally, as with other WTO agreements, its shield to some extent developing countries' exports from safeguard actions. The WTO's Safeguards Committee oversees the operation of the agreement and is responsible for the surveillance of members' commitments. Governments have to report each phase of a safeguard investigation and related decision-making to the Committee for review.
Further Readings and links:
- WTO site about Anti-dumping
- WTO site about Safeguards
- WTO site about Subsidies and Countervailing Measures
- Finger, J. Michael "GATT Experience with Safeguards: Making Economic and Political Sense of the Possibilities That the GATT Allows to Restrict Imports" [PDF - 125k]
- Finger, J. Michael (1996): Legalized backsliding: Safeguards provisions in GATT, chapter 11 in The Uruguay Round and the developing countries, edited by Will Martin and L. Alan Winters; Cambridge; Cambridge University Press, 1996.
- Finger, J. Michael (editor, 1993): Anti-dumping : How it works and who gets hurt, University of Michigan Press, Ann Arbor
- Hoekman, Bernard (1998): "Free Trade and Deep Integration, Antidumping and Antitrust in Regional Agreements", Policy Research Working Paper #1950 , the world Bank, July 1998.
- Hoekman, Bernard and Petros C. Mavroidis. 1996. "Dumping, Antidumping and Antitrust" Journal of World Trade, 30:27-52.