Free trade at any price?

Free trade at any price?

By Edwin Vanderbruggen   |   Sunday, 01 September 2013

Myanmar faces tough choices over a series of initiatives arimed at creating a more integrated ASEAN.

Workers toss a watermelon at Thirimingalar market in Yangon's Hlaing township. Fruits are one product that may face more competition from foreign goods as trade barriers decrease. Photo: Boothee

Geography has its downsides too. Myanmar is wedged in between China and India, two BRIC countries that are among the world's largest manufacturing centres. As a member of ASEAN, Myanmar is required to eliminate nearly all its import duties by 2015 as part of the Asean Economic Community initiative. In addition, Myanmar has to abide by a strict schedule of reduction of import duties under the "AFTA Plus" agreements, the free trade agreements that ASEAN concluded with China, Japan, Korea, India and Australia/New Zealand. For example, by 2015 Myanmar needs to allow imports from China at zero percent duty, except goods on a limited "sensitive list" which follows a slower reduction schedule.

That is a scary prospect for Myanmar's domestic producers of products like vegetable oils, cement, fruit and a whole range of other products.  Many of the foreign competitors of such local producers are much better financed, have better technology and have massive production capacities. With the import duties gone, and not to jeopardise its reputation as a reliable treaty partner, Myanmar can only soften the blow with measures which are allowed under the country's WTO commitments and other Free Trade Agreements (FTA).

There are three major ways in which Myanmar can protect its domestic producers while still remaining compliant with its FTAs: It can impose additional duty at the border-gate on top of the normal customs duty in case of dumping; or subsidies; or safeguards. 

Who is dumping products in Myanmar?

Four of the five biggest importing countries into Myanmar are also major and frequent defendants in anti-dumping investigations around the world. Generally put, the WTO recognises that a country such as Myanmar is allowed to protect itself from dumping by levying more duty at the border if three conditions are met: products are imported into Myanmar at a price that is lower than the "normal value"; there is injury to Myanmar's domestic producers; and a causal link can be seen between the two. "Normal value" is defined in a complex agreement (Agreement on the Implementation of Art. VI of GATT) and a body of case law. In its simplest form, to calculate a "normal value" one takes the price of the product in the home market of the exporter, adds transport costs, insurance, taxes and the like, and compares that with the import price.

In practice, domestic producers file an application with their government's appropriate agency based on their own country's anti-dumping regulations. The application basically shows that their market share is shrinking, that they are in trouble and that cheap imports are increasing hand over fist. The government can then open an investigation into whether there is in fact dumping and, subject to certain conditions, impose an anti-dumping duty which is in line with WTO law.

Myanmar does not have such regulations or agency yet, but it is high on the list of priorities of the Ministry of Commerce. With 2015 just around the corner, time is of the essence.   

Countervailing subsidies

Under WTO rules (notably the GATT Agreement on Subsidies and Countervailing Measures), countries can impose some extra duties for products whose export is being subsidised in the country of origin. A "subsidy" in this sense must contain three basic elements: (i) a financial contribution (ii) by a government or any public body within the territory of a Member (iii) which confers a benefit. If a foreign government provides financial benefits such as free assets, low cost loans or price support to companies that export to Myanmar, Myanmar would be allowed to neutralise the effect by imposing extra duties on the relevant products.

Of course, those countries will rarely agree that there are indeed subsidies. Major cases before the WTO's Dispute Settlement Body illustrate this. The Large Civil Aircraft case, also referred to as "Airbus versus Boeing", spurred several complaints and retaliatory actions, many of which centred on the question whether or not the government in effect provided subsidies.

http://www.information.myanmaronlinecentre.com/free-trade-at-any-price/