A Study On The Issue Of Domestic Industry In Trade Remedial Measures

This paper focuses on the subject of domestic industry, which is a fundamentalconcept in trade remedy. By analysing the rulings of DSB of WTO regarding thisissue, the author tries to find out the meaning of this concept, and its effect on thecommencement of trade remedy and on the process of injury determination.The first chapter describes the background, significance and study method of thispaper. Trade remedial measures are an important part in the legal framework ofinternational trade law. The dispute on trade remedy is one of the most importanttypes of dispute rulings by the DSB of WTO. China has been involved in increasingnumber of disputes regarding trade remedy. Therefore, it is necessary to study themultilateral rules on trade remedy."Domestic industry" is a fundamental concept intrade remedy, which is the benchmark to judge the eligibility of the applicant for traderemedy, and the subject of injury determination. Therefore, this thesis will focus onthe subject of domestic industry.The second chapter overviews the evolution of definition on domestic industryduring the GATT period. The Anti-dumping Code of Kennedy Round defined the term"industry" for the first time, which was later adopted by the Subsidies Code of TokyoRound. There were three cases involving the definition of "industry" during theperiod of GATT, which dealt with the essence of the definition—the identification of the horizontal and vertical range of an industry. New Zealand-transformer establishesthe rule that the horizontal range of an industry depends on the range of "like product".United States-wine and Canada-beef establishes the rule that the degree of verticalintegration will not affect the vertical range of an industry.Having discussed on the provisions and cases during the GATT period, thesecond chapter continues to analyze the provisions on domestic industry in WTOcovered agreements. The WTO covered agreements follow the provisions regarding"industry" in Anti-dumping Code and Subsidies Code of Tokyo Round and makeimprovements. The term "domestic industry" can be interpreted as referring to thedomestic producers as a whole of the like products or to those of them whosecollective output of the products constitutes a major proportion of the total domesticproduction of those products. This definition not only stipulates the meaning of theterm, but also imposes obligations on Members which can be the basis of a finding ofviolation. The definition offers members with two parallel options. The definitionalprovision stipulates an exception that the term "domestic industry" may be interpretedas referring to the rest of the producers when producers are related to the exporters orimporters or are themselves importers of the allegedly dumped or subsidized product.However, there is no standard with which the investigating authority can exercise thisdiscretion. During the negotiation of anti-dumping rules in Doha Round, somemembers propose to limit the discretion, but no consensus comes into being.The developed country members of WTO define domestic industry in a likemanner with the provisions of WTO, but they treat related producers withoutforeseeable standard. Therefore, it is necessary for WTO to make uniform rules onthis subject.The third chapter discusses the three elements in the dentition of "domesticindustry", and the relationship between the definition and the initiation of traderemedy investigation. The definition of "domestic industry" in WTO coveredagreements is vague because there is no explanation of the concepts of "producer"and "a major proportion", and because members have unlimited discretion on theidentification of "like product".Therefore, by analyzing DSB’s rulings, this thesis will discuss the meaning of domestic industry and point out the problems inexercising discretion.The identification of "like product" depends on the definition of the productunder investigation and on the identification of the similarity thereof. Absence of anyprovision on the definition of the product under investigation in WTO coveredagreements, the investigating authorities may define the product under investigationarbitrarily. In exceptional cases, the panel decided that the investigating authorityacted inconsistently with its obligations under the definitional provision of domesticindustry in the Agreement on Safeguards by excluding from the definition of thedirectly competitive domestic product certain like or directly competitive productsand, ultimately, producers of the like or directly competitive product, for the purposeof defining the domestic industry.The DSB clarified the following rules on defining producers under certaincircumstances in the cases of US-Lamb, Dominican Republic-Safeguard Measures，EC-Salmon(Norway) and Mexico-Olive Oil: the supplier of input is not the producerof the end-product; the producer who participates in only part of the production butmarkets the end-product is regarded as the producer of the end-product; there is norequirement that an enterprise must actually produce the like product at the time of theapplication for the purpose of initiation and during the period of investigation for thepurpose of the injury investigation