Consultations on FTAA and WTO Negotiations

Sectoral Consultations - Safeguards

Discussion Paper (March 1999)

Safeguards

Table of Contents

• Purpose
• What are Safeguards?
• Canadian Legislation
• FTA and NAFTA
• Key Results of the Uruguay Round [1986-94]
• The Post Uruguay Round Environment
• Possible Issues

Purpose

In preparation for the anticipated launch of multilateral trade negotiations under the World Trade Organization (WTO), the federal government has initiated public consultations with a broad range of Canadian stakeholders. As part of this exercise, this paper seeks input from interested parties on the issue of safeguards. This input will be used to assist in the formulation of the Canadian negotiating position with respect to the rights and obligations of WTO members under Article XIX of GATT 1994 as elaborated in the WTO Agreement on Safeguards.

What are Safeguards?

Safeguards are temporary trade measures applied by a Government on an emergency basis against increased imports of a particular good that are causing or threatening to cause serious injury to its domestic industry producing like or directly competitive products. Such measures are to be applied on a non-discriminatory basis, (i.e., against all imports of the goods irrespective of source), and can take the form of either tariff increases or quantitative restraints.

The WTO legitimacy of such measures is contingent on their compliance with the requirements of Article XIX of the General Agreement on Tariffs and Trade 1994 as elaborated in the WTO Agreement on Safeguards, which have been implemented in Canadian legislation.

Canadian Legislation

The Canadian International Trade Tribunal (CITT) conducts safeguard inquiries into whether increased imports are causing, or threatening to cause, serious injury to domestic producers, pursuant to the Canadian International Trade Tribunal Act (CITT Act) and the Regulations and Rules made pursuant thereto.

The CITT may initiate a safeguard inquiry following a complaint by domestic producers or upon direction by the Governor in Council.

The CITT reports its findings to the Government, which ultimately decides whether or not to apply safeguards and the form any such measures will take. In this regard, safeguards may take the form of surtaxes under the Customs Tariff or quantitative restrictions under the Export and Import Permits Act.

In critical circumstances, where a delay in protection might result in damage to domestic producers that would be difficult to repair, provisional measures can be applied prior to a final determination of injury. However, such measures cannot exceed 200 days and must be in the form of import surtaxes that are refunded if it is determined in the subsequent injury inquiry that increased imports are not causing or threatening to cause serious injury.

The CITT Act requires the Tribunal to conduct mid-term reviews of measures exceeding three years in duration to determine if the measures should remain in effect, or be revoked or amended. The Tribunal may also conduct extension inquiries to determine if measures that are due to expire should be continued.

Any person affected by a Tribunal report in a safeguard inquiry can make application for judicial review in the Federal Court of Appeal.

FTA and NAFTA

Canada and the United States agreed in Article 1102 of the Canada-United States Free Trade Agreement (FTA) to exclude each other from global safeguard actions under GATT Article XIX unless imports from the other Party were "substantial" and "contributing importantly" to the serious injury or threat thereof caused by increased imports.

The FTA standards in respect of emergency safeguard actions were essentially carried over into the North American Free Trade Agreement (NAFTA). In this regard, Article 802 of the NAFTA provides for the exclusion of one Party's goods from another Party's global safeguard actions unless imports from that Party:

1. account for a substantial share of total imports, (i.e., the Party must normally be among the top five suppliers measured in terms of import share during the most recent three-year period); and

2. contribute importantly to the serious injury or the threat thereof. A Party that is excluded from a global safeguard measure can only be subsequently included if it is determined that a surge in imports from that Party is undermining the effectiveness of the measure.¹ /p>

Key Results of the Uruguay Round [1986-94]

The Ministerial Declaration on the Uruguay Round called, among other things, for a comprehensive agreement on safeguards based on the basic principles of the GATT.

A major motivation for the negotiation of a Uruguay Round Agreement on Safeguards was concern over the proliferation of so-called "grey-area" measures, (i.e., voluntary export restraints, orderly marketing arrangements, etc.), which had no legal basis under the GATT.

The Agreement prohibits all grey-area measures and includes specific provisions for their notification and elimination. Grey-area measures in effect at the time that the WTO Agreement entered into force had to be brought into conformity with the Agreement on Safeguards or generally phased out within four years of the WTO Agreement's entry into force, (i.e., by December 31, 1998), in accordance with timetables submitted by the Members concerned.

At the same time, the rules applying to the application of safeguard measures were clarified and improved. In this connection the Agreement:

• provides for MFN application, with an exceptional allowance for modulating a measure where imports from certain countries have increased disproportionately in relation to the total increase in imports of the goods²;

• waives the right of retaliation for the first three years that a safeguard measure, taken as a result of an absolute increase in imports of the goods, is in effect³;

• provides for greater transparency and procedural fairness in safeguard inquiries, including public notice of hearings, the right of interested parties to present evidence and respond to the representations of other parties, and the issuance of findings and conclusions on all issues of fact and law;

• clarifies the meaning of the key concepts of "serious injury", "threat of serious injury" and "domestic industry" and includes specific factors to be considered in assessing injury;

• circumscribes the application of safeguards through specific time limits on the duration of safeguard measures⁴, requirements for their progressive liberalization⁵, mid-term reviews⁶, and limitations on the re-imposition of such measures in respect of the same goods⁷;

• provides for surveillance through the establishment of a Committee on Safeguards (that is, among other things, responsible for monitoring the operation of, and compliance with, the Agreement), and detailed notification requirements.

