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Public
FTAA.soc/civ/110
October 24, 2003


Original: English

 

FTAA - COMMITTEE OF GOVERNMENT REPRESENTATIVES ON THE PARTICIPATION OF
CIVIL SOCIETY

CONTRIBUTION IN RESPONSE TO THE OPEN AND ONGOING INVITATION
 


Name(s) Daryl Hatano
Organization(s) Semiconductor Industry Association
Country USA

Executive Summary: Comments of the Semiconductor Industry Association to the Negotiating Group on Subsidies, Antidumping, and Countervailing Duties on the Free Trade of the Americas Initiative (FTAA)

September 29, 2003

The Semiconductor Industry Association (“SIA”) of the United States welcomes the opportunity to submit comments pursuant to the open invitation to civil society in countries participating in the Free Trade of the Americas (‘FTAA”) negotiations. The SIA is the leading voice for the U.S. semiconductor industry and has represented American-headquartered manufacturers since 1977. SIA member companies comprise approximately 85% of U.S.-based semiconductor production. Our member companies have global manufacturing and distribution.

The U.S. semiconductor industry strongly supports the efforts of negotiators to reach agreement on the elimination of tariff and non-tariff barriers in our hemisphere, but is very concerned about the apparent effort of some FTAA participating countries to severely weaken or even eliminate trade remedy laws, including antidumping and countervailing duty provisions. SIA believes that the appropriate forum for discussing international trade remedy laws is the World Trade Organization, where discussions are already underway to “clarify and improve” existing disciplines while “preserving the basic concepts, principles and effectiveness” of the Antidumping and Subsidies Agreements.

The mandate from Ministers in the FTAA negotiations, embodied in the March 19, 1998 San Jose Ministerial Declaration, regarding trade remedies is also aimed at improving disciplines. Despite the fact that this mandate clearly does not invite a wholesale rewriting of the trade rules, it appears that some FTAA participating countries have taken the view that the San Jose Declaration opens the door to the creation of whole separate set of methodologies and procedures, many of which differ considerably from, or even contradict, provisions contained in the WTO Antidumping and Subsidies Agreements. SIA is concerned that this raises serious issues with respect to most favored nation application of the laws, that would set the FTAA at odds with the provisions of the WTO. Many of the FTAA proposals would make effective relief from unfair trade more difficult to achieve, without achieving the stated goals of deepening existing disciplines and improving the rules and procedures in order to prevent unjustified barriers to trade in the hemisphere. The U.S. semiconductor industry does not support any weakening of the disciplines to combat unfair trade practices.

The attached comments provide more detailed information regarding our position. For additional information, please contact SIA Vice President for Public Policy Daryl Hatano at dhatano@sia-online.org

 

COMMENTS OF THE SEMICONDUCTOR INDUSTRY ASSOCIATION

TO THE NEGOTIATING GROUP ON SUBSIDIES, ANTIDUMPING, AND COUNTERVAILING DUTIES

ON THE FREE TRADE OF THE AMERICAS INITIATIVE (FTAA)

September 29, 2003

The Semiconductor Industry Association (“SIA”) of the United States welcomes the opportunity to submit comments pursuant to the open invitation to civil society in countries participating in the Free Trade of the Americas (‘FTAA”) negotiations. The SIA is the leading voice for the U.S. semiconductor industry and has represented American-headquartered manufacturers since 1977. SIA member companies comprise approximately 85% of U.S.-based semiconductor production. Our member companies have global manufacturing and distribution. Our comments on the Chapter on Antidumping and Subsidies are as follows:

The U.S. semiconductor industry strongly supports the efforts of negotiators to reach agreement on the elimination of tariff and non-tariff barriers in our hemisphere, but is very concerned about the apparent effort of some FTAA participating countries to severely weaken or even eliminate trade remedy laws, including antidumping and countervailing duty provisions. Maintenance of an effective antidumping remedy is especially important to the U.S. semiconductor industry given the history of injurious dumping and subsidies in our sector. In the mid-1980s, Japanese dumping of DRAMs drove nine of eleven U.S. semiconductor producers out of this segment of the market; one company was driven out of business altogether. Injurious dumping of chips continued from a number of other countries in the 1990s. Without the remedies provided by the trade law, our industry would not be the world leader it is today.

