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BTW3201 International Trade Law

GATT and international trade (Part 2)
- Extraterritorial process regulations
- Anti-dumping

Gan Joo Ee

Accredited by: Advanced Signatory:

Extraterritorial process regulation
What does ‘extraterritorial rules’ mean?
• In the context of states, the term ‘extra-territorial’ means outside the
jurisdiction of a particular country.
• Extraterritorial rules seek to regulate persons, property or acts that
occur outside the jurisdiction of the regulating state. Such rules are
controversial because, traditionally, a state should only regulate
persons, property or acts within its jurisdiction.

Are extraterritorial rules acceptable?

• The exercise of extraterritorial jurisdiction among sovereign states is
increasingly common. For instance, in the areas of
antitrust/competition law, extraterritorial rules are deemed necessary
where acts that occur outside of a state’s jurisdiction can be said to
have substantial domestic effects. MONASH
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Extraterritorial process regulation
Are extraterritorial rules prohibitive and do they impose
sanctions?
• Not necessarily. Process and production methods (PPMs) measures
seek to influence certain behaviours in other states by through
incentives. Of course, it is arguable whether PPMs are strictly
extraterritorial rules, since they do not mandate the desired
behaviours.
• PPM-based trade restrictions influence the behavior of extra-
jurisdictional actors by providing economic incentives for compliance.
• For example, Country A imposes lower tariffs in respect of the
importation of product Z that is produced without chemical xxx. This
incentivizes the producers in other countries to manufacture product
Z without chemical xxx.
• However, PPMs can be coercive when they are imposed by
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economically powerful states or trade blocs. Consequently, this BUSINESS
reinstate international hierarchies and lead to trade injustices.
Extraterritorial process regulation
Do the GATT provisions encourage extraterritoriality?
• As a general rule, ‘no’.
• Granted, the general exception provisions in Article XX of the GATT
allows a member state to implement measures to achieve certain
objectives, notably, the protection of public morals, the maintenance of
public order, the protection of human, animal, or plant life or health,
the enforcement of certain domestic laws, and the conservation of
exhaustible natural resources.
• However, Article XX must be interpreted in accordance with the
‘chapeau’ or introductory paragraph to the general exceptions
provisions.
• The effect of the chapeau is that the sub-paragraphs in Article XX
should not be “applied in a manner which would constitute a means of
arbitrary or unjustifiable discrimination between countries where the
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same conditions prevail, or a disguised restriction on international BUSINESS
trade.”
Extraterritorial process regulation
• Essentially, this means that a country should not take trade actions
with the aim of enforcing its own domestic laws in another country.

United States — Restrictions on Imports of Tuna (1991) (The Tuna-

Dolphin case)
- This case was handled under the old GATT dispute settlement
procedure. The main questions were:
(a) can one country tell another what its environmental
regulations should be?
(b) do trade rules permit action to be taken against the method
used to produce goods (rather than the quality of the goods
themselves)?

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Extraterritorial process regulation
- In eastern tropical areas of the Pacific Ocean, schools of yellowfin
tuna often swim beneath schools of dolphins. When tuna is harvested
with purse seine nets, dolphins are trapped in the nets. They often die
unless they are released.
- The US Marine Mammal Protection Act sets dolphin protection
standards for the domestic American fishing fleet and for countries
whose fishing boats catch yellowfin tuna in that part of the Pacific
Ocean.
- If a country exporting tuna to the United States cannot prove to US
authorities that it meets the dolphin protection standards set out in US
law, the US government must embargo all imports of the fish from that
country.
- Mexico was a tuna exporting country. Its exports of tuna to the US
were banned.
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- In 1991, Mexico brought a complaint against the US. BUSINESS
Extraterritorial process regulation
- The embargo also applies to ‘intermediary’ countries handling the
tuna en route from Mexico to the United States. Often the tuna is
processed and canned in one of these countries.
- Here, the ‘intermediary’ countries facing the embargo were Costa
Rica, Italy, Japan, and Spain, and earlier France, the Netherlands,
Antilles, and the United Kingdom. Others, including Canada,
Colombia, the Republic of Korea, and members of the Association of
Southeast Asian Nations, were also named as ‘intermediaries’.
- Some of these intermediary countries also expressed an interest in
the proceedings brought by Mexico.

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Extraterritorial process regulation
- The panel reported to GATT members in September 1991. It
concluded:
(a) that the US could not embargo imports of tuna products
from Mexico simply because Mexican regulations on the
way tuna was produced did not satisfy US regulations.
(But the US could apply its regulations on the quality or
content of the tuna imported.) This has become known as
a “product” versus “process” issue.

(b) that GATT rules did not allow one country to take trade
action for the purpose of attempting to enforce its own
domestic laws in another country — even to protect
animal health or exhaustible natural resources.

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Extraterritorial process regulation
- The Panel explained that if the US arguments were accepted, then
any country could ban imports of a product from another country
merely because the exporting country has different environmental,
health and social policies from its own.
- This would create a virtually open-ended route for any country to
apply trade restrictions unilaterally — and to do so not just to enforce
its own laws domestically, but to impose its own standards on other
countries. The door would be opened to a possible flood of
protectionist abuses. This would conflict with the main purpose of the
multilateral trading system — to achieve predictability through trade
rules.
- Take note that the Panel’s report was never adopted. On 1 January
1995, the old GATT system made way for the WTO.

