WORLD TRADE
ORGANIZATIONTN/RL/W/27
22 October 2002
(02-5775)
Negotiating Group on Rules Original:  English
COMMUNICATION FROM THE UNITED STATES
Basic Concepts and Principles of
the Trade Remedy Rules
The following communication, dated 17 October 2002, has been received from the Permanent
Mission of the United States.
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A. INTRODUCTION
Trade remedies authorized by the Agreement on Implementation of Article VI of the General
Agreement on Tariffs and Trade 1994 (the "Anti-dumping Agreement") and the Agreement on
Subsidies and Countervailing Measures (the "Subsidies Agreement") form an essential part of the
current rules-based international trading system.  In Doha, Ministers reinforced the importance of
these remedies in their mandate by stating that  Members should focus on "preserving the basic
concepts, principles and effectiveness of these Agreements and their instruments and objectives, and
taking into account the needs of developing and least developed participants."1  This underscores the
importance of preserving the fundamental principles of the existing trade remedy rules and ensuring
that those rules remain effective in addressing the problems of unfair trade confronted by all
Members, including developing countries.
Importantly, the Declaration also looks beyond the basic concepts and principles, noting the
need to identify "disciplines on trade distorting practices" as part of the scope of the negotiations.
Enhanced disciplines on trade-distorting practices must be a central objective in the Rules
negotiations because these practices are frequently the root cause of unfair trade.  While the trade
remedy rules remain a necessary response to the trade-distorting practices that continue to burdenglobal trade, enhanced disciplines on trade-distorting practices will provide greater predictability in
global trade and reduce the need to resort to trade remedy actions.
                                                     
1 "In the light of experience and of the increasing application of these instruments by Members, we
agree to negotiations aimed at clarifying and improvin g disciplines under the Agreements on Implementation of
Article VI of the GATT 1994 and on Subsidies and Countervailing Measures, while preserving the basicconcepts, principles and effectiveness of these Agreements and their instruments and objectives, and taking intoaccount the needs of developing and least developed participants.  In the initial phase of the negotiations,participants will indicate the provisions, including disciplines on trade distorting practices, that they seek toclarify and improve in the subsequent phase.  In the context of these negotiations, participants shall also aim to
clarify and improve WTO disciplines on fisheries subsidie s, taking into account the importance of this sector to
developing countries.  We note that fisheries subsidies are also referred to in paragraph 31."
{WT/MIN(01)/DEC/W/1 (paragraph 28)}TN/RL/W/27
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Transparency, predictability, and adherence to the rule-of-law are all critical to maintaining
confidence in the system, and are particularly important to exporting firms and workers that may
suffer if anti-dumping and countervailing duty rules are not administered in a fashion consistent with
the WTO commitments.
Maintaining confidence in the enforcement of agreed rules and support for further trade
liberalization, addressing the harmful effects of trade distorting practices, and eliminating or reducing
those practices to the extent possible are essential to the long term viability of the WTO and the
economic prosperity of its Members.  A critically important component of maintaining confidence in
a rules-based trading system is a fully effective dispute settlement system capable of settling disputes
without adding to or diminishing the rights and obligations of Members as negotiated in the WTO
Agreements.  As these discussions move forward, we would like to work with all Members to addressthe mandate the Ministers have given us.
B. T
RADE REMEDY RULES IN A RULES -BASED TRADING SYSTEM
As we approach the 100th anniversary of the first Anti-Dumping Law (Canada, 1904), it is
important to remember that the trade community has recognized the need for such trade remedies
throughout the history of modern international trade.  Following the Canadian lead, anti-dumping
laws were adopted by the major trading nations in the early part of the 20th century – e.g . Australia
in 1906, South Africa in 1914, and the United States and Great Britain in 1921.  The emergence of
domestic laws governing the use of countervailing duties occurred even earlier, in the 1890s.
Trade remedies remain a central feature of the current multilateral trade landscape – the world
trading community has explicitly provided for the use of anti-dumping and countervailing duty
remedies since the conclusion of the General Agreement on Tariffs and Trade in 1947.  The reasons
for that consensus can best be understood in the broader context of the trade-liberalizing agreements
of which trade remedies form a central part.  In the course of negotiating the GATT 1947, theContracting Parties undertook to make existing trade barriers more transparent and to facilitate the
reduction of trade-distorting practices in future negotiating rounds.  That plan involved turning
existing trade barriers of every stripe into tariffs and then engaging in successive rounds of tariff
negotiations to reduce the barriers to trade.
