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2014's Second Trade Centurion: Dumping

Tuesday, 19 August 2014   (0 Comments)
Posted by: Author: Christiaan v. de Lange
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Author: Christiaan v. de Lange (Delegation of the European Union to the Republic of South Africa)

Although introduced as "dumping and countervailing" in 1914, it was only in the 1992 that a distinction was drawn between "dumping" and "countervailing" (anti-subsidy). Presently there are a trilogy of trade remedies under the World Trade Organization (WTO), namely dumping, countervailing and safeguards. There is also a trade remedy under the Trade, Development and Cooperation Agreement (TDCA) – Article 16 safeguard – but that for another day. The distinction between the trade remedies are that dumping and countervailing are considered unfair trade remedies, whilst safeguards as a fair trade remedy. It is called this since unfair trade remedies addresses practices of unfair trade, whilst the fair trade remedy provides for an intervention, even though the import is considered to be fair.South Africa (this also refers to the collective Southern African Customs Union or SACU), was the fourth country in the world to introduce dumping and countervailing, following Canada (1904), New Zealand (1905) and Australia (1906). In 1914 the Union of South Africa introduced the Customs Tariff Act of 1914, which in part 1 to 3 of section 8 introduced the concepts of "dumping and countervailing duties". Just before I am challenged and you are told otherwise, trade remedies, also known as "bounties" or "subsidies", have a history in Southern Africa dating back to 1903, when it was used in the then Transvaal colony. This article considers present day South Africa, the collective of its current provinces, to date back to 31 May 1910, the date of the establishment of the Union of South Africa.

I would venture to guess that you did not consider dumping and countervailing measures to have been around for that long?

The existence of "bounties" has an even more advanced history, being referenced by Adam Smith, the father of Economics, in his iconic publication "An Inquiry into the Nature and Causes of the Wealth of Nations" (Wealth of Nations), which was published on 09 March 1776. 238 years ago. Reference can be found in Book IV "Of Systems of political Economy", the Chapter "Of Bounties: Bounties".

The intention of this article is not to deal with the principles of dumping and countervailing measures, nor the provisions of the Customs Duty Bill, but to provide you with a brief overview of its evolution, and what a journey it has been.

1914: A Special Customs Duty (or Dumping Duty)

As a comparison, the reference to dumping and countervailing in section 8 of the Customs Tariff Act of 1914 was 314 words, in the 1964 Act it is 877 words (730 words excluding safeguards), and the 2014 Customs Duty Bill it will be 524 words (The word count only reflects the reference to provisional anti-dumping, countervailing or safeguard duty, as "import tax", includes amongst other an ordinary import duty, anti-dumping duty, countervailing duty or safeguard duty.)

According to Section 8(1) of the 1914 Act "In the case of goods imported into the Union of a class or kind made or produced in the Union, if the export or actual selling price to an importer in the Union be less than the true current value of the same goods when sold for home consumption in the usual and ordinary course in the country from which they were export to the Union at the time of their exportation thereto, there may, in addition, to the duties otherwise prescribed, be charged, levied, collected and paid on those goods on importation into the Union a special customs duty (or dumping duty) equal to the difference between the said selling price of the goods for export and the true current value thereof for home consumption as defined in this Act: Provided that the special customs duty (or dumping duty) shall not in any case exceed fifteen percent, ad valorem."

The 1914 Act gave the Governor-General discretionary power to impose a measure on imported goods whose selling price was less than the price of the same goods in the country of export. At the time the Director-General provided offending parties with six weeks' notice prior to the imposition of the measure. This function was subsequently taken over by the Board of Trade and Industries (BTI).

1924: The Board of Trade and Industries

The BTI was established in February 1923 to undertake the investigation of allegations of dumping and to make recommendations on the imposition of anti-dumping measures, where appropriate. On 24 September 1924 the BTI was made responsible for the administration of the anti-dumping and countervailing dispensation, and on 01 October 1924 a full-time Board was appointed. Over the years the BTI name has changed, first to the Board of Trade and Industry also known as the BTI (24 September 1986), then the Board on Tariff and Trade (BTT) (06 May 1992) and to its present name the International Trade Administration Commission of South Africa (Itac) (01 June 2003). 

The first anti-dumping investigation undertaken by the BTI involved cement, Report No.30, published on 28 November 1923 is simply titled "The Dumping of Cement". The report was the result of an instruction of the Acting Minister of Finance to the Chairman of the BTI on 24 September 1923 to report on the question of the application of anti-dumping duty on cement. With some irony, when this article was being written, rumours were abound of the cement industry contemplating an anti-dumping application.

On 12 August 1924 the BTI represented Report No.38 simply titled "Dumping". The report states that "the Board has steadily declined to investigate specific allegations of dumping until they have been dealt with by the Customs Department, and on occasion even when urged by the Customs Department to make investigations into questions of dumping has had to asked to be excused owing to the pressure of other work". The report goes on to state that "since then other complicated questions regarding dumping have presented themselves, and the Board feels that the moment has arrived for dealing with the whole position". 

