Trade Remedies: Global Trends and the Case of Japan

ZU - UNIVERSITY OF ZILINA The Faculty of Operation and Economics of Transport and Communications, Department of Economics GLOBALIZATION AND ITS SOCIO-ECONOMIC CONSEQUENCES 17th International Scientific Conference Proceedings (Part IV.) 4th – 5th October 2017 Rajecke Teplice, Slovak Republic 17th International Scientific Conference Globalization and Its Socio-Economic Consequences University of Zilina, The Faculty of Operation and Economics of Transport and Communications, Department of Economics 4th – 5th October 2017 TRADE REMEDIES: GLOBAL TRENDS AND THE CASE OF JAPAN Zoia Podoba1,a,* and Victor Gorshkov2,b 1 Associate Professor, Faculty of Economics, Saint Petersburg State University, Russia 2 Associate Professor, Faculty of International Liberal Arts, Kaichi International University, Japan a [email protected], [email protected] *Corresponding author Abstract. Global trade liberalization, promoted by GATT/WTO, stimulated major world economies to extensively cut their average tariff levels through a number of bilateral and multilateral trade agreements. However, simultaneously with the reduction of tariffs and in order to protect their national interests in the changing global environment, member states adjusted their trade policies toward a more frequent application of trade remedies. In this paper, the authors empirically examined the actual imposition cases of trade remedies by Japan. The study results demonstrate that anti-dumping duties are the most frequently applied trade remedies administrated on intermediate products, primarily from developing countries (China, Republic of Korea, South Africa, Pakistan). However, the number of these measures actually imposed by Japan is not comparable with the frequency of similar measures initiated against Japanese exporters abroad. Actual imposition cases of countervailing duties and safeguards remain low, nevertheless Japan shows concerns regarding the upward rising trend of safeguards in the world. The study conducted envisages a more frequent application of trade remedies by Japan due to the gradual increase in imports of manufactured goods from developing countries. The imports from the respective countries is expected to further expand in the context of a new strategic approach to emerging economies aiming at building new extensive networks of regional trade agreements as stipulated by the Strategy of the Global Outreach drafted by the Japanese government. Keywords: international trade, trade remedies, Japan, emerging economies JEL Classification: F13, P52, F68 1. Introduction More than two decades have passed since the emergence of the World Trade Organization (WTO) and its role in global trade remains substantial. WTO has been both promoting the reduction of barriers to cross-border trade and facilitating the establishment of additional multinational agreements. Nevertheless, simultaneously with the reduction of tariffs, and with the aim of protecting their domestic industries against intensifying foreign competition, member states adjusted their policies towards the application of non-tariff barriers18and contingency trade remedies. 1 These measures are rather diverse and include but not limited to technical barriers, industrial standards, administrative and bureaucratic delays, non-automatic licensing, prohibitions and quantity-control measures. 2018 17th International Scientific Conference Globalization and Its Socio-Economic Consequences University of Zilina, The Faculty of Operation and Economics of Transport and Communications, Department of Economics 4th – 5th October 2017 The WTO agreements provide derogations of basic principles in specified circumstances with trade remedies being one of the admissible instruments imposed for economic reasons.29 Contingency trade remedies include anti-dumping (AD), countervailing (CV), and safeguard (SG) measures and their impact on international trade is a long-standing debate in the academic literature. (Yilmaz, 2013) AD and CV duties are both levied on imports of a certain product from a particular exporting country, provided it has been proved that the respected product is dumped (AD) or subsidized (CV), and therefore causing material injury to domestic producers. SG measures are applied in case of increased total imports and may take versatile forms, including quantitative restrictions. Trade remedies are essential trade mechanisms that help fulfill long-term commitments of trade agreements while adapting to a changing environment. They are mostly introduced to