Tariff quota:
The quantity of import up to which a lower level of tariff is applied, and beyond that limit of quantity, the normal tariff in the schedule applies. The tariff quotas included in the schedule are binding. For example, the EC provided for an annual tariff quota of 1.5 million tons of duty-free import of newsprint; beyond that quantity, a duty of 7% was applicable.
Preferential tariff: Concessional rates of tariff applied by developed Members to developing countries under GSP and those applied in a free-trade area.
Tariff escalation: The rate of tariff in a country is higher on a product with a higher level of processing than on one with a lower level of processing or on the basic raw material in a product chain.
| Countries/Products | Raw material | Leather | Leather products |
| Canada | 0.0 | 6.6 | 12.6 |
| EU | 0.0 | 3.7 | 4.3 |
| Japan | 0.0 | 7.0 | 9.4 |
| US | 0.0 | 3.1 | 9.0 |
Tariff escalation has an important implication for the development of industrialization of developing countries. If major developed countries do not apply higher tariffs on products with a higher level of processing, the processing of raw materials in developing countries can be encouraged.
Article XIX of GATT 1994 provides for emergency action on imports of particular products, and contains the basic principles upon which the WTO Agreement on Safeguards was negotiated during the Uruguay.
Safeguard measures or escape clause are emergency trade measures taken temporarily by a Member to provide relief to its domestic industry in the situation of its getting hurt from an increase in imports. It is an important exception to the general prohibition of quantitative restraints on imports.
Purpose of safeguard measures is to lighten the burden on the country whose domestic industry is facing acute problems due to imports. Safeguards’ objective is to disperse the burden over all the Members to enable the affected Member to adjust smoothly to the new situation of international competition in that particular product line.
MFN treatment results in the sharing of the benefits of multilateralism, while a Safeguard measure is about sharing the burdens. Taking safeguard measures means withdrawal of concession by raising the tariff on a product above the bound level, or modification of the concession by raising the tariff level for imports beyond a particular value or volume, or the imposition of quantitative restrictions to limit the import of a product.
If the tariff is not bound, or if the applicable tariff is lower than the bound level, a Member is free to raise the tariff (up to the bound in the latter case).
· Imports of the product should have increased either absolutely or relatively.
· The imports should be to cause or threaten to cause serious injury to domestic producers of like or directly competitive products.
· The increased imports should be the result of unforeseen developments.
· The increased imports should be the effect of the obligations of the Member in GATT 1994, such as the result of a tariff concession given by the Member in respect of that product.
Relative increase: Suppose that the domestic production and import of a product in the past were, respectively 9,000 and 1,000 units, and now, these are, respectively 4,000 and 800 units. Therefore, earlier, the import was 11% of domestic production, and now, it has risen to 20%. This is a case of relative increase, because the actual volume of import has decreased.
Serious injury: There is no specific criteria for serious injury, thus a case-by-case exam is needed. Some guidelines have, however, been provided:
· the rate and amount of the increase in imports of the product, in absolute terms or relative to domestic production;
· the share of the domestic market taken by increased imports;
· changes in the levels of sales, production, productivity, capacity utilization, profits and losses, and employment.
The threat of serious injury means serious injury being clearly imminent on the basis of facts and not merely on allegation, conjecture or remote possibility.
Domestic industry: means all the producers of like or directly competitive products in the country, or at least, those whose collective production of like or directly competitive products forms a major proportion of the total domestic production of those products. Thus, if only a small number of producers having a small share in domestic production have suffered serious injury, the cause of action would not arise.
A competent authority has to be designated to hold investigations on the existence of the preconditions for taking safeguard measures.
Investigation:
A Member has to notify the Committee on Safeguards, and give public notice to all interested parties, that is importers, exporters and others. Public hearings will be conducted so that interested parties are able to present evidence, views and response accordingly.
The competent authority determines whether there has been an increase in the import of the product, whether serious injury or threat of such injury to a domestic industry has been caused, or whether there is a causal linkage between the increased imports and the serious injury or its threat.
Application of safeguard measures:
Once there is a finding of serious injury or threat of serious injury caused by increased imports, the Member has to notify the Committee on Safeguards about it. Before applying or extending a safeguard measure, a Member has to give notice to all those Members that have a substantial export interest in the product and invite them for consultation, such as reviewing the information provided by the Member proposing safeguard action, exchanging views on the proposed measure.
