Chile Antidumping Case, Wheat Flour from Argentina

The World Trade Organization is an international organization was established to supervise the trade activity in the world. It is responsible for analyzing various issues among countries that are likely to arise and establishing policies that ensure free and fair trade for all. Given that all nations were not equally endowed, there comes a time when different regions may require different resources and thus trade between the various countries must take place. Resource distribution be it natural or economic resources is not exact among all countries therefore some are better able to engage in trade and benefit from it while others are not.

Through WTO then, there is a systematic negotiation and formalization process between the countries and in cases where such systems are breached there exists also a procedure towards conflict resolution. Not all nations however are members of the World Trade Organization. Since many if not all enjoy sovereignty, then it is the responsibility and choice of various governments to sign agreements into the organization following which they are obligated to subscribe to the rules and regulations. The World Trade Organization was created following what is known as the Uruguay Round. This was the 8^th round of multi lateral trade negotiations that were aimed at: reducing agricultural subsidies, to put restrictions on foreign investment and opening trade in the area of services such as banking and insurance. The talks were also aimed at measures to establish intellectual property rights and copyright violation measures. The WTO was established by a transformation of the General Agreement on Trade and Tariffs. The General Agreement on Trade and Tariffs (GATT) was formed on a failed attempt at an International Trade organization. Today however the GATT and World Trade Organization are the major representatives of issues of international trade (United Nations, 2004).

A dispute between Argentina and Chile over variable levies for wheat products and edible vegetable oils among other goods is a case in point. In a region famous for wheat production, the table below shows competition from other countries in the region (Table 1.) Chile as a member of the World Trade Organization in its trade activity with the neighboring nations among others subscribes to the rules and regulations. However, Chile has for sometime been in contention with Argentina over wheat production. The problem was brought forward by Argentina through a complaint against the price brand system and the safeguard measures applicable to different categories of goods. Due to different advantages enjoyed by the different nations such complaints have become more common with increase in free trade agreements between states. For example in some cases we find there are disagreements between bulk exporters of various goods when they try to sell their goods in countries which have a large number of subsistence farmers. This generally would go against the economic policies of a country especially one whose bulk arises from the agricultural sector. This is because it not only renders such farmers unemployed but cripples the main economic activity and the country is left in foreign debt from payments made on such imports.

Chile is a large producer of wheat. The country’s government has therefore been abiding by the Price Brand Law which aims at the protection of sensitive agricultural products such as wheat, sugar and oleaginous crops from price fluctuations in the external markets. The law provides for the imposition of specific import taxes on wheat imports (Gallagher, Low & Stoler 2005). This happens when the international price of wheat is lower than the floor price in Chile. Revisions in the World Trade Organization policies led to requirements for the country to modify its price calculation method. The government then proposed permission to have a fixed tariff for a four year period followed by a slow price reduction over the following years up till 2014.

Argentina as one of the world’s largest vegetable oil producers is largely dependable on income generated from this area of production. In total, up to eighty and sometimes even ninety percent of productions goes into export and it is classified among the world’s largest wheat exporters (Table 2). The local level of consumption of sunflower and soy oil, coupled with their high production rate make Argentina the worlds leading producer. With the international market price fluctuations over a couple of years has led to poor performance in this export sector between 1997 and 2001. In addition, changes in global demand and supply of grains also caused prices to drop. This eventually led to closing of factories and workers being consequently laid off. Chile on the other hand benefited from this and through the price brand law policy was able to collect custom duty high above their set ceiling. Eventually there were refunds made to Bolivia but not to Argentina and this created the determination of business to litigate causing pressure to expose Chile to the dispute system. All along, following history and previous relations between the two countries Argentina made great efforts towards a local solution. Among those involved at the multi-lateral level included the Directorate for Multilateral Dispute Settlement (DISCO) at the Foreign Affairs Ministry, the Association of Argentine Edible Oil Industries, public officials in the Ministry of Economy, the Argentine representing law firm and finally the Institute for International Agricultural Negotiations.

When diplomacy failed at the regional level, Argentina was forced make an approach at the multilateral level. Here, Argentina first submitted the dispute to the Administration Commission of the Mercosur — Chile Agreement (Economic Complementary Agreement 35, ECA35) to which Chile had made a commitment to remain within their PBS requirements. However, Argentina only managed a favorable recommendation and in search of a more binding one sought the World Trade Organization. The Argentine argued that Chile the PBS violated Article II b of the GATT 1994 claiming that the structure it had allowed for application of specific duties in violation of  the Chilean bound tariff (Buckley, Iolo & Boulle, 2008).

The Dispute Settlement Body saw it fit to develop the Appellate Body – an avenue through which was held responsible for a report and panel report in an analysis of the document described as “Understanding on Rules and Procedures Governing the Settlement of disputes” (Maclean, 2006). Chile informed the committee that it had been in the pursuit of mutual understanding. Chile claimed it would require reasonable amount of time to implement the recommendations made by the Dispute Settlement Committee. When this process also failed, they eventually allowed for additional arbitration time of ninety days. According to the Chilean law it would require extensive legislative processes for the modification of the said tax laws. This would call for Constitutional consent through a law passed by the National Congress (Gallagher, Low & Stoler 2005). Further consultations would involve a variety of parties including the Inter-ministerial Committee on International Economic Relations comprising: government agencies relating to finance, agriculture and foreign affairs. According to the Constitution of Chile only the president has the authority to make the required legislative changes and this was a hitch in the process that could prolong if not halt it altogether.