SIA believes that the appropriate forum for discussing international trade remedy laws is the World Trade Organization (“WTO”), where discussions are already underway to “clarify and improve” existing disciplines while “preserving the basic concepts, principles and effectiveness” of the Antidumping and Subsidies Agreements. The creation of a separate set of trade law methodologies to be applied only to intra-FTAA trade would increase unpredictability and complexity because exporters would face differing rules in different countries.

The mandate from Ministers in the FTAA negotiations, embodied in the March 19, 1998 San Jose Ministerial Declaration, regarding trade remedies is also aimed at improving disciplines. That declaration directs ministers:

· To examine ways to deepen, if appropriate, existing disciplines provided in the WTO Agreement on Subsidies and Countervailing Measures and enhance compliance with the terms of the WTO Agreement on Subsidies and Countervailing Measures.

· To achieve a common understanding with a view to improving, where possible, the rules and procedures regarding the operation and application of trade remedy laws in order to not create unjustified barriers to trade in the Hemisphere.

This mandate clearly does not invite a wholesale rewriting of the trade rules. However it appears that some FTAA participating countries have taken the view that the San Jose Declaration opens the door to the creation of whole separate set of methodologies and procedures, many of which differ considerably from, or even contradict, provisions contained in the WTO Antidumping and Subsidies Agreements. SIA is concerned that this raises serious issues with respect to most favored nation application of the laws, that would set the FTAA at odds with the provisions of the WTO.

Moreover, SIA has reviewed the proposals that have been offered to date and believes that the vast majority of these proposals are at odds with both the objectives set out by Ministers in the San Jose Declaration and with the language of the Doha Declaration as it relates to trade rules. Many of the FTAA proposals would make effective relief from unfair trade more difficult to achieve, without achieving the stated goals of deepening existing disciplines and improving the rules and procedures in order to prevent unjustified barriers to trade in the hemisphere. The U.S. semiconductor industry does not support any weakening of the disciplines to combat unfair trade practices.

The following is a list of several of the proposals which SIA believes would seriously undermine the effectiveness of national trade laws. The list refers to the article numbers contained in the November 1, 2002 Draft of the Chapter on Subsidies, Anti-Dumping and Countervailing Duties:

1. Article 2.1 - Would limit the use of constructed normal value only to those instances when there are no, or very few, home market or third country sales of the comparable product. This would eliminate the use of constructed normal value in instances when the normal value sales prices are below the cost of production. Global antidumping authorities have long agreed that selling below per unit costs is an actionable form of dumping addressable under national dumping laws. This provision of the FTAA would write this form of dumping out of existence.

2. Article 2.3 - Would set completely different standards for determining sales below cost than are contained in the WTO Antidumping Agreement. The new standards would find sales to be below cost only when the weighted average sales price is below the weighted average cost, or when sales below cost account for 40% of the volume sold. This provision is particularly harmful from the semiconductor industry’s point of view. In the semiconductor market, a company seeking to knock out its competition can price significantly below the cost of production at the beginning of a product’s live-cycle when the volumes of sales are low. Then, after having captured significant market share, the company raises its prices, such that over an entire investigation period, the weighted average price is above the weighted average cost. In the meantime, however, the targeted below cost sales have inflicted considerable injury to competitors, or driven them out of business.

3. Article 2.4 - Would eliminate the requirement to add an amount for profit when constructing normal value in below cost situations. This provision contradicts the requirements of Article 2.2 of the WTO Antidumping Agreement. This is particularly important in our industry where industry profits are an absolute necessity for funding on-going capital expenditures as well as R&D. The elimination of an amount for profit in the constructed normal value calculation ignores the realities of many industries like ours.

4. Article 2.6 - Would require authorities to justify why they do not base the export price on prices to related companies, creating a rebuttable presumption that sales between related companies can form an appropriate basis for export price. This provision would permit exporters to completely manipulate dumping margins through the setting of artificial transfer prices between related companies.