Types of safeguard measures:
· a tariff measure: increase in import duty beyond the bound level, imposition of surcharges or surtaxes, compensatory taxes on the product
· a non-tariff measure: fixing global quotas for import, introducing discretionary licensing, etc
· Provisional measure: When there is a sudden surge of imports, or when the domestic industry needs immediate relief because of a rapidly emerging adverse situation as a result of the increased imports, a Member can take urgently provisional safeguard measures in the form of a tariff increase for a maximum duration of 200 days. The provisional measures should be withdrawn if further investigation finds no evidence of serious injury or there is no link between the imports and such injury.
When taking quantitative restrictions, a Member has to enter into consultations with the Members having substantial interest in the export of the product and decide on the global quota as well as on the shares of individual Members having substantial interest.
Members having substantial interest: Members having 10% share in the market of the importing Member, or having the highest ratio of exports of the product in question to its total exports.
General discipline in fixing quota and shares: The quantity of imports is not reduced below the average level of imports in the last three representative years for which statistics are available.
The previous representative years exclude from the average the imports of a year which is abnormal for some reason or another. For example, the Panel on EEC-Restrictions on Imports of Apples from Chile (November 1980) considered representative years prior to 1979, left out 1976 as there were some restrictions in that year. Hence, the Panel chose the years 1975, 1977 and 1978.
One effective way of applying quantitative restrictions is to decide on a global quota for imports and then allocate this quota among supplying countries based on their proportions of the total quantity or value of imports of that product in the country during a previous representative period.
General provision: safeguard measure will apply only for the period which is necessary to remedy or prevent serious injury, and to facilitate adjustment of the domestic industry. Moreover, the safeguard measure should be reviewed during the period of application and be liberalized at regular intervals.
Specific limitations: The duration of a provisional measure must not exceed 200 days;
In other cases, the duration will initially be up to four years, but it can be extended to eight years if the competent authority of the Member country has determined that the safeguard measure continues to be necessary and that there is evidence that the domestic industry is adjusting.
The total period of the measure, including the duration of the provisional measure, must not exceed 8 years. A developing country Member can extend the measure for 2 more years, beyond the general limit of 8 years.
A safeguard measure cannot be applied again to the import of a product for a period of time equal to that during which the measure had previously been applied or half of the earlier duration for developing country Members. But the period of non-application will be at least 2 years. For example, if a Member had applied a safeguard measure on certain basic chemicals and had continued it for 5 years, it cannot again take safeguard measure against these products for at least five years from the date of discontinuance of the initial measure.
A safeguard measure up to 180 days can be applied again if such a measure has not been applied on the product more than twice in the five years immediately preceding the introduction of the measure.
When a Member introduces a safeguard measure on a product, it has to enter into consultation with the Members having substantial interest in the export of the product for the purpose of equivalent tariff reduction on some other products in which these Members may have an export interest. If the safeguard measure is in the nature of a quantitative restriction, equivalence may be calculated based on an approximate estimate of the imports foregone as a result of the restriction. The selection of products and the extent of the tariff reduction on each of these products will have to be worked out in detailed consultations with the affected Members in order to meet their specific interest.
If the affected Members are not satisfied with the measures taken or the compensation given, they have the option to suspend substantially equivalent concessions or other obligations. But, the right to such suspension cannot be exercised for the first three years of the safeguard measure, provided that:
· the safeguard measure had been taken as a result of an absolute increase in imports;
· the safeguard measure conforms to the provisions of the Agreement on Safeguard;
In other cases, the stipulation of deferment for three years does not apply. In such cases, suspension can be effected on the expiry of 30 days after the notice of suspension has been received by the Committee on Safeguards.
A Member must terminate a pre-existing measure, i.e. Grey-Area Measures, within 8 years of the date on which it was first applied or within 5 years of 1 January 1995, whichever comes later.
Grey-Area Measures refer to voluntary export restraints (VER) and orderly marketing arrangement (OMA). VER means an affected country consults with the exporting developing countries and persuades them to limit their export of a product to a specified quantity or value so as to avoid the normal procedure and compensation negotiation. The exporting countries would generally agree to restrain their exports of the particular product in order to avoid more severe unilateral import restraint by the importing country. In fact, there is nothing voluntary about it.
