Comparative Guide Chile - U.S. FTA and DR - CAFTA - Chapter 8: Trade Remedies

A Comparative Guide to the Chile-United States Free Trade Agreement and the
Dominican Republic-Central America-United States Free Trade Agreement


Chapter Eight: Trade Remedies


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Chapter 8 of both Agreements deals with Trade Remedies, that is, Safeguard Measures in Section A and Antidumping and Countervailing Duties in Section B. The structure of Section A of these Chapters is identical. They each contain 7 Articles with the same titles. The only structural difference lies in the fact that DR-CAFTA has two additional Annexes, one with substantial provisions on the administration of safeguard proceedings, and the other with country-specific definitions. Important differences of detail are described below. With respect to Section B regarding Antidumping and Countervailing Duties, DR-CAFTA contains an additional provision relating to the continuation of special beneficiary status of the DR-CAFTA countries with respect to cumulation in determining material injury under U.S. domestic law.

Section A. Safeguards

Imposition of a Safeguard Measure: both Agreements recognize that in certain circumstances, a safeguard measure may be imposed on originating goods (Art.8.1). The safeguard measure can only be imposed during the transition period. Both Agreements define what is meant by “transition period” (Art.8.7). For the Chile-U.S. FTA, transition period means a term of 10 years except in those cases where a good is subject to tariff phase out in a 12-year period, in which case the transition period runs for those 12 years. In the case of DR-CAFTA, the transition period is for 10 years also, except for those goods subject to longer tariff phase outs, in which case the transition period is equal to the phase out period for that particular good. Further, the measure can only be imposed if there is an increase in imports, that is, a result of the reduction or elimination of a tariff pursuant to these Agreements. Such increase can be in absolute terms or relative to domestic production, and under such conditions as to constitute a substantial cause of serious injury, or threat thereof, to a domestic industry producing a like or directly competitive good. The measure can be imposed to prevent or remedy the serious injury or threat thereof and to facilitate adjustment. The measure cannot be a quantitative restriction or a tariff rate quota. It can only consist of a suspension of the tariff phase out or the increase of the tariff to a level not to exceed the lesser of the MFN applied rate of duty at the time the action is taken or the same rate in effect the day of entry into force of the Agreement. Given its multilateral nature, DR-CAFTA includes additional disciplines on the imposition of safeguards among the multiple Parties to the Agreement. In principle, DR-CAFTA states that a measure must be imposed irrespective of its source, but there are two caveats to this. A Party may exclude goods of another Party from the imposition of a safeguard if there is an Agreement between those two Parties which subjected that particular good to free trade during the previous three-year period. In other words, those goods that enjoyed free trade due to, for example, intra-Central American free trade, may be excluded from the application of a safeguard. The second caveat is that when the imports of a Party do not amount to more than 3 percent of total imports of that good into the territory of another Party, the safeguard measure cannot affect those imports. However, this is valid only when the collective imports of those countries with less than 3 percent amount to less than 9 percent of total imports.

Standards for a Safeguard Measure: the Agreements further establish basic standards for the application of a measure (Art.8.2). First, the measure cannot be applied for more than 3 years in the case of the Chile-U.S. FTA and 4 years in the case of DR-CAFTA, and must be terminated at the end of the transition period. However, DR-CAFTA includes provisions to extend the application of the measure when there is a clear determination by the competent investigating authority that the industry is adjusting and that the measure is required to prevent or remedy serious injury and to facilitate adjustment. This provision is not included in the Chile-U.S. FTA. Both Agreements state that any measure applied for more than one year should be progressively liberalized and that a safeguard cannot be imposed more than once on the same good. The Chile-U.S. FTA establishes that a Party that imposes a safeguard measure on a good cannot impose or maintain a multilateral safeguard measure (WTO Agreement on Safeguards) on that good. DR-CAFTA does not include this provision here, but has a somewhat similar provision in paragraph 3 of Article 8.6. Lastly, the Agreements establish in similar terms the conditions for the continuation of the tariff phase out once the safeguard comes to an end.

