The International Who’s Who of Trade & Customs Lawyers has brought together four of the world’s leading practitioners to discuss key issues facing trade and customs lawyers today.
Terence P Stewart
Stewart and Stewart
The WTO has reported a rise in trade protectionism in the past year due to the cooling of the global economy. Have you seen an increase in the use of trade remedies? Which trade remedies are used most often?
Terence Stewart: The term “rise in trade protectionism” is often misused, in my view. The WTO in conjunction with other international organisations has collected information on matters that can properly be viewed as a rise in trade protectionism – the series of WTO challenges against Argentina’s increased use of import licensing requirements to apparently reduce imports/control imports being one example. Other issues get listed, such as: the use of trade remedies are specifically authorised under international agreements and do not constitute “protectionism”, at least as this author understands the term. There are trading partners who are accused of using trade remedies not to address bona fide cases but rather to retaliate against a trading partner’s use of such remedies following domestic laws that are consistent with international norms (and where no WTO challenge has been brought and won entitling a country to retaliation). Both the EU and the US have been concerned that China appears to openly claim to pursue cases for retaliatory purposes. This latter activity certainly gives rise to concern and is inconsistent with the design of the WTO rules. The rise of protectionism can also properly be seen where countries engage in beggar-thy-neighbour policies that distort trade flows. Export restraints are a common example. These were common on agricultural goods from many countries in the 2007-2008 period as countries tried to protect home market supplies by limiting what they would allow to be exported. It can be seen in energy policies of some countries and has been aggressively pursued on a wide range of intermediate or raw material products by China in the last six or seven years to promote shifting investment to China and for various other purposes. So yes, there has been a rise in protectionism in the last year or so reflecting difficulties in many parts of the world economy. The increased rise in the use of trade remedies is not necessarily part of that phenomenon versus simply being a reflection (at least in many/most cases) of the proper use of WTO-approved rules.
Historically, there have been swings in the number of trade remedy actions in countries which have active laws based on the economic cycle a country finds itself in – fewer during periods of economic expansion, more during periods of economic contraction. This was not generally true in the great recession in the US where imports contracted more steeply than much of domestic manufacturing, negating the likelihood of additional cases. Historically, most cases are brought under national anti-dumping laws. The number of countervailing duty cases has varied over time, although in recent years (and not just the last year or so), there has been an increase in the number of countervailing duty cases brought against imports from China, reflecting the large number of distortive policies pursued by the government of China as it supports various domestic industries as part of its development programme and export-led growth strategies. In developed countries, there are few safeguard cases (actions against all imports of a product from around the world)or in the case of China through the end of next year, a China-specific safeguard action consistent with China’s Protocol of Accession. However, with increased obligations for many developing countries since the start of the WTO in 1995, some developing countries have been relatively active users of safeguard measures, including in recent years against just China, presumably reflecting the easier administrative challenges for a developing country in obtaining and analysing information for the application of a safeguard remedy. Data on anti-dumping and countervailing duty actions can be found on the WTO webpage. While similar statistics are not typically posted on the website about safeguard actions, a review of WTO documents filed in the safeguard area permit an identification of countries and products subject to cases.
Ana Caetano: It is quite normal and expected that an increase in the use of trade remedy proceedings and application of measures occur in times of slow global economic activity. In the past couple of years traditional consumer markets, such as the US and the European Union, have contracted and production from these jurisdictions has been directed to other markets less affected by the global economic crisis. Other world producers, such as China, have also targeted these “less affected markets”. Accordingly, these markets have increased the use of trade remedy proceedings and other mechanisms to avoid injury to local industries. This, in itself, is not a “rise in trade protectionism”, what will constitute “trade protectionism” is the abuse or incorrect application of such measures.
As an emerging market “less affected” by the global economic crisis, Brazil has definitely increased its use of trade remedy proceedings, both in number and type of proceedings.