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[Source: https://www.wto.org/english/tratop_e/envir_e/edis04_e.htm] BUSINESS
Anti-dumping and countervailing duties
What is the ‘dumping’ in the context of international trade?
• Dumping is a form of injuring pricing. It refers to the situation where
the selling price of a product in the foreign market is cheaper than
the selling price in the originating domestic market.

Why does ‘dumping’ occur?

• Dumping is a strategy used to capture a market. By reducing price to
a level which no competitor can afford, the producers in the exporting
country will eventually corner the market.

How could producers afford to export at prices lower than that in

the originating domestic market?
• The producers might receive subsidies from their government that
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enabled them to export at low prices. BUSINESS
Anti-dumping and countervailing duties
How is dumping dealt with under the GATT?
• Strictly, dumping is not illegal. However, if a member state (Country
A) believes that its domestic producers have been materially injured
due to the dumping practices of another member state (Country B),
Country A can take action under its domestic law to remedy the
problem. See Article VI - Anti-dumping and Countervailing
Duties.
• Among other things, Country A can impose duties on the products to
offset the effect of the low prices.
• It is also recognized that states would provide subsidies to their
producers to encourage the growth of certain industries. This could
have the effect of distorting prices and promoting unfair competition.
• Article XIX - Emergency Action on Imports of Particular
Products allows a member state to impose the equivalent duties to
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offset the effect of the subsidies on prices. BUSINESS
Anti-dumping and countervailing duties
Article VI
Anti-dumping and Countervailing Duties
…..

2. In order to offset or prevent dumping, a contracting party may levy on

any dumped product an anti-dumping duty not greater in amount than
the margin of dumping in respect of such product. For the purposes of
this Article, the margin of dumping is the price difference determined in
accordance with the provisions of paragraph 1.
……

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Anti-dumping and countervailing duties
Article XIX
Emergency Action on Imports of Particular Products

1. (a) If, as a result of unforeseen developments and of the effect of the

obligations incurred by a contracting party under this Agreement,
including tariff concessions, any product is being imported into the
territory of that contracting party in such increased quantities and under
such conditions as to cause or threaten serious injury to domestic
producers in that territory of like or directly competitive products, the
contracting party shall be free, in respect of such product, and to the
extent and for such time as may be necessary to prevent or remedy
such injury, to suspend the obligation in whole or in part or to withdraw
or modify the concession.
cont’ …
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Anti-dumping and countervailing duties
(b) If any product, which is the subject of a concession with respect to a
preference, is being imported into the territory of a contracting party in
the circumstances set forth in sub-paragraph (a) of this paragraph, so
as to cause or threaten serious injury to domestic producers of like or
directly competitive products in the territory of a contracting party which
receives or received such preference, the importing contracting party
shall be free, if that other contracting party so requests, to suspend the
relevant obligation in whole or in part or to withdraw or modify the
concession in respect of the product, to the extent and for such time as
may be necessary to prevent or remedy such injury.

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Anti-dumping and countervailing duties
Australia – Anti-Dumping Measures on A4 Copy Paper (DS529) (2019)
- This dispute concerns Australia's imposition of anti-dumping duties
(between 35.4% - 38.6%) on certain exporters of A4 copy paper from
Indonesia.
- Indonesia brought a complaint against Australia.
- Other countries, namely, China, the European Union, Japan, the
Republic of Korea, the Russian Federation, Thailand, and the United
States expressed interest in the proceedings.
- When calculating dumping duties, the normal comparison is between
domestic sale prices and export prices. This is to identify
international price discrimination.
- However, where there is a ‘particular market situation’ (Article 2.2 of
the Anti-Dumping Agreement) in the exporter’s country, the
Australian Anti-Dumping Commission (ADC) adopts a different
approach. MONASH
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Anti-dumping and countervailing duties
- An example of a ‘particular market situation’ is government
interference in the market for the goods, or materials used to
produce the goods.
- In this case, the ADC found that the A4 copy paper prices in
Indonesia were artificially low due to government influence on raw
materials (pulp) and the provision of subsidies.
- In light of this, the ADC constructed a ‘normal value’ (the comparison
value). Instead of using the real cost of production, it substituted the
manufacturer’s actual material costs with what it considered to be a
benchmark fair market price.
- Essentially, Indonesia argued that Australia adopted an inappropriate
approach towards the ‘particular market situation’ and therefore
wrongly constructed the ‘normal value’ that determined the anti-
dumping duties.
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Anti-dumping and countervailing duties
- The Panel stated that while a low cost input can constitute a
‘particular market situation’ and justify the use of a constructed value,
this outcome is not automatic.
- The ADC should have investigated the effect of the particular market
situation on the domestic price in comparison to the effect on the
export price. In short, the matter should be approached on a case-
by-case basis, since the low cost input may have a different impact in
different markets.
- As the ADC had failed to make the appropriate comparison, the
methods for deriving the anti-dumping duties were not justified.
- Thus, Australia had acted inconsistently with its obligations pursuant
to the WTO agreements.

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