Administration of Safeguard Proceedings: there are interesting differences in the way both Agreements deal with the administration of safeguard proceedings (Art.8.3). The Chile-U.S. FTA refers to investigation procedures and transparency requirements whereas DR-CAFTA refers more broadly to administration of safeguard proceedings. The Chile-U.S. FTA basically makes reference to specific disciplines in the WTO Agreement on Safeguards on investigation procedures and transparency. DR-CAFTA, instead, spells out the disciplines in the text and in an annex to Article 8.3. That Annex includes provisions on the institution of a proceeding, the specific content of a petition or complaint, the requirements for a public notice, the obligation to hold a public hearing to allow interested Parties and consumers to express their interest and views on the proposed measure, procedures for confidential information, rules of evidence of injury and causation, and provisions on the deliberation and publication of the findings of the investigation in the final report.

Notification and Consultation: both Agreements specify the different types of notifications that should be made between and among the Parties (Art.8.4). Both provide for notification of the initiation of a proceeding, the finding of serious injury or threat thereof, and the decision to apply or extend a safeguard. The Chile-U.S. FTA also specifies that the decision to modify a safeguard previously undertaken should be notified as well. DR-CAFTA does not include that provision. Both Agreements provide that a copy of the final report should be submitted to the other Parties. DR-CAFTA stipulates that there should be consultations among the Parties when there is a notification on the initiation of a proceeding or a finding of serious injury or threat thereof or when there is a final report coming out of an investigation. The Chile-U.S. FTA does not provide for this in the text.

Compensation: compensation and retaliation are two features of the safeguard mechanisms in both Agreements (Art.8.5). Despite minor drafting differences between the texts, the rights and obligations are basically the same in both substance and procedure. A Party applying a safeguard measure must provide compensation in the form of trade liberalizing concessions of equivalent commercial value or equivalent to the additional duties expected to result from the measure. Consultations should be carried out no later than 30 days after the application of the safeguard measure. However, if after those consultations there is no agreement on compensation, the affected Party may retaliate by suspending the application of substantially equivalent concessions to the trade of the safeguarding Party. The suspending Party should notify this action to the safeguarding Party at least 30 days in advance. Lastly, the Article establishes the conditions under which the obligation to provide compensation and the right to suspend concessions cease: compensation is not due and suspension of concessions must end on the later of the termination of the safeguard measure or the date on which the rate of duty returns to the rate of duty set out in the Party´s tariff elimination program in Annex 3.3.

Global Actions: both Agreements state that each Party retains its rights and obligations under Article XIX of GATT 1994 and the Safeguards Agreement (Art.8.6). The Chile-U.S. FTA states that this bilateral Agreement does not confer any additional rights and obligations with regard to action taken under the Article XIX of the GATT 1994 and the Safeguards Agreement. DR-CAFTA provides for the same, but has an important exception: a Party taking action under the GATT and/or the Safeguards Agreement may exclude imports of an originating good of another Party if such imports are not a substantial cause of serious injury or threat thereof. This provision is not contained in the Chile-U.S. FTA. Lastly, similar to the Chile-U.S. FTA Article 8.2.4, DR-CAFTA includes here a prohibition of applying simultaneously on the same good a safeguard measure under DR-CAFTA and a safeguard under Article XIX of the GATT 1994 and/or the Safeguards Agreement.

Definitions: specific terms are defined at the end of Chapter 8 (Art.8.7). Both Agreements include the same definitions for domestic industry, safeguard measure, serious injury, substantial cause, threat of serious injury, and transition period. With the exception of the differences in the definition of transition period pointed out above, the rest are identical. DR-CAFTA, however, includes a unique definition of “competent investigating authority”, which is further defined in Annex 8.7, Country-Specific Definitions. This Annex defines the authority in each DR-CAFTA country that is in charge of administering safeguard proceedings.

Section B. Antidumping and Countervailing Duties

Both Agreements reaffirm that each Party retains its WTO rights and obligations with regard to the application of antidumping and countervailing duties (Art.8.8). Both also specify expressly that there are no rights or obligations created with respect to these measures, including recourse to dispute settlement procedures, under the respective FTA. DR-CAFTA provides as well that the United States shall continue to treat each other Party as a beneficiary country under the Caribbean Basin Economic Recovery Act subject to special rules on cumulation in the determination of material injury by the United States International Trade Commission (19 USC 1677(7)(G)(ii)(III) and 1677(7)(H) and any successor provisions) (Art.8.8.1 of DR-CAFTA). Essentially then, the Agreements do not add to or diminish the existing rights and obligations that the Parties concerned have under the WTO or U.S. domestic law.

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