In 2010, Brazil initiated 15 trade remedy proceedings (of multiple origins), of which 12 were original anti-dumping (AD) investigations and three were AD sunset reviews. In 2011, Brazil initiated only 12 trade remedy proceedings, but of different types: eight original AD investigations, one AD sunset review, two anti-circumvention (AC) investigations and one original countervailing duty (CVD) investigation. Thus far, in 2012, Brazil has initiated 17 trade remedy proceedings, of which 12 were original AD investigations, four AD sunset reviews and one safeguard investigation. More trade remedy cases are expected to come before the end of the year.
In 2012, Brazil announced, as part of the “Bigger Brazil” plan (measures focusing on innovation, investments and foreign trade), the strengthening of trade remedies by pursuing: (i) the conclusion of original investigations within 10 months; (ii) the mandatory issuance of preliminary determinations and, when applicable, the imposition of provisional measures 120 days after the initiation of investigations; and (iii) the extension of AD and CVD measures to imports circumventing measures already in force. To this effect, the number of trade analysts in the Brazilian Department of Trade Remedies (DECOM) will be increased from 30 to 120, and more stringent controls on imports to combat false declarations of origin, underpricing and illegal imports will be put in place.
Paulette Vander Schueren: We have definitely seen increased recourse to trade remedy investigations globally over the last year even if such increase does not so far exist in the EU itself. However, especially in 2012 the EU’s commissioner for trade and most recently even European Commission president, Mr Barroso, have indicated in no uncertain terms that the European Commission will actively use the EU trade remedy regulations when warranted.
Symptomatic is also the fact that the European Commission is actively considering the initiation of trade remedy investigation at its own initiative, ie, without filing an anti-dumping complaint by the EU industry in instances where there is a concern that EU producers may be the target of retaliatory measures in the country of export that might be targeted by trade remedy investigations. This is a unique and significant development.
There has also been an escalation in the statements by the EU commissioner for trade regarding the need to challenge subsidisation in particular in China including as regards export credits. This seems to figure prominently on the agenda of unfair trade practices that the EU will seek to actively challenge. Thus, references to an anti-subsidy investigation into telecoms equipment from China possibly being self-initiated by the European Commission have not been rare; to date, the possibility of such an investigation being initiated still exists. Most recently, the EU initiated the long-awaited anti-dumping investigation into solar products originating in China of which the economic importance is the largest ever investigation. It might shortly be followed by an anti-subsidy investigation into the same Chinese origin products. The outcome this autumn of the ongoing anti-subsidy and anti-dumping investigations into organic coated steel products which is only the second instance of a simultaneous EU anti-dumping and anti-subsidy investigation targeting China being completed, will be telling.
Telling in the EU is also the appearance on the EU’s website of a cartoon destined to make trade remedy investigations more accessible to especially small and medium-sized enterprises and the initiatives to reduce the obstacles for these companies to use trade remedy investigations.
Among the different trade remedy investigations available in the EU (anti-dumping, anti-subsidy, safeguard, Trade Barrier Investigation), only anti-dumping and anti-subsidy investigations have been initiated recently. In particular there has been no safeguard investigation since the investigation into Chinese modems in 2010. However, a novel initiative may occur this autumn following the French request to impose import surveillance on Korean origin cars under the EU’s special safeguard provisions relating to the EU-Korea FTA. The explicit intention of the French authorities is to determine based on the results of the statistical surveillance whether the facts obtained through surveillance support the imposition of safeguard measures. With the EU now negotiating or close to starting the negotiations of other Free Trade Agreements and specific sectors of industry (especially the automotive industry) being concerned because of the increased EU market access offered by these agreements, it is likely that treaty clauses and regulations allowing safeguard measures in the framework of free trade agreements will be strengthened.