In addition, the PBS was also considered to be a variable levy since as required it could not be converted to ordinary customs duties. Chile retaliated saying that they were indeed ordinary customs duties and that two measures needed to be met in order for tariffs to be set.  The WTO eventually ruled in favor of Argentina claiming that Chile was acting in contravention of Article 4.1 of the Agreement on Agriculture. In addition to this, the article clearly outlined the failures by Chile especially according to the decision by the petitions body (). Both this organization and Argentina agreed that the best approach for Chile in the defense of the producers of the agricultural products at issue is to apply ordinary customs duties, as permitted by the Agreement on Agriculture.

Chile however has the option of an appeal given that they disagree with the WTO ruling. It may however be a losing battle following previous agreements that the Price Brand System was to protect the farmers from the Argentine prices (Trebilcock & Howse, 2005). Any changes by the Chilean government to the previous agreement would cause legal demands by farmers since the agreement stated that there would be no changes until 2014. However, the Government does not specify what the future of the price band should be after 2014, as in their opinion it would be irresponsible from their side to forecast the future behavior of the international market. It is therefore up to the Congress to be appointed in 2014 to amend any operational clauses set by the current government to avoid any further interior or global friction.

GATT – Article VI of the General Agreement on Tariffs and Trade of 1994 is the body from which the Anti Dumping Agreement arises. The World Trade Organization was formed based on certain principles that arose from GATT. Many of its operational clauses are similar to those of GATT but it has some additions. Dumping occurs when imported goods are sold for values lower than the fair domestic value of those particular goods. That is, they are sold at a cost lower than that which they are being sold for in the home country. The country selling these goods benefits by getting rid of these goods at a cost and though they might have gone at some loss as per production costs, it is lower than any loss they would have undergone had they had to dispose of or destroy the goods altogether. Such situations where a country ventures into dumping often arise when the demand is much lower than supply. Anti-dumping laws represent such legal structure through fines in form of various taxes implemented on goods perceived to be dumped. This is done by the importing country as a measure against dumping to exporting countries. Where it fails to ward off the dumping as a whole and importing countries choose to buy these good then the exporting country faces a kind of fine by paying these import surcharges which in turn contribute to revenue from customs duty. In some cases goods have low prices guised by government subsidy and in such a case, countervailing duties are charged on imports.

With increased liberalization in trade among countries, such measures have become increasingly popular and are aimed at protecting home industries. An example of how it leads to the protection of home industries is that it encourages governments not to engage in the importation of goods they are easily able to produce (Finger & Nogués, 2006). This ensures that such industries continue running and provide employment for their staff. In the long run, it also avoids cost associated with importation that leads to a reduction in gross domestic product. Anti-dumping laws go a long way in protecting home industries from global competition through sanctioning the dumping countries and allowing those exporting the similar goods an opportunity to sell their goods at the right value and gain their due profits. When countries are able to practice dumping, it is often the case that they sell their goods at extremely low prices this eventually wards off all other competition. The dumping country then monopolizes the market and overall does not go at a loss because costs are recovered in their through the expanded market and future sales.

Among the biggest shortcomings of the anti-dumping laws is the costs incurred through legal fees. This is because a country that believes it is vulnerable to or is a likely target of dumping has to file a petition and follow legal proceedings towards determining whether or not there was any material injury caused to local industries. Much of the growth in anti-dumping can be traced to free-trade agreements thus the World Trade Organization has gone to extensive efforts to standardize these laws towards ensuring free and fair trader for all (Maclean, 2006). A major step in the standardization of the anti-dumping agreements was in the Uruguay Round in 1994.

Table 1: Area, production and average yield of wheat at the Southern Cone countries and Brazil

Country	Area	Production	Yield	Year and Source
	Ha	t	Kg/ha
Argentina	5600000	14600000	2607	2006/07, SAGPyA
Bolivia	129290	143677	1111	2006/07, INE
Brazil	1770945	2464936	1579	2006/07, IBGE
Chile	282400	1322357	4680	2006/07, ODEPA
Paraguay	365000	620000	1699	2005/06, DGEEC
Uruguay	193400	661200	3160	2006/07, DIEA-MGAP
Total	8341035	19812170	2375

 

Table 2: The world’s top five Wheat Exporters

	Wheat production	2000 exports(in millions of tons)
States	69 4	31.9
Canada	29	19.2
Australia	21.6	17.6
European Union	104.2	16.5
Argentina	12.3	12.5
SOURCE: U.S. Wheat Associates. www.uswheat.org.

 

References

Buckley, R. P., Iolo, V., & Boulle, L., Challenges to multilateral trade: the impact of bilateral, preferential and regional agreements: Volume 14 of Global trade law series, Kluwer Law International, 2008

Gallagher, P., Low, P., & Stoler, A. L., Managing the challenges of WTO participation: 45 case studies: WTO Internal Only Series, Cambridge University Press, 2005

Finger, J. M., & Nogués, J. J., Safeguards and antidumping in Latin American trade liberalization: fighting fire with fire, Trade and development series, World Bank Publications. 2006

Maclean, R. M., EU trade barrier regulation: tackling unfair foreign trade practices, Sweet & Maxwell, 2006

Trebilcock, M. J., & Howse, R., The regulation of international trade, Routledge, 2005

United Nations, United Nations Juridical Yearbook 2000, United Nations Publications, 2004

Table 1: Area, production and average yield of wheat at the Southern Cone countries and Brazil.

http://www.ipni.net/ppiweb/ltams.nsf/$webindex/48E840CAD00D2E590325752900710F96?opendocument&print=1

Table 2: The world’s top five Wheat Exporters http://www.answers.com/topic/the-natural-history-of-wheat