mitigate the impact of drastic changes in the business cycles, real exchange rates, and industry-specific determinants. (WTO, 2009) The objective of this paper is to provide a brief overview of global trends in the imposition of trade remedies and empirically examine their actual imposition cases by Japan. The structure of the paper is as follows. Section 2 investigates the global trends in the imposition of trade remedies by WTO members by analyzing (1) the most frequent users and the most affected countries as well as (2) the sectors most commonly targeted by such measures. Section 3 empirically examines trade remedies imposed by Japan and identifies idiosyncratic features that differ Japan from the general trends of other developed economies. Section 4 concludes. 2. Global Trends in the Imposition of Trade Remedies The number of trade remedies actually applied by WTO members, notably the AD measures, remains rather high. From 1995 to mid-2016, the WTO reported 3,316 AD, 225 CV, and 154 global SG measures (Fig.1). Trade remedy investigations are overall initialized by the G20 economies, representing 72 % of all trade restrictive measures. (WTO, 2016) Global import restrictions in the main trading countries are gradually replaced by a more selective approach of trade defensive mechanisms. Conventionally, AD duties prevail amid other trade remedies applied in the global trading system and they are primarily employed by developed countries, but emerging economies have been increasingly catching up. Developing countries are trying to take advantage of the policy mechanisms that successfully helped industrialize countries under the old GATT regime. As the matter of fact, AD duties are recently being levied by a significantly larger number of countries, particularly the developing ones. By 2016, India outranked all other counties in terms of AD duties imposition, including the United States and European Union (EU) that have been traditionally regarded as the most frequent utilizers of such measures. Argentina, Brazil, China, and Turkey are also in the top-10 list. In addition, newly industrialized and developing countries de facto also resort to safeguards more often than developed economies with India being on the top of the list followed by Indonesia, Turkey, Chile, Jordan and the Philippines. When it comes to CV measures, their application is still largely the prerogative of developed countries. Contingent trade remedies are sector-specific and are mostly applied in steel, chemical, machinery, textile, agriculture and other related industries. About 70% of AD measures are 2 For instance, if the import of a particular product has caused economic damage to domestic producers. 2019 17th International Scientific Conference Globalization and Its Socio-Economic Consequences University of Zilina, The Faculty of Operation and Economics of Transport and Communications, Department of Economics 4th – 5th October 2017 levied on exporters from developing countries; however, in many cases developing countries reciprocally impose trade remedies against each other, thus provoking the situation of a more frequent imposition of similar measures amid developing economies. The majority of AD duties is levied against Chinese (840 cases), South Korean (229 cases), Taiwanese (187 cases), American (175 cases), and Japanese (140 cases) exporters. One-fourth of AD duties by India and one-third by the United States and the EU are introduced against Chinese exporters. In 1995-2016, CV duties were also mainly administrated against China (69 cases), India (29 cases), and the EU (12 cases). For instance, the United States, the leader in the CV duties imposition, initiated 36 out of total 98 cases against China; similarly, 14 out of 37 cases of CV duties by the EU were against India. Overall, in 1995-2014, more than 40 countries initiated trade remedies against Chinese exporters310(Tiang et al., 2016) Figure 1: Statistics on application of trade remedies by WTO member-countries, 1995 – mid-2016 6000 5132 5000 4000 3316 3000 2000 1000 431 225 318 154 Countervailing duties Safeguards Number of investigation initiations 0 Source: (WTO homepage https://www.wto.org) The growing role of trade remedies is corroborated by a plentiful amount of WTO dispute settlement consultation requests that account for about 45 % of the total number of WTO disputes on final or interim decisions that have been issued since 1995. The remarkable focus on contingency trade remedies proves the fact that they have a great impact as policy instruments, though affecting a