However, one should not forget that the EU has a public interest test provision in its anti-dumping and anti-subsidy regulations. Because the supply chain is increasingly global, the opposition to the imposition of trade remedy measures will also gain in strength. The weighing of the interests of the EU producers in relation to those of consumers or the downstream industry will become more and more difficult as is immediately apparent from a memorandum that the European Commission itself issued on 20 July 2012 on the significance of concluding more free trade agreements in the following terms:
Today, many products are no longer made in one place from start to finish. Instead, they are put together in a long series of steps, often in different parts of the world. This new organisation of production along global supply chains is blurring economic frontiers and transforming trade relations. For example a German export is very often also an export for the Czech Republic, Belgium or Poland. A significant amount of the value of a Chinese export is often produced in Europe. Nokia smartphones are made in China, but contain 54 per cent European-added value. Even an iPhone, designed in California and manufactured in Shenzhen, China, has a 12 per cent European contribution. The same pattern is repeated in other production processes, from children’s toys to passenger jets.
This means that national exports and imports can no longer be approached from a narrow mercantilist angle. Not only are exports essential to economic growth and job creation, countries also increasingly need to import in order to achieve these. Two-thirds of EU imports are raw materials, intermediary goods and components needed for the EU’s production process. The share of foreign imports in the EU’s exports has increased by more than 60 per cent since 1995, to reach 13 per cent.
The fundamental changes in global supply chains mean that we need to look more closely at where value is added to products and less at where exports are booked. The core objective of the EU’s trade policy then becomes to maintain, and where necessary, reinvent, Europe’s place in global supply chains.
Maintaining Europe’s place in globally supply chains also means maintaining unimpeded access to the EU for those inputs used by the EU industry.
Patricia López Aufranc: In recent months, import regulations have been at the top of the agenda for most companies doing business in Argentina as the government has increased its controls on the imports of goods and services.
Since February 2012, Argentine importers, prior to issuing a purchase order, have to file an import prior sworn statement (DJAI). The DJAI is delivered to the secretary of domestic trade and other agencies, depending on the type of good to be imported, which may challenge the DJAI. In case a DJAI is challenged, the importer will not be able to import the goods until such objection is lifted by the relevant Agency. Several importers had their DJAIs regularly objected by the secretary of domestic trade. Many of these importers had to contact the secretary of domestic trade and comply with its requests in order to obtain the approval of their DJAIs.
Moreover, since April 2012, a system similar to the DJAI was introduced for services. Under this system, Argentine residents have to file a service prior sworn statement (DJAS) prior to making payments in foreign currency, in excess of certain thresholds, to foreign residents, in connection with certain services.
Argentine importers and foreign exporters have complained that these measures have restricted imports to Argentina. These concerns have resulted in requests for consultations before the WTO from the European Union, the United States, Japan and Mexico. Argentina has rejected such claims and even protested against the European and American international trade policies.
TRADE REMEDIES: FOCUS ON CHINA
The proliferation of trade remedy measures against China has seen an increase in disputes-based trade work. Have you been affected by this trend in your jurisdiction?
Ana Caetano: Yes, we have been affected by this trend in Brazil, but not only because of the increase in trade remedy measures against China but also because Brazil is slowly changing its approach and treatment towards Chinese imports.
In 2010, out of all trade remedy proceedings initiated only 27 per cent involved imports from China. In 2011, the number of cases involving Chinese imports increased. Of all the initiated proceedings, 67 per cent were of products from China. In 2012, that number remains close to 2011 numbers. Approximately 65 per cent of all trade remedy proceedings initiated thus far in Brazil involve Chinese imports.
However, more than the rise in the number of cases involving China, what has triggered an “uptick” in trade work has been the overall increase in trade remedy proceedings (from all sorts of origins), as well as Brazil’s change in practice and treatment of Chinese imports, with increasing acknowledgement and acceptance of data, information and arguments brought by Chinese exporters.
As a result of several circumstances, including the adoption of the WTO Appellate Body report in EC-Fasteners, the Brazilian Department of Trade Remedies (DECOM) started as of 2011/2012 to undertake on-the-spot verification visits at Chinese producers/exporters; accept and use export price data provided by Chinese exporters and verified by the authority; calculate individual dumping margins for known Chinese exporters that participate and cooperate with the authority; accept price undertakings with Chinese exporters; and so on.
