moulislegal · Trade law bulletin

3 March 2011

2011- Trade protection back in the spotlight

Daniel Moulis, Principal

Proposed laws introduced into parliament on 2 March 2011 will restore the prospect of longer term protection for Australian industry against low priced “dumped” import competition. As well as that, a private Member’s bill has been introduced into Parliament with the intention of making it easier for Australian industry to have dumping and countervailing duties imposed against competitive imports.

The Government’s amendments to the Customs Act 1901 (“the Act”), in the Customs Amendment (Anti-dumping Measures) Bill 2011, are intended to overcome the effects of a Federal Court decision which held that under existing laws dumping measures must be revoked as soon as there is no dumping of those products, or no continuing material injury to the Australian industry caused by dumping. At the policy level, this decision had been greeted with great concern, as it meant that a quick reversal by an exporter of its “dumped” pricing would lead to an equally quick revocation of the measures imposed against it.

Senator Xenophon’s Customs Amendment (Anti-Dumping) Bill 2011 is an attempt to make good on his recent declarations that the time taken to impose dumping duties should be reduced, and that the information burden on Australian industry to achieve that goal should be relaxed. His amendments also propose to give trade unions participation rights as interested parties in dumping investigations, and that appeals to the Administrative Appeals Tribunal against dumping decisions be allowed.

And, to add to this intense focus on trade protection, Australian Customs is in the midst of preparing its response to the recommendations of last year’s Productivity Commission report on Australia’s anti-dumping and countervailing system. In that report the Commission supported the retention of the system, and made recommendations concerning many procedural, substantive, and operational matters. Of these, the most controversial has proven to be the recommendation that the Minister should not impose duties where that would not be in the “public interest”.

In this Trade Law Bulletin we look at these proposals in more detail, and explain the implications for Australian industries, for exporters and for importers.

Dumping and subsidisation - a quick primer

If a foreign exporter sells a product to Australia at a price which is less than the price the exporter charges in its home market, that practice can be labelled as “dumping”. If that dumping causes material injury to an Australian industry producing the same product, then the Minister may impose a dumping duty on the imported product to raise its price to the home market level, or a lesser level (if the lesser level would be enough to remove the injury).

Subsidisation occurs where a product exported to Australia benefits from a subsidy granted by the government of the exporting country. If that subsidisation has the effect of injuring an Australian industry, a countervailing duty may be imposed on the imported product to counteract the subsidy.

These duties are called “measures”.

These are deceptively simple explanations of an extremely technical area of law, trade policy and administrative practice. The permission to impose measures derives from the WTO’s Anti-Dumping Agreement (“the ADA”) and Subsidies and Countervailing Measures Agreement. It is not mandatory for WTO Members to have such laws, however Australia has firmly implemented the Agreements in domestic law.

Federal Court says measures must be revoked if dumping conditions disappear

On 13 July 2010, the Full Court of the Federal Court of Australia handed down its decision in Minister of State for Home Affairs v Siam Polyethylene Co Ltd [2010] FCAFC 86 (“the Siam case”). A critical finding of the Court in the Siam case, which concerned a review investigation into exports of linear low density polyethylene from Thailand, was that Customs had not applied the test for revocation of dumping measures correctly.

The revocation test presently states that dumping measures should be revoked in circumstances where:

if the anti-dumping measures to which the application relates had not been taken, the Minister would not be entitled to take such measures.

In its linear low density polyethylene investigation, Customs had applied its usual test, based on the presumption that:

...anti-dumping measures should remain unless the negative is established - that is, [measures should be revoked] if it is satisfied that there would not be material injury caused by dumping if there were no measures.

In that investigation, Customs found that there was not sufficient information on which to establish that dumping would not cause material injury if the measures were to be revoked. The Court held that these were not grounds on which a refusal to revoke the measures could be made. In determining whether the Minister was entitled to revoke such measures, the Court ruled that Customs must decide if the conditions precedent to the imposition of a dumping duty could be made out on the evidence gathered by the review. These “dumping conditions”, if you like, are:

In essence, the decision of the Court emphatically directed that it is not appropriate for Customs (in its recommendations) to say that dumping and injury might be the outcome, if the measures were to be revoked, and to use this as an excuse not to revoke them. In plain language, the test is not “we’re not satisfied that material injury might not be caused therefore we are not revoking the measures”. The test is “we must revoke the measures if, were they not in place, we would not be entitled to impose them”.

Policy concern: imposition + enforcement = revocation

The Explanatory Memorandum for the Government’s bill, which was tabled in Parliament on 2 March 2011, is quite upfront about the Government’s concerns in light of the decision in the Siam case:

On the Full Federal Court’s construction, in order to leave measures in place, the Minister must be satisfied that if measures had not been taken, there would now be grounds to impose them (that is that there would be dumping causing material injury to the Australian Industry). The finding is problematic because, in practice, if measures are already in place and are effective, there may not be current dumping or subsidisation causing material injury.

…As a consequence of the Siam decision, it is more likely that a finding of no dumping or no injury during the review period would lead to revocation. This result is anomalous, as the purpose of anti-dumping measures is to remove injurious dumping. Measures will often still be warranted where they have effectively prevented injurious dumping, as an early removal of the measures can lead to a resumption of injurious dumping. As a result, it is necessary to amend the review provisions to clarify the revocation test.