2  Those negotiations set the balance of rights and
obligations among the Contracting Parties and defined the Parties’ reasonable expectations of market
access.
At the same time, the Contracting Parties put in place a wide variety of rules to ensure that the
balance struck would not be nullified.  Indeed, certain types of subsidies were prohibited, and
injurious dumping was condemned, by the GATT 1947.  Many other provisions of the GATT 1947
were designed to ensure this balance, ranging from the disciplines on national treatment to those on
customs formalities and balance of payments exceptions.  In each instance, the Contracting Partiessought to prevent the erosion of the basic agreement on market access woven through successive
rounds of tariff negotiations.
In the case of trade remedies, the Contracting Parties expressly provided for the application of
trade remedies to ensure that neither government subsidy practices nor dumping upset the balance
                                                     
2Over the course of the eight previous rounds of trade negotiations, average tariffs worldwide on
manufactured goods have been reduced from 40 per cent to 5 per cent.  Spurred by these reductions, world trade
volumes have grown fourteen-fold, and trade as a percentage of GDP has risen steadily for most GATT/WTO
Members.TN/RL/W/27
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struck at the negotiating table.  Building on this basic framework, subsequent rounds have developed
effective rules to address dumping and have progressively deepened subsidy disciplines.3
C. THE ROLE OF WTO R ULES IN COUNTERACTING TRADE -DISTORTING PRACTICES
Effective trade remedy instruments are important to respond to and discourage trade-
distorting government policies and the market imperfections that result.  Ideally, companies and
nations would compete in the international marketplace on the basis of real comparative advantages
such as natural resource endowments, labour skills and abundance, availability of capital, and
technological innovation.  Faced with the true relative prices of these production factors, companies
and nations would gravitate towards producing and exporting those products in which they have a
relative cost advantage and buying/importing those products in which they do not have this advantage.
The result would be an efficient allocation of economic resources within countries and an efficientpattern of trade globally that benefits all Members.
However, government attempts to create artificial advantages distort market signals indicating
where the most profitable business opportunities are found.  Such distortions can lead to chronic
oversupply by inefficient producers on the one hand, and the closure of otherwise efficient andcompetitive facilities on the other.  These problems are not merely academic – the pervasive and
persistent nature of inappropriate government involvement is one of the central reasons for chronic
capacity problems in such industries as steel and fi sheries.  In short, market-distorting practices
reduce worldwide economic efficiency, thereby diminishing the gains to all Members from
international specialization and exchange based on comparative advantage.
Since Members last took up these issues in a negotiating context, the importance of trade
remedies has become clear to a broad universe of Members.  Trade liberalization resulting from the
Uruguay Round has led to increased trade overall.  However, it has also left markets more open to the
effects of unfair trade practices, while adoption of the obligations of the Agreement on CustomsValuation by all Members is resulting in the el imination of less transparent means that Members
previously used to deal with these problems.  This is reflected in the substantial growth of the number
of countries using trade remedy legislation and their overall share of these measures.  In addition, as
trade has grown since the Uruguay Round, we have seen an increase in the use of trade remedy laws,
particularly by new users.  This increased resort to the use of trade remedies  underlines the
importance of the Ministers’ mandate agreed to at Doha.
1. Anti-Dumping Rules as a Remedial Mechanism
As a remedial mechanism, the anti-dumping rules are triggered in response to international
price discrimination, where a foreign producer sells its product at a lower price in the importing
country than it does in its home country, or, alternatively, in other primary markets.  Dumping also
may involve export pricing at levels below the cost of production plus a reasonable amount forselling, general and administrative expenses and profit, which can adversely impact the investment
and financing options of import-competing firms.   Anti-Dumping rules can help promote trade
                                                     
3Following GATT 1947, discussions concerning the development of comprehensive anti-dumping rules
continued with the GATT Working Parties in the 1950s and 1960s and through the Kennedy Round, leading tothe negotiation of the Anti-Dumping Agreement during the Tokyo Round.  Similarly, beginning withArticle XVI in GATT 1947, continuing with the GATT Working Parties in the 1950s and 1960s, r unning
through the development of the Subsidies Code in the Tokyo Round, and culminating with the SubsidiesAgreement in the Uruguay Round, there has been an uninterrupted, progressive deepening of subsidy
disciplines.TN/RL/W/27
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liberalization efforts by reassuring domestic producers and workers that a remedy exists to address
injurious dumping.