This change in practice and treatment has motivated Chinese exporters to actively participate in trade remedy proceedings in Brazil. In turn, this has expanded the trade work available.
In addition, and as part of the “Bigger Brazil” plan, we have seen the Brazilian authority start to use other trade remedy instruments that were not available or used in the past, such as anti-circumvention and safeguard investigations. This has also amplified and diversified the trade work available.
As a final comment, we have also detected a trend in the inclusion of non-traditional origins in recent trade remedy proceedings in Brazil, such as Indonesia, South Africa, South Korea, Taiwan, Thailand and Vietnam. These origins have also expanded their trade beyond the traditional consumer markets, and, in some cases, present very low cost of production (sometimes lower than China), which enables them to practice lower prices.
Terence Stewart: Historically, the number of trade remedy measures against any particular country could be explained by the compatibility of trading systems between the two countries involved, the rate of increase in trade flows and whether such trade flows were characterised by significant price underselling. The rise of Chinese industry over the last several decades has been heavily supported by the central and provincial governments, aided by various distortions in the pricing of various elements of manufacturing cost and reflected in rapidly expanding exports at very distressed prices compared to competitors all around the world. So the issue has been not why there have been so many cases, but why there have been so few considering the factual circumstances facing domestic producers in countries all around the world. That has been my comment, when asked by friends in the Chinese government or when asked by industries in the US or other parts of the world. China is obviously a very important trading partner for many countries, including the US. But the trading relationship is supposed to be mutually supportive and in accordance with the internationally agreed rules. While China has grown rapidly and adopted many changes to its economic system, there remain many distortive practices which result in rapid swings in trade flows to the detriment of domestic industries in trading partners. Where that is the case, one will presumably find occasional cases, some large in scale.
Stated differently, while there are a lot of trade remedy cases in the US, as there are in the EU, South America, Asia and other parts of the world with active trade remedies, the cases typically reflect rapidly rising imports of goods from China at prices far below levels from any other country in the world where domestic producers are losing market share, laying off workers, closing plants and suffering operating losses. Where such consequences flow from dumped or subsidised imports, WTO rules and domestic laws provide a remedy.
As China starts a process of potentially shifting towards a more domestic-oriented growth policy and as China continues various economic reforms that align it more with its trading partners, there will be fewer trade remedy cases against China. For many trading partners, that day cannot come too quickly as it will reflect a more balanced approach to economic growth that will be more sustainable for all participants.
Patricia López Aufranc: Since 2010, the Argentine government initiated nine anti-dumping investigations against exports from China.
In practice, Argentina has not recognised China as a market-economy country; therefore, there is a specific regulation for non-market economy countries whereby certain aspects of the investigation (ie, normal value) are calculated based on a third country with market economy.
Argentine Authorities have frequently chosen Brazil as third country with market economy for the determination of the normal value. This has resulted in high dumping margins. Since establishing the existence of dumping is not difficult in this context, and Chinese exporters lack incentives to participate in anti-dumping investigations due to the low impact of Argentine exports in their overall business, China has often been target of anti-dumping measures.
Paulette Vander Schueren: Out of the six totally new anti-dumping and/or anti-subsidy investigations initiated thus far by the EU in 2012 (not double-counting simultaneous anti-dumping/anti-subsidy investigations), three have exclusively or additionally targeted China, ie, half of the investigations.
When counting separately those investigations that are simultaneously new anti-dumping and anti-subsidy investigations, the statistics as published by the European Commission in July 2012 show the following.
First, the above confirms that there is a relatively stable number of new investigations being initiated by the EU every year. But, second, the above also confirms that in the EU – as in other jurisdictions – there is a large portion of investigations that target Chinese products. This is a function of certain sectors of industry in which there are significant trade flows from China to the EU. It may also be a function of the calculations of dumping being based on surrogate values outside China, thereby inevitably yielding a comparison with prices and costs that are not (or not perfectly) similar to prices and costs prevailing in China resulting in relatively high findings of dumping.