The anti-dumping remedy, whilst not extensively used, was well known and accepted practice during the time of the General Agreement on Tariffs and Trade (GATT) and the International Trade Organization (ITO) in the mid-1940s. Although attracting little discussion, it was included in GATT 1947, GATT Article VI (known as the Anti-dumping Agreement).

1964: Anti-Dumping Duties

Following its independence, resulting in the establishment of the Republic of South Africa on 31 May 1961, the Customs and Excise Act of 1964 came into operation, introducing Sections 55 to 57 of Chapter VI "Anti-Dumping Duties". Section 55 identified the circumstances and the types of anti-dumping duties that can be imposed. The five types of anti-dumping duties identified were, ordinary anti-dumping duty, bounty anti-dumping duty, freight anti-dumping duty, exchange anti-dumping duty, and sales anti-dumping duty.

It was only during the Kennedy Round of Multilateral Trade Negotiations from November 1963 to May 1967 that the first substantive review of GATT Article VI (Anti-dumping Agreement) occurred. The resultant negotiations saw the establishment of GATT's first Anti-dumping Code which expanded and clarified the Article's obligations. South Africa chose not to be a signatory to the Agreement and to the subsequent Agreement on Subsidies and Countervailing Measures. 

In 1967 the Customs and Excise Amendment Act of 1967 was introduced that repealed all anti-dumping measures imposed prior to 24 March 1967. 

At the Tokyo Round on Multilateral Trade Negotiations that lasted from September 1973 to November 1979, contracting parties revisited the Agreement and concluded a new Agreement namely the Agreement on the Implementation of Article VI of GATT.

Then in its 1977 Annual Report the BTI recommended that "all existing anti-dumping provisions be withdrawn from 1 January 1978". It was argued that "many of the anti-dumping provisions had been in existence for over twenty years and the Board is satisfied that the withdrawal of all provisions would not prejudice and South African industries in any way". This recommendation came into effect on 1 January 1978. Disruptive competition was subsequently remedied through the use of formula duties that maintained the price of imported products above set floors. This practice continued until 1992.

With the promulgation of the BTI Amendment Act on 06 May 1992 a distinction was for the first time drawn between "dumping” and "countervailing”. This legislative amendment resulted in the establishment of the Directorate: Dumping Investigations and the secondment of staff from the Department of Trade and Industry (the dti).

1994: The Anti-dumping Agreement

On 02 December 1994, South Africa deposited with the Secretariat of the GATT, a signed instrument of accession to the Agreement establishing the WTO, and on 06 April 1995, Parliament approved the accession in accordance with the Constitution of South Africa. On 01 January 1995 WTO was established as a result of the Uruguay Round of Multilateral Trade Negotiations that lasted from September 1986 to December 1993, institutionalising the General Agreement on Tariffs and Trade (GATT). As a consequence, countries were no longer Contracting Parties, but rather Signatories or Member countries. South Africa accordingly became a Signatory to the Agreement on the implementation of Article VI of GATT 1994 (Anti-dumping Agreement), the Agreement on Subsidies and Countervailing Measures, and the Agreement on Safeguards. The "final provisions" of these Agreements required that Member countries had to change their laws, regulations and administrative procedures to as to conform.

During the late 1990s South Africa became one of the most prolific users of anti-dumping measures in the world, the fifth-largest in fact, after the United States of America (USA) the European Union (EU), India and Argentina. Although South Africa's use of trade remedy measures is no longer close to those levels, trade remedy measures remain an important element of South Africa's (and SACU’s) tariff and trade instruments.

2014: Trade Remedies

The article does not deal with the trade remedy provisions of the Customs Duty Bill, which is expected to be enacted in 2014. The article will conclude with a brief overview of the number of trade remedy measures in place on 01 January 2014, the countries, and the product groups to which they apply.

There were 57 final anti-dumping measures in operation, two provisional anti-dumping measures, two countervailing measures, and a provisional safeguard measure. The final anti-dumping measures applied to 13 countries, namely Brazil, the People's Republic of China, Germany, India, Indonesia, the Republic of Korea, Malaysia, Sweden, Taiwan, Thailand, Turkey, the United Kingdom and the USA. The two countervailing measures both applied to India. China accounted for 45.61% of the anti-dumping measures, whilst collectively China (45.61%), India (12.28%) and Indonesia (10.53%), accounted for 68.42% of the anti-dumping measures. Three product groups, iron and steel (35.09%), glass and glassware (22.81%) and plastics (8.77%) accounted for 66.7% of the prevailing anti-dumping measures.

This article first appeared on the August/September edition of Tax Talk.



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