A government’s industrial policies or key aspects of the economic system supported by
government inaction can enable injurious dumping to take place.  Although these policies take onmany different forms, they can provide similar artifi cial advantages to producers.  For instance, these
policies may allow producers to earn high profits in a home "sanctuary market," which may in turn
allow them to sell abroad at an artificially low price.  Such practices can  result in injury in the
importing country since domestic firms may not be able to match the artificially low prices from
producers in the sanctuary market.
While anti-dumping rules are an indirect response to such trade-distorting practices, they can
help domestic producers and workers obtain at least some remedial action against artificial advantages
of foreign firms.  However, anti-dumping duties alone will not provide a long-term solution to
distorted markets abroad, especially if foreign governments do not solve the underlying problems in
their own markets.  Consequently, anti-dumping measures should be seen not as an ultimate solution
to trade-distorting practices abroad but instead as a means to help create a "level playing field" amongproducers across different countries.
2. The Use of Countervailing Duties to Address Subsidization
Trade remedy rules also provide a critical response to government subsidization.  There is
widespread and longstanding agreement that government subsidies undermine the efficient allocationand utilization of resources.  Subsidies therefore undercut, the best foundation of economic growth
and development.  Export and import-substitution subsidies are particularly troublesome in that they
have the most direct impact on trade patterns.  It is for this reason these measures are generally
prohibited under the GATT/WTO rules.
Countervailing duties have long been accepted as one of the legitimate means of addressing
the domestic impact of injurious foreign subsidies.  Countervailing duty measures, however, are only
an indirect, partial and temporary remedy to the problems of harmful subsidization – an effective
multilateral disciplines regime aimed at reducing and ultimately eliminating distortive subsidies
would be the best solution.  The Uruguay Round Subs idies Agreement was an important step forward
in this regard, but considerable work remains.  Many distortive subsidies are so entrenched or
disguised within countries’ political and economic systems that it will take some time to identify andimplement the appropriate multilateral disciplines necessary to root all of them out.  The objective of
the Rules Group must be the continuation of the progressive strengthening and expansion of
disciplines that have marked nearly every round of trade negotiations since the beginning of a rules-
based multilateral trading system.
D. P
RINCIPLES GUIDING THE RULES NEGOTIATING GROUP ’S WORK
In providing a framework for the current Rules negotiations, the Ministers have recognized
two other key points that bear particular mention.  First, by recognizing that the basic concepts and
principles underlying the trade remedy instruments must be preserved, the Ministers have underscored
that these instruments must remain effective in addressing the problems of unfair trade confronted byboth developed and developing country Members.
Second, the Ministers have instructed us to improve "disciplines on trade distorting practices."
In other words, Members must address directly the subsidies and other trade-distorting practices that
lead to unfair trade. This is a particularly importa nt point.  By addressing directly these root causes
more effectively, we can help to reduce and minimize resorting to trade remedy measures – a goal that
most Members share.TN/RL/W/27
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With these points in mind, the United States has identified four core principles to guide our
proposals for the Rules Negotiating Group.
• First, following the Ministers’ guidance from Doha, we believe it is essential that
these negotiations be designed to maintain the strength and effectiveness of the trade
remedy laws, and complement a fully effective dispute settlement system which
enjoys the confidence of all Members.
• Second, trade remedy laws must operate in an open and transparent manner.  These
principles are fundamental to the rules-based system as a whole, and the transparency
and due process obligations should be further refined as part of these negotiations.
• Third, disciplines must be enhanced to address more effectively underlying trade-
distorting practices.  Work has already begun along these lines with respect to the
steel sector in discussions among the major steel producing nations at the OECD,
where there is general recognition that market-distorting practices have contributed to
the global over-capacity problem.  We could build on those efforts in the context of
these negotiations.
• Fourth, it is essential that dispute settlement panels and the Appellate Body, in
interpreting obligations related to trade remedy laws, follow the appropriate standardof review and do not impose on national authorities obligations that are not contained
in the Agreements.
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