As previously mentioned, starting in 2011 but also increasingly and more explicitly in 2012, it is also a function of what seems to be a policy decision to effectively challenge perceived subsidisation of the Chinese industry and more actively supporting EU industry in its competitiveness in relation to Chinese products. This may indeed result in more investigations being initiated overall by the European Commission, particularly as regards Chinese products, but expanding also to target other countries. Indeed, the European Commission has expressed in general terms, rather than China-specific terms, that it intends to fully use its own rights and those of the EU industry under the EU trade remedy regulations. To wit, the simultaneous anti-dumping/anti-subsidy investigations into US origin biodiesel and US origin bioethanol now followed by an anti-dumping investigation into biodiesel originating in Argentina and Indonesia.
As the global financial crisis shows no signs of relenting, our research noted that clients are looking to new jurisdictions to establish trade with. Which jurisdictions have your clients shown an interest in during the past 12 months?
Ana Caetano: Considering the size of Brazil, its growing consumer market and that fact that it has been “less affected” by the global financial crisis, most Brazilian clients are at the moment focused on tapping deeper into – and protecting – the domestic market. Foreign clients are also very much interested in the Brazilian market. A sign of such interest is the active participation and cooperation of foreign exporters in trade remedy cases in Brazil, even when respective sales and market share are small.
In addition, given Brazil’s promotion of trade agreements with countries in the region and of similar economic development, clients immediately look to other growing markets – supposedly less affected by the global crisis - where they can benefit from tariff preferences, such as Argentina, India, Venezuela, Chile, etc.
Brazil’s government export statistics shows that the 10 largest export destinations, in value, for the first semester of 2012 were: China, the US, Argentina, the Netherlands, Germany, Japan, Italy, India, Venezuela and Chile. In other words, of the top 10 export destinations, half were developing countries and half were developed countries. Most of these countries are also within the top 10 import origins in Brazil. This indicates a balanced and diversified export portfolio, and the lack of reliance on few export destinations. In times of global crisis, this can be very useful because it softens the impact that the contraction in certain markets has on the exports of other countries.
As a final comment, the choice or preference of certain jurisdictions is also guided by the type of product being exported and the capability the market has to absorb that export. For example, Brazilian exports of manufactured products perform better when destined certain markets, such as the US.
Paulette Vander Schueren: Clients in various sectors of industry voice interest in the markets of all countries with which the EU is or is contemplating to negotiate free trade agreements including India, Vietnam, Indonesia, Malaysia, Japan or the US. All these markets are considered to offer significant possibilities for both the goods and the services industry. For some, the focus will be the dismantling of tariff barriers but for many, and especially in the case of Japan, the emphasis is on the dismantling of the non-tariff barriers. And, as regards the US, both sides see significant advantages in convergences of regulatory regimes.
This does not mean that EU industry or EU institutions are not interested in Latin America, and indeed the agreements with Central America, Colombia and Peru have been negotiated and concluded. The negotiations with Mercosur have been ongoing for a long time. It can be expected that the current disputes between the EU and Argentina over biodiesel will not facilitate the conclusion of the negotiations.
The European Commission itself has emphasised the importance of the negotiations of free trade agreements and set new vigur behind obtaining the negotiation mandates from the EU Member States and starting the negotiations. It has calculated that what it calls an “ambitious external trade agenda… could boost the EU’s GDP by 2 per cent or more than €250 billion. This is equivalent to adding an economy of the size of Austria or Denmark. An ambitious agenda could also help create more than 2 million jobs across the EU.” (See the memorandum issued by the European Commission on 20 July 2012.)
Patricia López Aufranc: During the past 12 months, the Argentine government has made official trade visits to Angola and Azerbaijan with several businessmen from different economic sectors (ie, wine, leather, meat and footwear industries) to conduct and conclude trade agreements. According to press releases from the government, the next destination would be Vietnam and other countries of such region.
