The return of safeguards

is the subject of my Trade Tripper column in this weekend issue of BusinessWorld:

One significant sign that business indeed may be picking up is the presence of trade disputes. Rather than a negative, such disputes actually indicate a healthy trading system, demonstrating the increase of activity as well as trust on the settlement of conflicting trade interests.

On Oct. 9 the Philippine government notified the World Trade Organization (WTO) that it initiated safeguard investigations on imported “galvanized iron and pre-painted sheets and coils.” A safeguard measure forms part of the triumvirate of trade remedies, usually in the form of increased tariffs, which a WTO member is allowed to take against imports allegedly damaging its local industry.

According to the Philippine notification, “Pursuant to Article 12.1 (a) of the WTO Agreement on Safeguards, the Permanent Mission of the Philippines to the WTO hereby notifies the Committee on Safeguards of the initiation of a safeguards investigation on the imports of galvanized iron (GI) and pre-painted galvanized iron (PPGI) sheets and coils from various countries."

"Galvanized Iron (GI) sheets and coils classified under AHTN Codes 7210.4110, 7210.4190, 7210.4990, 7210.6910, 7210.6990, 7212.3019, 7212.3093 and 7212.3099 and Pre-painted Galvanized Iron (PPGI) sheets and coils classified under 7210.7011, 7210.7012, 7210.7030, 7210.7060, 7210.7090, 7210.9840, 7210.9050, 7210.9060, 7210.9090, 7212.4011, 7212.4019, 7212.5012, 7212.5013, 7212.5019 and 7212.5029."

“(i) The investigation was initiated following an evaluation of the petition filed by the domestic industry, represented by Puyat Steel Corporation.
“(ii) (ii) The documents submitted by the petitioner showed that increased imports have caused serious injury to the domestic industry as indicated in their declining market share, production, sales, capacity utilization, productivity, profitability, price suppression and undercutting.”

To get the safeguard measure, a petitioner must be able to establish (quantifiably) the presence of five elements: the fact that the imports are due to WTO commitments, that the imports’ effects were unforeseeable, that the imports’ increase take the form of a “surge” (either in “absolute” or “relative” terms), that the local industry is suffering from “serious injury,” and that the serious injury is due to the increase of imports (the “causality” requirement). The last requirement is oft overlooked but is actually the most crucial: it demands tight economic arguments involving quite particular correlation.

Safeguard measures are different from “anti-dumping measures.” The essence of the differences can be seen in the last three elements. An anti-dumping measure is directed at what’s called an “unfair trade practice.” The measure is directed at “dumped” products: whereby the imported price of the product is lower than the price of the like product in the exporting country. There is therefore considered an element of “cheating” in the act of dumping.

On the other hand, with regard to a safeguard case, there is no cheating by the importer. It essentially means that the foreign exporting companies (from which the importer is sourcing its products) are more efficient than the complaining local industry. Hence, the increased quantities of imports and (perhaps) lower prices compared to that of domestic products.

That the WTO rules allow members’ governments to assist their hurting local industries is really for mostly political reasons (hence the “public interest” clause in RA 8800). This is why the standard for safeguard measures is higher (“serious injury”) than for anti-dumping measures (“material injury”).

Another reason for the greater burden on the part of a safeguards petitioner is that, while anti-dumping measurers are only directed against specific countries engaged in dumping, safeguard measures are directed at all countries from which imports are coming.

As can be seen, safeguard cases are highly complex affairs combining law, politics, and economics all in one sweep. In order to fully understand the intricacies of safeguards cases, one must read Article XIX of GATT 1994 (which is actually GATT 1947 -- don’t ask) and the Agreement on Safeguards, as well as the corpus of rulings made by the WTO Appellate Body. The present case being initiated in the Philippines, it is necessary also that one reads Republic Act No. 8800 (along with the implementing rules and regulations). If the country to be hit by a safeguard measure is part of a free trade agreement, then the safeguards provisions of the pertinent agreement or agreements must be read as well. All in all, we’re talking here easily of at least five or six separate legal instruments, not including the so-called “WTO jurisprudence.”

It is in this very complexity where the dangers lie for both petitioners and respondents of a safeguard case. One of the bigger tragedies played out in the domestic scene relating to international trade was when a local industry got the idea of filing a safeguard measure petition. The problem was that, due to erroneous “expert” advice, the local industry wound up needlessly paying millions in consultancy fees for a safeguards case that wasn’t even necessary to begin with as the product in question wasn’t subject to a “bound” tariff rate. A simple Section 401/402 case would have been sufficient.

Safeguard measures are definitely not your usual legal case.