minute portion of global trade. Moreover, incremental cases of their actual application may imply that multilateral trade negotiations are in a dead end. 3. Trade remedies in Japan The United States and Western European countries have been consistently dominating the WTO multilateral negotiation process. Consequently, Japan’s role in these negotiations has always remained disproportionate in comparison with its large share in global GDP and global trade (Saxonhouse & Stern, 2006). In the 1990s, Japan’s trade policy, regarded as the “aggressive legalism,” guided the government authorities towards meticulous implementation of multilateral trade rules and avoidance of bilateral and non-legal trade dispute settlements that were favorable policy instruments in the past (Araki, 2006). However, over time such “singlelayered” vision under the multilateral WTO framework has been replaced by a multi-layered trade policy focusing on bilateral and regional free trade agreements (FTAs). (Urata, 2015) 3 In addition, it is reported that over 70% of all the investigations worldwide were against China (Tiang et al. 2016). 2020 17th International Scientific Conference Globalization and Its Socio-Economic Consequences University of Zilina, The Faculty of Operation and Economics of Transport and Communications, Department of Economics 4th – 5th October 2017 Trade remedies in the form of duties in Japan are called “special duties” (special tariffs) and include AD, CV, emergency, and retaliatory duties that are regulated by the Customs Tariff Act and the relevant Cabinet orders and guidelines, while quantitative restrictions, such as emergency import quotas, are stipulated in the Foreign Exchange and Foreign Trade Act (FEFTA). Therefore, SG in Japan can fall into the category of either emergency duties or emergency import quotas, thus creating transparency problems of the legal system regulating their implementation (Fukunaga, 2010). In some cases, Japan also applies quotas and tariff quotas to fishery products, certain milk products, and raw silk (Podoba & Gorshkov, 2015, B). The imposition of such mechanisms is regulated by the related government agencies411 Tab.1 shows the four-layered structure of trade policy authorities, including ministries regulating general trade policy issues, ministries regulating specific sectors or industries, government agencies involved in the trade policy and incorporated administrative agencies. The Cabinet is in charge of the overall coordination of trade policies, while at the stage of planning or implementing a trade policy, a relevant ministry or a government agency prepares a proposal and consults with other regulating authorities. A bill draft is prepared by the respected ministry only after receiving the comments and consultations of other authorities involved. Table 1: Authorities regulating trade policy in Japan Ministries regulating general Ministry of Foreign Affairs (MOFA); 1 trade policy issues Ministry of Economy, Trade and Industry (METI) Cabinet Office; Ministry of Finance (including the Customs and Tariff Bureau); Ministry of Agriculture, Forestry and Fisheries; Ministries regulating specific 2 Ministry of Education, Culture, Sports, Science and Technology; sectors or industries Ministry of the Environment; Ministry of Land, Infrastructure, Transport and Tourism Government agencies involved Japan External Trade Organization. 3 Several committees responsible for various trade aspects in the Diet. in the trade policy of Japan Official export credit agencies: JETRO (trade promotion); Japan Bank for International Cooperation (JBIC); Nippon Export and Investment Insurance (NEXI). development and implementation of standards: Japanese Industrial Incorporated administrative 4 Standards Committee; Pharmaceuticals and Medical Devices agencies Agency; National Public Safety Commission; Customer Affairs Agency; Government Regulatory Unit Japan Oil, Gas and Metals National Corporation Japan National Tourism Organization Source: (compiled by the authors with reference to Trade Policy Review. Japan. WTO, 2015) The application of trade remedies in Japan is divergent from the general trends in the leading trading countries. In 1982-2017, there were only 10 cases of actual imposition of trade remedies, with eight of them being in the form of anti-dumping duties (Fig.2) which is incomparable with the number of cases against Japanese exporters (140). Previous studies (Podoba & Gorshkov, 2015, A; Gorshkov & Podoba, 2016, B) show that economic sectors protected by trade remedies in Japan include textiles, basic chemicals, semiconductor devices, iron and steel, and the agricultural sector512. Trade remedies are predominantly employed against China (Tab.2). 