Discussions
Zambia’s Provisional Safeguard Measures on Flat-Rolled Products of Iron, Non-Alloy Steel, Trailers and Semi-Trailers
In a new tralac Trade Brief, Gerhard Erasmus, tralac Associate, discusses the Zambian safeguard measures and the role of trade remedies within the context of multilateral and regional trade governance. Are there new signs that African Governments and the Regional Economic Communities (RECs) to which they belong are moving towards the rules-based utilization of measures protecting domestic industries?
On 5 October 2015, Zambia notified the WTO’s Committee on Safeguards that it initiated, on 10 July 2015, a safeguard investigation on “Flat-Rolled Products of Iron, Non-Alloy Steel, Trailers and Semi-Trailers”, and that it imposed a “safeguard measure provisional in nature and will last for 180 days from 10th July 2015 to 10th January 2016”.
This is an important development; for a number of reasons:
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It is an example of the use, in a proper rules-based manner, of a multilateral trade remedy by an African member of the WTO
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The safeguard measure in question was properly notified to the relevant WTO Committee
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This measure is based on national legislation providing for all the required due process procedures
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The required domestic institutions are in place in Zambia
The Multilateral Trade Context on Trade Remedies
Trade remedies are based on disciplines developed and applied within the General Agreement on Tariffs and Trade (the GATT) and consist of anti-dumping and countervailing measures (directed at unfair practices with regard to imported goods) and safeguard measures (which aim to deal with the consequences of increased importation of goods as a result of trade liberalization). These trade remedies apply on the multilateral level and bind all members of the World Trade Organization (WTO). They are also actively used to protect domestic industries. The majority of WTO disputes concern the lawfulness of national trade remedy measures.
Safeguard action is regulated by the WTO’s Agreement on Safeguards (SG Agreement), which contains the rules for applying safeguard measures pursuant to Article XIX of GATT 1994. Such measures are “emergency action” and may be taken where a surge of imports causes or threatens to cause serious injury to a domestic industry. It allows a government to respond to unexpected and unforeseen increased imports causing serious injury domestically. Imports must be recent enough, sudden enough, sharp enough and significant enough. Safeguard action involves the restriction of imports of a product temporarily to help the domestic industry to adjust. Definitive and provisional safeguard measures are provided for.
Under WTO rules safeguard measures are applied on a global basis and may take the form of tariffs, tariff rate quotas, or quantitative restrictions (import quotas). These measures must be temporary, product-specific and they must be applied to all imports irrespective of the source. Safeguard action can only be imposed after a full inquiry by a competent national authority. Concessions might be required.
Article 2 of the SG Agreement contains the conditions under which safeguard measures may be applied. These conditions are: (i) increased imports and (ii) serious injury or threat thereof caused by such increased imports. It also contains the requirement that such measures be applied on an MFN basis.
Safeguard measures must be temporary; that they may be imposed only when imports are found to cause or threaten serious injury to a competing domestic industry; that they (generally) be applied on a non-selective (i.e. most-favoured-nation, or “MFN”) basis; that they be progressively liberalized while in effect; and that the Member imposing them (generally) must pay compensation to the Members whose trade is affected. Thus, safeguard measures, unlike anti-dumping and countervailing measures, do not require a finding of an “unfair” practice, (generally) must be applied on an MFN basis, and (generally) must be “paid for” by the Member applying them. New safeguard measures may be applied only following an investigation conducted by competent authorities in accordance with established procedures.
The legal Basis of the Zambian Safeguard Measures
The domestic legal basis for safeguard measures in Zambia is the amended Control of Goods Act, 12 of 2004. In August 2009 Zambia filed a notification to the Committee on Safeguards of the WTO, in accordance with Article 12 of the SG Agreement, and submitted the text of Act No. 12 of 2004. (Amending the control of Goods Act – Chapter 421 of the Laws of Zambia by repealing Part III and substituting it with provisions on Safeguards Measures.)
Part III of this Act deals with Safeguard Measures specifically. A special ‘Investigations Committee’ is provided for, with the power to conduct safeguard investigations and to report to the Ministry responsible for commerce, trade and industry. This Act provides for safeguards investigations and remedies with regard to the applicable WTO agreements, or the safeguard and other applicable provisions of the Common Market for Eastern and Southern Africa (COMESA) Treaty, the Treaty of the Southern African Development Community (SADC) or any other international trade agreement to which Zambia is a Party.
A “safeguard investigation” is defined to mean “an investigation into whether increased imports of the investigation product have caused serious injury to the domestic industry”. A “Remedy” includes the imposition of customs tariffs, quantitative restrictions or a combination thereof.
Trade Remedies in African States: Which Way forward?
African governments are not frequent users of trade remedies, not as WTO members nor within their own Regional Economic Communities (RECs). The explanation given is that these states (with the exception of a few) lack the technical capacity to implement WTO compatible trade remedies. They complain that the applicable disciplines are cumbersome and difficult to comply with and that they lack the technical capacity and resources to do so. The result is that the protection of domestic industries in a rules-based manner is lacking; which undermines legal certainty in their trade arrangements.
Within the RECs the position is very much the same. The REC legal instruments usually allow member states to implement WTO compatible trade remedies among themselves. The same challenge is then to be faced; that rules-based prior investigations have to be undertaken, due process procedures have to be followed, and objective determinations of injury and causality have to be made.
Other measures, perceived to be easier to invoke, such as infant industry protection, are preferred. Some governments take unilateral action which fly in the face of their legal obligations under REC protocols not to impose new tariffs or new non-tariff measures. Infant industry clauses remain popular but they bring their own complications with regard to transparency, suitability, and the duration of infant industry protection measures.
This state of affairs becomes more detrimental to regional integration efforts in the absence of binding dispute settlement procedures. Affected REC members which contest the lawfulness of ‘protective measures’ in neighbouring countries cannot or do not want to litigate against offenders. There are no examples of intra African trade disputes being decided by REC courts or tribunals. Private sector rights are then, as a result, also without protection.
The domestic procedures which member states undertake prior to imposing trade remedy measures are the essential first step to set in a system designed to prevent arbitrary measures; while allowing protective measures in specific circumstances. This aspect explains the manner in which multilateral trade rules discipline trade remedy measures by governments. These disciplines are necessary to find the balance between the need for national protection of trade and industrial interests and the basic WTO objective to liberalise trade in goods. Due process rules govern the national investigations and are said to be the main difficulty which prevents the more active use of trade remedies by African governments. They complain that they lack the technical means to undertake the required rules-based investigations, notifications and surveillance. If this is true it means that these states are, once again, challenged by a basic governance constraint.
The recent application by the Zambian Government of WTO based provisional safeguards indicates that rules-based trade governance is less of a challenge than is often claimed; at least as far as safeguards are concerned. If the required domestic legislation is in place, as is the case in Zambia, the necessary investigations can be conducted in a transparent and balanced manner. The notification requirements of the WTO and REC legal instruments can then be complied with.
Other trade remedies such as anti-dumping measures will pose additional challenges; including the availability of domestic judicial review proceedings. Appropriate national law reform programmes could be launched to provide for the additional legal infrastructure.
By starting with domestic arrangements on safeguards an important initial building block, which probably provides for most of the immediate needs of African nations, will be in place. The Zambian example discussed here shows the way for those African countries which lack detailed WTO compatible trade remedy mechanisms and where the first such arrangements and the required trade governance are still to be developed.