Why a trade remedies agency could save Kenyan industries

Trade remedies constitute most of the cases at the World Trade Organisation (WTO) Dispute Settlement body. These are defence instruments that allow governments to take remedial action against imports causing material injury to a domestic industry.

Such remedies are divided broadly into anti-dumping measures/actions; countervailing duty measures/actions; and safeguard measures/actions.

These remedies are triggered in response to different situations and circumstances which may be causing material injury to a domestic industry. Recourse to these tools is initiated by the domestic industry in compliance with the rules and procedures provided under the WTO Law on Trade Remedies (Anti –Dumping Agreement, Agreement on Subsidies and Countervailing Measures and Safeguards Agreement).

Governments seek trade remedies almost exclusively on the instigation of local business or because of business concerns. The procedures for application of trade remedies are technical, lengthy, expensive and sometimes messy.

Article VI of GATT 1994, elaborated by the WTO Anti-Dumping Agreement, allows countries to take action against imports from countries allegedly exporting at dumped prices.

An exporting company is said to be “dumping” when it exports its product(s) at a price lower than its normal value — that is, the price at which that product is sold on the domestic market is lower than in the exporting country. When dumping causes or threatens to cause material injury to a domestic industry, remedial action may be taken.

Dumping in itself is not illegal; it becomes so as soon as it results in injury to local businesses in the importing country. Therefore, in order to initiate an anti-dumping investigation, local businesses must demonstrate evidence of dumping and injury to themselves.

This takes the form of a written application to the relevant national authority.

Anti-dumping action is undertaken in response to an application from industry concerning injurious dumped imports to the national authority.

The WTO Subsidies and Countervailing Measures Agreement disciplines the use of subsidies, which are generally permissible under GATT 1994 and the WTO Agreements. The effects of a subsidy are to allow the industry to export at a lower price.

The subsidies agreement regulates the actions countries can take to counter the trade effects of subsidies. A country may remedy the trade effects of a subsidy multilaterally through WTO Dispute Settlement procedures and thereby seek the withdrawal of the subsidy or the removal of its adverse effects.

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Alternatively, a country may unilaterally launch its own investigation in which an extra duty (“Countervailing Duty”) may be imposed on subsidised imports to offset the injury to domestic producers.

Where industry faces material injury from subsidised imports, industry may lodge an application for the initiation of a countervailing investigation to the national authority. Once a subsidy is established upon investigation, the national authority will apply a countervailing duty to counteract the subsidy effect.

Safeguard measures/actions are emergency measures. They do not counteract unfair import trade practices but allow a country to suspend import surges temporarily in order to grant local industries time to adjust to increased foreign competition on national markets.

Emergency “safeguard” action may be taken where a surge of imports causes or threatens to cause, serious material injury to a domestic industry.

It allows a country to respond to unexpected and unforeseen increased imports which have caused serious material injury. For the emergency safeguards measures or actions to be taken, the imports must be recent enough, sudden enough, sharp enough and significant enough.

Safeguard measures are applied on a global basis and may take the form of tariffs, tariff rate quotas, or quantitative restrictions (import quotas). These measures must be temporary, product-specific and they must be applied to all imports irrespective of the source.

The Trade Remedies Act 2017 provides the legal and institutional framework for the application of trade remedies in Kenya in compliance with the WTO law which requires a domestic law and institution to receive complaints and, undertake investigations in line with the WTO Agreements.

The 11th Parliament passed the Bill in June 2017 and the President assented to it in July 2017.

The Trade Remedies Agency needs to be established in accordance with section 3 of the Act as the national authority in Kenya to receive complaints, undertake investigations and apply trade remedies in Kenya in accordance with the WTO law and hence protect the domestic industry in Kenya from unfair import competition.

This was not possible before because the legal and institutional framework was not available. If the law and institution was available, maybe Kenya would have saved some of its industries from collapse as a result of unfair import competition.

Previous efforts had been made to address this legal and institutional lacuna but failed due to technical reasons within the old Constitution.

The establishment of the trade remedies agency is technical and expensive since it requires budgetary resources and experts in international trade law, research and investigations and cost accounting skills. Many WTO’s developing country members do not have a WTO-compliant trade remedies legal and institutional framework.

During a recent African Union Commission survey on trade remedies institutions in Africa for purposes of advancing the Continental Free Trade Area negotiations, it was established that only Egypt and South Africa had WTO-compliant trade remedies laws and agencies. Kenya is the third such country in Africa.

Trade remedies can contribute to the achievement of Africa’s industrialisation goals and need to be positively considered and implemented creatively to ensure the continent addresses its supply side constraints and produces the goods that it requires for countries to trade with each other.

Since manufacturing in Kenya has been identified as one of the primary areas of focus by the government, it will be worthwhile to consider that having a legal and institutional framework for the application of trade remedies in Kenya will significantly contribute to this national objective.

Dr Kiptoo is Principal Secretary, State Department of Trade.