in order to constitute a producer. In explaining theterm of "producer", we shall first pay attention to its ordinary meaning, consideringits context and the purpose of the agreements on trade remedy."A major proportion" is the critical concept in the definition of "domesticindustry". The panel of Argentina-Poultry Anti-Dumping Duties interpreted theconcept for the first time. The panel decided that "major"meant "important, serious, orsignificant" and "a major proportion" did not necessarily mean50per cent or more ofthe total domestic production. This interpretation caused anxiety among somemembers, and they proposed to amend the definition of "domestic industry" duringthe negotiation of Doha Round. However, no consensus was reached on theamendment. In EC-Fasteners(China), the Appellate Body expressed its opinion of the interpretation of "a major proportion", balancing between the necessity forflexibility and the necessity for proper restraint on the disretion of investigatingauthority. In EC—Salmon (Norway) and EC-Fasteners (China), EU alleged that aslong as "a major proportion" of total domestic production is included in the defined"domestic industry", the investigation authority could exclude certain types ofproducers from it. This point has no legal basis.The requirement of standing of the applicant for trade remedy is affected by thedefinition of domestic industry. In the negotiation on antidumping rules during theDoha Round, two issues were raised on this issue: the standing of trade association asrepresentative of domestic industry, and the threshold of an application. Althoughthere is no substantial progress on these issues, we need to continue to pay attention.The forth chapter focuses on the relationship between the definition of domesticindustry and injury determination. Because the WTO covered agreements do not limitthe discretion of the investigation authority in injury determination and the rules oninjury determination are incomplete, members are quite arbitrary in injurydetermination. Some practices on the issue of domestic industry by investigationauthorities in the process of injury determination are readily causing disputes. Firstly,investigation authorities sometimes change the subject of injury determination. Forexample, the authority in EC-Bed Linen used information concerning companies thatare not within the domestic industry to demonstrate injury, the authority in Mexico-Steel Pipes and Tubes used information concerning part of the companies in thedomestic industry to demonstrate injury, the authority in Mexico-Corn Syrup treatedthe injury suffered by part of domestic industry as the injury suffered by the wholeindustry, and the authority in US-Hot-Rolled Steel primarily focus the informationconcerning part of the industry. This author believes that these measures areinconsistent with the obligation of objective examination under WTO agreements.Secondly, investigation authority sometimes uses sampling in injurydetermination to narrow the information resources so that the objectivity of injurydetermination may be affected. The panel of EC—Salmon (Norway) confirmed thelegitimacy of sampling in injury determination. In EC-Fasteners (China), China challenged the representativeness of the sample. The panel decided that a selectionbased on volume of production could satisfy the requirement of representativeness.This author takes the view that the volume of production is only one of the elementsin considering the representativeness of sample. If the complainant proves the factthat the authority excludes from the sample a particular type of producers, it isobvious that the authority raises the risk of distorting the result so that it violates therequirement of objective examination.The fifth chapter analyses the provisions and cases on "domestic industry" inChina. Today, China has a more accurate recognition of the issue of domestic industrythan before. Before entering into WTO, China defined the term of domestic industry abit different from WTO: first, China defined the term of domestic industry as referringto the domestic producers as a whole of the like products or to those of them whosecollective output of the products constitutes a "majority" of the total domesticproduction of those products; second, China did not interprete the term of identical orlike product; third, China did not provide the regional exception; forth, China had noexplanation of related producers. In practice, the main problem with the investigationauthority lay in the confusion of the definition of domestic industry and the standingof applicant.After entering into WTO, China has modified the provisions on domestic industry.Chinese investigating authority treats the issue of domestic industry consistently withits obligation under WTO. First, it distinguishes the issue of domestic industry fromthe standing of the applicant; second, it insists on50percent or more of the totalproduction of like product as the threshold of domestic industry; third, it excludes therelated producers and producers as importers flexibly and with justification.China has been the respondent in two cases involving the issue of domesticindustry. The author believes that the Ministry of Commerce could made someimprovements.