OMA means several importing and exporting countries would arrive at arrangements of the same nature together, under almost similar situations, such as the Multi-Fibre Arrangement (MFA). Sometimes, enterprises of two countries enter into their own agreements resulting in restrictions on exports or imports. Members are required not to encourage or support the adoption or continuance of such non-governmental measures.
The raising of tariffs or the use of other tariff-type charges as a safeguard measure has to be applied to all Members. While applying quantitative restrictions, the safeguard measures shall be applied to a product being imported “irrespective of its source”, that is, safeguard measures cannot target only a few selected Members supplying the product. Though a quantitative restriction has to be applied globally, that is, to all exporting countries, under certain conditions, the shares of the quota may be reduced in the case of some countries and increased in the case of others.
In the past, restraints have been applied as a safeguard measure to the import of products below a particular price level. Though apparently the measures were applied on a non-discriminatory basis, in actual practice, these measures might have had a selective impact on low-cost suppliers. So far, there is no decisive view as to whether or not measures linked to prices are in conformity with Article XIX of GATT 1994.
A Member has to notify its laws, regulations and administrative procedures as well as their modification regarding safeguard measures. A Member may send a notification if it finds that another Member has not fulfilled its obligations.
Notifications have to be sent when:
· an investigation is started;
· existence of serious injury or its threat is determined;
· a decision is taken to apply or extend a safeguard measure
· before taking a provisional safeguard measure
All in all, everything a Member has done in the process of taking safeguard measures should be notified to the Council for Trade in Goods.
Provisions for developing countries:
No safeguard action will be taken against a product originating in a developing country Member as long as its share of imports of the product in the importing country concerned does not exceed 3%.
If several developing country Members are exporting the product to this particular Member country and their individual shares are less than 3% each, safeguard measures will not be taken against the product concerned from these developing country Members so long as their shares collectively account for not more than 9% of the total import of the product in the importing Member country proposing to take safeguard measures.
Special safeguard provisions: There are special safeguard measures in the Agreement on Agriculture and Textiles.
Summary: A safeguard measure is an import restriction which can be adopted in emergency circumstances, when imports have increased in such quantities and conditions that they are the cause of serious injury or threat of such injury to a domestic industry producing a like or directly competing product. An agreement on safeguards, setting out conditions and criteria for these actions, is one of the multilateral trade Agreements. Measures affecting prices, i.e., tariffs, are preferable to quantitative restrictions. However, quantitative restrictions can be applied as safeguard measures in specific cases.
In case of emergency, the importing Member will be free to suspend the obligation or withdraw or modify the concession provided it fulfills certain requirements, i.e.
The suspension of the obligation, or the withdrawal or modification of the concession, shall be temporary, that is, “…to the extent and for such time as may be necessary to prevent or remedy such injury…”.
Action can only be taken after written notification and opportunity for consultation with the WTO (in practice, with its Committee on Safeguards) and with the countries having a substantial interest as exporters of the product concerned. In critical circumstances, where delay would cause damage difficult to repair, action can be taken provisionally without prior consultation, on condition that consultation take place immediately afterwards.
If no agreement is reached during consultations, the Member proposing the action shall be free to do so, and the affected Member or Members shall also be free to suspend the application of substantially equivalent concessions or other obligations under the Agreement to the trade of the party taking the action. The suspension of substantially equivalent concessions or other obligations has to be notified previously to the WTO, and not be disapproved by it.
The Balance of Payment is a summary statement in which, in principle, all the transactions of the residents of a nation with the residents of all other nations are recorded during a particular period of time, usually a calendar year. Obviously, the millions of transactions of the residents of a nation with the rest of the world cannot appear individually in the balance of payments. As a summary statement, the balance of payments aggregates all merchandise trade into a few major categories. The balance of payments includes some transactions in which the residents of foreign nations are not directly involved, for example, when a nation’s central bank sells a portion of its foreign currency holdings to the nation’s commercial banks. Gifts are also included in a nation’s balance of payments. Diplomats, military personnel, tourists, and workers who temporarily migrate are residents of the nation in which they hold citizenship. International institutions such as the United Nations, IMF, the World Bank, and the WTO are not residents of the nation in which they are located.