Disputes arising under GATT Article XIX or the Agreement on Safeguards are subject to the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes.

As such, the WTO Agreement on Safeguards represents a significant achievement in elaborating disciplines applicable to safeguard measures.

The Post Uruguay Round Environment

Notifications of Legislation

As of November 1998, 81 Members (with the European Community counted as a single member) had notified the Safeguards Committee of their domestic safeguards legislation.⁸ Thirty-six Members had not submitted notifications as of that date.

Of the 81 Members submitting notifications, 46 notified that they had no specific legislation relating to safeguards, 19 notified new legislation, and 16 notified pre-WTO legislation still in force.

Of the 62 Members notifying either no safeguards legislation or pre-WTO legislation still in force, 19 indicated that new legislation was being considered or drafted. Of the Members notifying that they had no specific legislation, 13 indicated that the WTO Agreement has the force of law in their territory.⁹

Notifications of Grey-Area Measures

Grey-area measures notified by WTO members have taken various forms, (e.g., import prohibitions, voluntary export restraints, minimum import prices and discretionary import licensing), and covered an array of products ranging from live bovine to electronic equipment.

The phase-out of grey-area measures that have been notified is generally progressing on schedule, in accordance with the timetables submitted by Members.

Notifications of Investigations

Nineteen safeguard investigations were notified to the WTO from January 1, 1995 (when the WTO Agreement came into force) to November 1998, which have so far resulted in the implementation of five definitive safeguard measures.¹⁰

Traditionally, recourse to GATT Article XIX safeguard measures has been generally exercised by developed countries. However, developing countries, (i.e., Argentina, Brazil, Egypt, India and Korea), have accounted for the majority of safeguard investigations initiated under the WTO framework to date.

Furthermore, whereas developed country activity is concentrated in the agricultural sector, developing country actions cover a broader spectrum of goods.

WTO safeguard actions have so far had a minimal impact on Canadian exports. Canada did, however, intervene in the U.S. International Trade Commission's recent safeguard investigation in respect of Wheat Gluten and the Australian Productivity Commission's investigation in respect of Pigmeat, neither of which resulted in the application of safeguard measures against imports from Canada.

For its part, Canada has not taken any safeguard measures since the WTO Agreement came into force.

Possible Issues

Canadian authorities and others have begun to identify issues for negotiation in the upcoming round of multilateral trade negotiations.

Generally speaking, Canadian export interests are best served by maintaining clear and transparent multilateral rules and disciplines for trade remedies, including in respect of safeguard measures.

In this regard, the Government is closely monitoring safeguard disputes pending resolution under the WTO Dispute Settlement Understanding.¹¹

Canada's initial approach might be to support incremental changes to the WTO Agreement on Safeguards that further strengthen or clarify its application.

Of course, developments in other areas of negotiation could also have implications for the Agreement on Safeguards.

The Government would welcome the public's views on issues relating to the effective functioning of the WTO Agreement on Safeguards as well as on the role of safeguards in the broader WTO context.

We welcome your comments.

Notes:

1. In Wheat Gluten [Investigation No. TA-201-67 (Publication 3088; March 1998)], for instance, the United States International Trade Commission, in excluding Canada, found that while Canada accounted for a substantial share of imports, imports from Canada did not contribute importantly to the injury caused by imports.

2. In principle, safeguard measures have to be applied irrespective of source. In cases where a safeguard quota is allocated among supplying countries, allocation would normally be on the basis of proportion of total quantity/value of the imported product over a previous representative period. However, it is possible for the importing country to depart from this approach if it can demonstrate, in consultations under the auspices of the Safeguards Committee, that imports from certain contracting parties had increased disproportionately and that such a departure is justified and equitable to all suppliers.

3. However, compensation remains payable under Article 802:6 of the NAFTA.

4. e.g., the period of provisional application + initial application + extension cannot exceed eight years.

5. i.e., where expected duration exceeds one year.

6. i.e., where expected duration exceeds three years.

7. i.e., generally no re-imposition for a period of time equivalent to the original safeguard action or two years, whichever is greater.

8. The Canadian notification is contained in documents G/SG/N/1/CAN/1 of April 12, 1995 and G/SG/N/1/CAN/2 OF April 4, 1996.

9. Report (1998) of the Committee on Safeguards, document G/L/272 of November 11, 1998.

10. i.e., footwear (Argentina), toys (Brazil), dairy products (S. Korea), corn brooms and wheat gluten (United States). [Refer to the Report (1998) of the Committee on Safeguards, document G/L/272 of November 11, 1998].

11. Korea - Definitive Safeguard Measure on Imports of Certain Dairy Products (WT/DS98/1); Argentina - Safeguard Measures on Imports of Footwear, (WT/DS121/1); and, most recently, Hungary - Safeguard Measure on Imports of Steel Products from the Czech Republic, (WT/DS159/1).