US and China Trade War: Understanding Trade Remedies
11 June 2019
For the last 18 months, there are ongoing debates whether emerging countries will stand to benefit from the ongoing trade war between the US and China. According to recent Nomura Global Markets Research, Malaysia is the 4th largest beneficiary of the trade diversion after Vietnam, Taiwan and Chile arising from the trade war. Since the trade war started, we have witnessed the rise of anti-dumping investigations involving Malaysia. On July 2018, US Department of Commerce issued a preliminary affirmative anti-circumvention determination concerning carbon steel butt-weld fittings from Malaysia. Last month, China launched anti-dumping probe into polyphenylene sulfide from Japan, US, S Korea, Malaysia. In the local front, MITI (Ministry of International Trade and Industry) has initiated 2 anti-dumping investigations with regard to the imports of Steel Concrete Reinforcing Bar Products and Cold Rolled Coils of Iron or Non-Alloy Steel (width of more than 1300mm) so far in 2019.
This article aims to provide an overview of the trade remedies: anti-dumping duty, safeguard measure and countervailing duty under Malaysia Countervailing and Anti-Dumping Duties Act 1993 and Safeguards Act 2006 which are generally in line with the WTO agreements.
Dumping is an unfair trade practice whereby a company exports a product to foreign country at a price lower than its “normal value” in its domestic market. There are few methods in constructing a “normal value” for the purpose of determining dumping margin (comparison between normal value and export price) and it is usually the most contentious area in an anti-dumping investigation. There are 3 main elements before anti-dumping measures can be imposed: dumping, material injury and causal link between both.
Dumping margin must not be less than 2% (de minimis threshold). Less than 2% dumping margin, anti-dumping investigation may be terminated by the Government. Anti-dumping petition will also be rejected by the Government if the volume of imports of the subject merchandise, actual or potential, from a particular country into Malaysia accounts for less than 3% of the total imports of the like product unless countries that individually account for less than 3% of the imports of the like product into Malaysia collectively account for more than 7% of the total imports of the like product into Malaysia. Anti-dumping measures typically take the form of additional duties on imports of the products originating in the country in question.
Although generally no anti-dumping duty shall be collected on imports made after 5 years from the date of its imposition, it is not impossible for the government to extend if it determines the expiry of the duty would be likely to lead to a continuation or recurrence of dumping and injury following a sunset review. Government may conduct an administrative review on its own initiative or when an interested party provides information to the Government after 1 year has lapsed from the date of publication of the decision of which the review is sought. Administrative review may be sought if inter alia (a) the dumping margin has changed substantially; (b) the imposition of an anti-dumping duty or undertaking is no longer necessary; or (c) it is in the public interest.
Exporters subject to anti-dumping duties may attempt to reroute their products through a third country in order to avoid paying dumping duties. This third country simply serve as intermediaries to facilitate the rerouting and do not produce much value added to the goods or usually with slight modifications to the goods. Currently, there are many companies in China claiming on their business websites that they can help exporters to evade anti-dumping duties through trade re-routing. Although Section 37 of the Countervailing and Anti-Dumping Duties Act 1993 provides that the Government may take action to prevent circumvention of the application of countervailing and anti-dumping duties as may be prescribed, we have yet to see the Government putting in place a separate anti-circumvention rules to address issues relating to circumventing anti-dumping duties.
Safeguard measure is similar with Anti-Dumping duties in many aspects in terms of the required elements of serious injury and causal link and the investigation procedures. The stark difference between the two is that anti-dumping duty targets imports from a particular country whereas safeguard measure applies to all countries. Safeguard is meant to be used as an emergency and temporary measure to curb sudden surge in imports and facilitate adjustment of a particular industry to be more competitive. An import “surge” justifying safeguard action can be a real increase in imports (an absolute increase) or it can be an increase in the imports’ share of a shrinking market even if the import quantity has not increased (a relative increase).
A safeguard measure should not last more than 4 years, although this can be extended, subject to a determination by the Government that the safeguard measure continues to be necessary to prevent or remedy serious injury and that there is evidence the industry is adjusting. The total duration of a definitive safeguard measure, including the period of application of any provisional safeguard measure and any extension, shall not exceed 10 years. If the duration of a definitive safeguard measure, including the period of application of any provisional safeguard measure, exceeds 3 years, the Government shall review the situation not later than the mid-term of the application of the measure or increase the pace of liberalization.
Countervailing is a measure designed to counter the effect of subsidy or financial assistance provided by the government or public body of the exporting country to specific enterprise or group of enterprises or industry or region. An investigation may be terminated at any time if the amount of subsidy is de minimis (i.e. the amount of the subsidy in relation to the imports from the country under investigation is less than 1% ad valorem) or the volume of imports of the subject merchandise, actual or potential, or the injury, is negligible (i.e. in the case of a developing country Member, means the volume of imports of the subject merchandise into Malaysia accounts for less than 4% of the total imports of the like product unless developing country Members that individually account for less than 4% of the imports of the like product into Malaysia collectively account for more than 9% of the total imports of the like product into Malaysia). The measure is in the form of imposing a countervailing duty to offset injury to the Malaysian industry from the effects of subsidized import. No countervailing duty shall be collected on imports made after 5 years from the date of its imposition although it can be extended. Countervailing duty can be subject to administrative review like anti-dumping duty.
In view of the ongoing trade war, many governments are expected to move towards protectionism by taking action against dumping and monitor circumvention in order to defend their domestic industries. Domestic exporting players in Malaysia should therefore closely follow any potential investigation by foreign importing countries that affects them and take steps to ensure timely participation in the investigation. Besides that, domestic industries in Malaysia can elect to take initiative to petition to MITI if they are seriously injured by any unfair dumping practices.
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US and China Trade War: Understanding Trade Remedies