4 Usually Ministry of Economy, Trade and Industry (METI) or Ministry of Agriculture, Forestry and Fisheries (MAFF). 5 Special SG are frequently applied in the agricultural sector. 2021 17th International Scientific Conference Globalization and Its Socio-Economic Consequences University of Zilina, The Faculty of Operation and Economics of Transport and Communications, Department of Economics 4th – 5th October 2017 AD duties in Japan are administrated mostly on intermediate products and components from developing countries (Gorshkov & Podoba, 2016, B). There are only three AD duties effective as of September 2017: 1. on electrolytic manganese dioxide from China (46.5 %), South Africa (14.5 %), Spain (14.0 %); effective September 1, 2008-March 4, 2019), 2. on toluenediisocyanate from China (69.4 %), excluding Hong Kong and Macao; effective April 25, 2015-March 24, 2020); 3. on potassium (kalium) hydroxide from the Republic of Korea (49.5 %) and China (excluding Hong Kong and Macao, 73.7 %); effective August 9, 2016-August 8, 2021). Two investigations, one on China (initiated September 30, 2016; highly polymerized polyethylene terephthalate) and one on the Republic of Korea and China (March 31, 2017; carbon steel butt-welding pipe fittings) are still on-going. 12 10 8 6 4 2 0 Figure 2: Statistics on trade remedies in Japan, 1982–2017 12 8 3 1 0 2 1 1 0 The number of initiations The number of measure's actual application Source: (compiled by the authors with reference to the Japan’s Customs [accessed August 17, 2017]. Available at: http://www.customs.go.jp/tokusyu/) In contrast to other developed countries, CD duties are seldom applied by Japan with the only case registered in January 2006, when Japan levied a 27.2 % CV duty on dynamic random access memories (DRAMs) exported by Hynix (Republic of Korea). The investigation results revealed that the Korean government subsidized Hynix in order to export DRAM chips at an unfairly low price (Conconi, 2009). The provisionary SG measures were introduced on December 22, 2000 against Chinese exporters of Welsh onions, shiitake mushrooms, and rushes used in tatami mats due to a sharp increase of these products in the Japanese imports. By imposing provisionary SG measures, the Japan presumably aimed for the Chinese voluntary export restrains (VERs), however, these expectations were met with retaliatory measures significantly damaging Japanese exports13 and forcing the Japanese government to reconsider the idea of further imposition of general SG measures. Ironically, starting from the 1950-s and up until the Uruguay round, Japan was forced to apply “gray-area measures” such as VERs despite the fact that these measures are prohibited under Article 11 of the WTO Agreement on Safeguards as the fear of their imposition can induce VERs without formal intergovernmental agreements under appropriate conditions (Kagitani & Hiramaya, 2015). 6 A 100% special custom duty on automobiles, mobile and car phones, and air conditioners was invoked from June 22, 2001. 2022 17th International Scientific Conference Globalization and Its Socio-Economic Consequences University of Zilina, The Faculty of Operation and Economics of Transport and Communications, Department of Economics 4th – 5th October 2017 Overall, the application of contingency trade remedies by Japan remains rather low due to bureaucratic barriers, low integrity of the legislation on trade remedies, pluralism of the government regulatory authorities as well as insufficient cooperation amid them (Podoba & Gorshkov, 2015, B). Nevertheless, the Japanese government is gradually revising the existing legislature: for instance, in 2016, the revised Cabinet Order Relating to Anti-Dumping Duties and the Cabinet Order Related to Countervailing Duties came into force and the requirements for associations wishing to file an application were relaxed714 (WTO, 2017). Another obstructive factor explaining infrequent implementation of trade remedies is the fact that the most sensitive sectors in Japan are protected by other measures, such as tariff peaks, non-ad-valorem tariffs815, tariff rate quotas, state trading, sanitary and phytosanitary measures (SPS), and other non-tariff measures (NTMs) or a combination of these (Kimura, 2008). For instance, Japan has implemented “trade liberalization without agriculture,” as the agricultural sector maintained high protection levels for so-called “sensitive