Business opportunities have been in accordance with the government policies and trade destinations searching new markets.
Terence Stewart: For global companies or even for domestic companies with an international approach to business development, where the opportunities are will vary by sector, by return horizons, by legislative and regulatory environments, by perceived predictability of government policies, by existing trade policies and various FTA negotiations that may be relevant to trade approaches, by intellectual property protections and more. Some countries offer attractive incentives for investment. Others (including China, India, Brazil, Vietnam) are on higher growth trajectories, both potentially attracting imports from countries like the US and offering potential in-market growth strategies. The ongoing integration of North America, the recently implemented agreements with Korea and Colombia and the high expectations for the TPP negotiations have many clients placing significant efforts to be positioned to enjoy expanded opportunities in these broader FTA environments as implemented or when concluded. At the same time, most of our clients are deeply involved in the EU and continue to look for opportunities with many of the EU countries during this time of a much more difficult environment.
In recent months there has been worldwide debate over the US’s use of sanctions. How has this affected your practice? Are clients concerned about the impact these sanctions might have on their trade with certain jurisdictions?
Terence Stewart: The US and many of its trading partners and the United Nations have been implementing and calling for economic sanctions against an increasing number and a wider range of countries, regions, individuals and groups. Although economic sanctions or embargoes have long been a staple of national security policies all around the world, there are several developments that are drawing more attention to US sanction programmes as well as forcing US (and some foreign) businesses to exercise greater caution in their international dealings.
First, the US is typically quicker than its trading partners to implement sanctions regimes on foreign governments, organisations or individuals that it perceives as bad actors in the world. Whether in response to national security concerns or other concerns, the US Congress and executive branch have a number of models for both broad and narrowly tailored sanction programmes, are relatively quick to implement restrictions under one or more types of sanctions regimes. Just as regional insecurity (civil strife/wars in Syria, Sudan, Libya, etc) raises national security concerns that can lead to new sanctions, global interconnectivity makes these security problems more acute both in the US and other countries, which also encourages the implementation of sanctions.
Second, the US has developed a number of electronic systems for trade and financial regulation that are nearly universal in the US. Therefore, almost all trade and financial transactions that originate in or pass through the US can be monitored for compliance with, inter alia, sanctions regimes. Because trade in goods or services from, with or even through the US (including payments through US financial institutions) are subject to pervasive regulatory scrutiny, it is incumbent upon companies to increase their efforts at compliance with the wide range of regulations, including the restrictions arising under US sanctions laws.
Importantly, US trading partners are also increasingly imposing sanctions on problem groups and countries, sometimes in coordination with the US or the UN and sometimes on their own. In almost all cases there are differences between and among the various national sanctions programmes, and in some cases US trading partners pass laws opposing or directly contradicting US sanctions laws. In addition, US and foreign sanctions laws and enforcement regimes change frequently, with new restrictions being imposed, amended or lifted every month. The result is a highly complicated and fluid web of international sanctions rules, some of which expose companies to significant civil and even criminal penalties for violations.
Consequently, understanding and complying with sanctions laws, as well as addressing violations, is an increasingly active area of concern for clients and an expanding area of activity for our firm.
Ana Caetano: Overall, we have not seen the US’s use of sanctions have a significant effect on our trade practice or major concerns by clients regarding the impact these sanctions have on trade with these jurisdictions. Brazil’s import statistics indicates that the top 20 import origins (in value) do not include any of the countries with which the US has sanctions against. Out of the top 20 export destinations of Brazilian products (in value), only Colombia figures among the countries with which the US has sanctions against, and in that case sanctions are limited to drug-related exports.
Paulette Vander Schueren: It is undeniable that the last few years have been characterised by an ever-increasing number of issues that are related to export control and sanctions. This is in part due to the increased awareness of both the goods and se