5. Article 2.8 - Would prohibit the practice of excluding sales comparisons that do not show dumping from the overall margin calculation, so-called “zeroing.” Would permit foreign producers to manipulate margins by targeting their dumping to specific products, time periods, or regions. This would be tantamount to having a traffic policeman give drivers a “credit” for all the times they drive below the speed limit when deciding whether to write a ticket when they go above the speed limit.

6. Article 3.5 - Would create a requirement that actual financial losses be incurred before there could be a finding of material injury. This contradicts the injury standard in the WTO antidumping and subsidy agreements by establishing a single dispositive injury criterion. Moreover, this amounts to a one-way ratchet, inasmuch as the proposed language does not mandate an affirmative injury finding if losses are present, it only says the injury cannot be found without them.

7. Article 3.7 - Would require proof that the dumped or subsidized imports constitute the principle or dominate cause of material injury. Would also require that in dumping cases there has to be a showing that a subsidy has been received or a company exercises substantial market power that has enabled dumping. This completely contradicts the WTO standard, which requires only that unfairly traded import be a cause of material injury.

8. Article 5.1 -- Would raise the industry support standard to 50%. Would make it impossible for industries to file cases where a portion of the industry takes no position or opposes the petition, even when they are related to the foreign producer.

9. Article 5.3 - Would provide a green light for government subsidies aimed at rural development, upgrading productive capacity, or diversifying investment. This would be particularly harmful to our industry where ongoing investments to upgrade production facilities are a requirement. It would create serious unfair advantages if governments were permitted to underwrite these investments, and could lead to serious global oversupply.

10. Article 5.5 - Would increase the de minimis dumping level from 2% as provided in the WTO Antidumping Agreement to 5%. This would make it much more difficult for commodity products, including many types of semiconductors, to obtain relief. Most commodity products sell primarily on the basis of price, and even relatively low levels of dumping (2%-5%) can cause significant injury.

11. Article 7.1 - Would create a presumption that preliminary or provisional measures will not be put into place in an antidumping case unless it can be shown that the balance of interests favors the granting of relief sought. This provision would significantly delay the relief available to petitioning companies, and would be particularly harmful to the semiconductor industry which has very short product life cycles, and where early relief is necessary.

12. Article 9.1 - Would require authorities to impose duties that are less than the full amount of dumping or subsidies, if it is sufficient to eliminate injury. There is no economically valid method for calculating a margin that would eliminate injury. Several countries have such provisions and employ different ways of measuring injury, none of which is economically rational. This would simply lead to even great politicization of the trade law process.

13. Article 9.2 - Would require authorities to calculate the “all other rate” for companies not specifically investigated by including the rates from investigated companies that had zero or de minimis margin. This will permit non-responding companies to benefit from lower rates regardless of their degree of dumping or subsidies received.

14. Article 10.1 - Would require the immediate termination of an antidumping or countervailing duty order if a company receives a de minimis AD or CVD margin in an administrative review. This would permit an exporter subject to an order to stop dumping on a short term basis in order to terminate the order (and then resume old pricing practices as soon as the order is terminated).

15. Article 10.2 - Would require the automatic sunseting of cases within a fixed number of months. Under current law, cases are reviewed every five years to determine whether the order would stay in place. The proposal would automatically terminate a case regardless of whether unfair practices are still occurring.

16. Article 12 - Would establish a variety of special provisions for developing countries. This will create even greater disparities between the rules in the WTO, the FTAA rules and the FTAA rules for developing countries. This is a derogation from the WTO and raises potential MFN concerns.

17. Article 14.1 - Would establish the FTAA dispute settlement mechanism as the only forum for appealing antidumping or countervailing duty cases - decisions could not be appealed through national court systems or to the WTO dispute settlement mechanism. This would deny significant rights of review to companies and would weaken the WTO dispute settlement system.

18. Article 15.1 - Five different proposals to establish a mandatory public interest test which would take into account the views of users, consumers and domestic competition law authorities. This provision would create a fundamental unfairness and would significantly undermine the efficacy of national antidumping and countervailing duty laws by introducing political considerations into a process where none currently exist. Smaller, less politically powerful industries or companies would be unable to get relief under these laws.

This list contains comments on only some of the proposals that would weaken the trade remedy provisions. Many of the other proposals would also impair the effectiveness of the trade provisions.

 
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