products” (juuyou hinmoku) such as rice, dairy products, beef, pork, and others (Mulgan, 2015). Table 2: Trade remedies employed by Japan since the establishment of the WTO Measures Country CD Product Period China Dynamic Random Access Memories (DRAMs) Ferro silico manganese Pakistan Cotton Yarn South Korea South Korea and Chinese Taipei Polyester staple fibers AD South Africa, China, Spain, Australia Electrolytic manganese dioxide China South Korea, China 01.2006-04.2009 02.1993-01.1998 08.1995-07.2000 07.2002-06.2012 06.2008-03.2019 (South Africa, China and Spain) 06.200808.2013 (Australia) 04.2015 - 04.2020 08.2016-08.2021 Tolylene diisocyanate Sodium hydroxide Welsh onions, shiitake mushrooms SG China 04.2001-11.2001 and tatami-mats Source: (compiled by the authors with reference to the Japan’s Customs [accessed August 17, 2017]. Available at: http://www.customs.go.jp/tokusyu/ The instability of the world trading system coupled with the chronic domestic problems of the Japanese economy envisages gradual trade policy shifts. Trade remedies are likely to be successively applied due to the increased imports from emerging economies particularly in the context of a new strategic approach to emerging economies aiming at building new extensive networks of regional trade agreements (RTAs), as stipulated by the Strategy of the Global Outreach. The shift towards FTAs is adopted by Japan and other world’s major economies as a more productive path to overcome the shortcomings of the current multilateral trading system (Saxonhouse & Stern, 2006) and is driven by both international and domestic factors (Yoshimtasu & Ziltener, 2010). FTAs can play a complementary role in the domestic structural reforms that are a pre-requisite for the revitalization of the Japanese economy (Naoi & Urata, 2013). In fact, Japan has shifted its priority from multilateral negotiations towards regional and bilateral agreements not only with developing countries but also with the developed countries 7 After the revisions, associations that have at least two domestic producers (before the revisions domestic producers had to constitute a majority) of the like products as members are eligible to file an application. (WTO, 2017). The word “sensitive” herewith implies “politically sensitive.” 8 These include not only simple specific tariffs but also differential tariffs, seasonal tariffs, and others (Kimura, 2008). 2023 17th International Scientific Conference Globalization and Its Socio-Economic Consequences University of Zilina, The Faculty of Operation and Economics of Transport and Communications, Department of Economics 4th – 5th October 2017 (Yoshimatsu & Ziltener, 2010). The growing number of FTAs will presumably push Japan to reconsider its administrative and trade barriers. Consequently, the impossibility to apply quantitative restrictions and foreign exchange rationing make contingency trade remedies the sole available mechanism for Japan to protect its domestic interests (Gorshkov & Podoba, 2016, A). 4. Conclusion The analysis of global trends depicts the idiosyncrasy of Japan that stands out amid other developed countries in terms of actual imposition of trade remedies. These measures are scarcely administrated partially due to the fact that Japan is actively utilizing other protective measures and partially due to the various institutional factors, such as the lack of transparency and coordination among the regulating authorities, low experience and business expertise of Japanese companies in filing the relevant cases. Japan is not very far removed from the global practice of imposing AD measures to restrict international trade: they are levied on intermediate products, primarily from developing countries such as China, Republic of Korea, South Africa, and Pakistan, even though the frequency of similar measures initiated against Japanese exporters is substantially higher. To sum up, the growing number of contingency trade remedies imposed by and against developing economies and recent trade policy shifts towards developing FTA networks with emerging economies corroborate the notion that in the future this trend for Japan will be reversed. Moreover, growing tensions with multilateral trade agreements such as the Trans-Pacific Partnership (TPP) and withdrawal of the United States from this agreement, demonstrate yet another emerging trend of protectionist movements in the global trade that will inevitably facilitate a new wave of contingency trade remedies. References [1] Araki, I. (2006). 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