The prospect that dumping measures could be too-easily revoked, before their “anticipated” five year sunset, is viewed as being contrary to the Government’s industry protection position. Investigations cost hundreds of thousands of dollars, for all concerned, and are conducted over an up to 18 month period. Instead of revoking because the measures “worked”, or because a price cycle has altered a dumping scenario to a no-dumping scenario, the Government believes that the Minister should be able to take into account what might happen in the future in deciding whether to leave measures in place.

New revocation test will mimic the WTO test

The bill’s new test for revocation is simple. Customs must make a “revocation recommendation… unless… satisfied as a result of the review that revoking the measures would lead, or be likely to lead, to a continuation of, or a recurrence of, the dumping or subsidisation and the material injury that the measures are intended to prevent.”

This is the same test as for a decision to continue measures under the Act, at the end of their five year duration. However the words used are not precisely the same as the test stipulated in the ADA, Article 11.2 of which provides as follows:

Interested parties shall have the right to request the authorities to examine whether the continued imposition of the duty is necessary to offset dumping, whether the injury would be likely to continue or recur if the duty were removed or varied, or both.  If, as a result of the review under this paragraph, the authorities determine that the anti-dumping duty is no longer warranted, it shall be terminated immediately.

Note that the words of the newly proposed Australian test refer to a continuation or recurrence of dumping (or subsidisation), whereas the words of Article 11.2 appear only to refer to the continuation or recurrence of injury. Does that mean that the ADA requires revocation where there is no present dumping? If this were so, the proposed implementation of Article 11.2 by way of the new Australian test would be open to challenge. In this regard there is WTO authority to the effect that the absence of dumping at the time of a review does not preclude a decision to maintain the measures in place.

New procedures for revocation reviews

Under current laws, there has been some ambiguity as to whether a review can only involve a review of the level of the measures, or whether it is also necessary for Customs to review whether the measures should be revoked. The amendments flag that specific requirements in an approved form must be complied with if revocation is to be investigated, and that a revocation review will only be conducted in cases where the evidence provided justifies such a review.

Of course, a review of the level of measures can be requested by the Australian industry, and the Australian industry would definitely not ask for nor wish to trigger a revocation review as well. Mindful of that, the bill proposes that an interested party such as an exporter or importer may request a revocation review by lodging a suitable application within 40 days of initiation of a review of the level of measures.

A populist makes problematic proposals

On the same day as the Government's amendments were introduced, Senator Xenophon made good on his recent media statements complaining about the perceived ineffectiveness and unwieldiness of the dumping and subsidisation laws. By way of quick summary, Senator Xenophon’s proposals, in his private Member’s bill, are these:

Some sectors of Australian industry will no doubt strongly support the sentiments expressed in the bill. They will be well-received by trade unions. Australian industries dominated by one or two major players will also be well-satisfied, because the proposals would have the effect of amplifying their market power at the expense of SMEs and the importing community. Nonetheless it must be said that many of the ideas are WTO-illegal, unworkable or just plain unfair.

Political fight brews over "public interest" recommendations

There are winners and losers when measures are imposed. The complaining industry, its workers and its shareholders “win”. Import-user industries and consumers “lose”. Sometimes the economy loses, because costs of production and prices increase. Sometimes duties seem to be pointless, because they are unlikely to remedy the injury suffered by the industry concerned.

Introducing wider economic considerations into dumping decision making is the direction of recommendations made by the Productivity Commission in its report on Australia’s anti-dumping and countervailing system which was tabled in Parliament in May 2010. The Commission proposed that the Minister should have defined reasons to refuse to impose measures when it would not be in the “public interest” to do so.

Customs is preparing its response to the report, following a further stage of public consultations ordered by the Government which closed in August 2010. The stated objective of this process is to enable the Government to formulate its response to the report in the 2011-12 Budget process.

Senator Xenophon’s ideas are clearly a major salvo in the campaign against any backsliding in trade protection under the guise of the “public interest”. This campaign will be waged by trade unions and by Australia’s anti-dumping users, typically the steel, glass, paper and chemical industries.

Comment - the rule of law is an important part of the policy debate

Dumping laws have held their place in Australian import regulation almost since Federation. As tariffs have reduced, and as industry assistance programs have been wound back, dumping and subsidisation complaints have become the main outlet for redress against perceived unfair trading. Cheap imports are blamed for poor company performance, lost jobs and low wages, and frequently this is borne out.

In the hue and cry of self-interest, coming from all sides of the debate, it is important to remember that decisions must be made fairly, and in a robust way, and must be based on proper evidence. As well, our investigating authorities must be properly resourced to handle cases such as these. At all times Australia must comply with its WTO obligations, and show good faith in its relationships with its trading partners.

Importantly, the interests of those who make the loudest noise should not override the rights of individuals and of companies that also contribute to our economy. Finding the political balance is always difficult, but the rule of law must always be respected.

For more information, please contact Daniel Moulis on +61 2 6163 1000 or email daniel.moulis@moulislegal.com

This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.