Over the last few decades, the global economy has witnessed a trend towards trade liberalization and the harnessing of market-based principles, such as competition and comparative advantage, to create wealth around the world. This trend fits well into the narrative of globalization and has found much of its support in the World Trade Organization (the WTO)'s numerous multilateral agreements, which are intended to lower trade barriers and integrate the world’s economies.
While this international economic regime largely has been positive, it has created both winners and losers in a manner that, at times, has had a negative socio-political impact on many of the WTO's state parties. Moreover, the WTO has recognized the legitimate economic interests of sovereign states that are, in certain circumstances, better safeguarded through protective economic measures. Thus, in order to mitigate these negative externalities, to enable states to protect their legitimate sovereign economic interests, and to convince states to sign and ratify its legal instruments, the WTO has built a repertoire of agreements that include treaty-based protectionist measures. One such measure, or trade remedy, is the "anti-dumping duty."
The problem of "dumping" occurs when a company sells goods in a foreign country at a lower price than it sells those goods at home. Dumping is not an unlawful trade practice per se, but the WTO recognizes that it can often have a negative impact on the import country’s market, especially when dumped prices undercut local prices. WTO treaty law focuses on how governments may or may not react to dumping practices (when dumping causes injury to the domestic market), such as by imposing import duties on the goods being dumped into their domestic markets. These issues are governed under the General Agreement on Tariffs and Trade 1994, and specifically, by the Agreement on the Implementation of Article XI of the GATT. As a member of the GATT since July 1962 and of the WTO since April 1995, Israel conducts its trade policy in line with its WTO obligations and gives force to them through Israeli legislation. With respect to anti-dumping procedures, Israel adopted its WTO obligations through its Trade Levies and Safeguard Measures Law-1991 (the Anti-Dumping Law).
Anti-Dumping Duties in a Nutshell
When a foreign company imports and sells its goods in the Israeli market at prices below what it normally charges at home, it is said to be "dumping" those goods in Israel. Such pricing has economic consequences, such as inspiring competition with local Israeli producers, which, in certain circumstances, can negatively impact Israel’s domestic industry. When dumping practices cause injury, Israeli law provides an avenue to producers to seek remedy: They may complain to Israel’s Ministry of Economy and Industry (the MOE) and request an investigation into, and imposition of protectionist duties on, the allegedly dumped goods. If the MOE finds that anti-dumping duties are justified, it may impose them in an amount that does not exceed the lesser of (i) the margin at which products are dumped into the Israeli market and (ii) the injury actually suffered by Israel's domestic industry. The idea behind anti-dumping duties is to level the playing field and help domestic Israeli producers regain their competitive edge. This 'cap' on anti-dumping duties ensures that Israel does not overprotect its domestic producers.
Below is a general overview of this investigation process in Israel.
The Main Players
Investigations into alleged dumping practices in Israel involve eight main players. These include:
- Complainant. Complainants may be Israeli producers or representatives of Israel's domestic industry who allege injury as a result of dumped products on behalf of that industry.
- Commissioner. The Commissioner is a public servant and employee of the MOE. He or she is the "chief economist" for the purpose of anti-dumping investigations (in addition to other types of WTO-regulated trade investigations, including into subsidies and the application of safeguard measures), and manages the investigation process and parties involved.
- Advisory Committee. The Advisory Committee is a professional committee of practitioners who are knowledgeable about and experienced with the ins and outs of economics, industry, and trade remedies. Committee members are appointed in representation of the Ministry of Finance, the MOE, and the public.
- Domestic Industry. While complaints may be submitted by individual producers, an investigation will only commence if it is supported by the majority of Israel’s domestic industry. As a rule of thumb, "majority" means at least 50% of the producers of the product in question, however, this term is construed widely and would usually include a bloc of domestic producers who, despite holding less than 50% of the total industry, still play an important, serious, or significant role in the domestic economy.
- Interested Parties. These parties include companies, producers, or individuals who may be affected by dumping investigations. For example, Interested Parties might include Israeli or foreign producers of the product under investigation; importers of such a product; trade or industry-related organizations to which the producers or importers belong, such as the Manufacturers’ Association of Israel; or any competent authority in the foreign exporting country that is party to the investigation.
- Notified Parties. These parties include all Interested Parties who responded (in writing) to the original complaint or to any response to such complaint.
- Minister of Economy and Industry. The Minister of the MOE makes the final call on instituting anti-dumping duties in light of the Commissioner's post-investigation report and recommendations of the Advisory Committee.
- Minister of Finance and Finance Committee of Knesset. The Minister of Finance and Finance Committee of the Knesset have de facto veto rights over the Minister of the MOE’s decision to institute anti-dumping duties. Moreover, the Ministry of Finance is represented in the Advisory Committee, which makes initial recommendations to the Minister of the MOE concerning such duties.
Dumping Investigations – a Timeline
Dumping investigations can be initiated in one of two ways: Either a representative of Israel’s domestic industry may submit a complaint to the MOE,* or the Commissioner can initiate an investigation at on his or her own discretion. Once a complaint has been received, the Commissioner has 21 days to reach a decision regarding whether or not to investigate, and may only investigate if there is prima facie 'sufficient evidence' supporting the claim. If an investigation is initiated, the complainant, the foreign producers, and relevant governmental bodies of exporting countries must be given notice within 5 days, as well as a 30 day period to file written responses to the dumping allegations.
As part of the investigation, the Commissioner reviews evidence of dumping from the 6-12 month period preceding the complaint, as well as evidence of injury for the 3-year period preceding the complaint. The investigation may last up to 240 days (8 months), and involves the collection and analysis of relevant economic and trade data and active verification of that data. During this period, the Commissioner may reach out to certain additional Interested Parties to request their positions on and additional information concerning the alleged dumping and investigation. At the end of this 240-day investigation period, the Commissioner must submit a report to the Advisory Committee for deliberation, as described below.
Furthermore, during the investigation period, the Commissioner must make a preliminary decision, between 60-90 days from the date the investigation was initiated, as to whether there is prima facie 'evidence' supporting the dumping claim.** If such evidence exists, a temporary guarantee may be demanded from foreign producers or importers of the goods in question to protect the claimant until the end of the investigation. Once the Commissioner makes a decision regarding a temporary guarantee, Notified Parties have 30 days to submit additional evidence that may not have been at the Commissioner's disposal when the preliminary decision was made. In this context, these parties may be invited to make oral claims regarding their positions before the Commissioner. It should be noted that the Commissioner is obligated to make a preliminary decision and publish it, regardless of whether or not the conclusion is to demand a temporary guarantee.
At the end of the 240-day investigation period, the Commissioner must submit his or her findings in a report to the Advisory Committee and provides a copy to all Interested Parties. After receiving this report, Interested Parties have 14 days to submit further written claims to the Advisory Committee and request an invitation to make oral claims before it.
With the Commissioner’s findings in hand, the Advisory Committee will deliberate and recommend next steps to the Minister of the MOE. As part of its deliberations, the committee may request clarifications from the Commissioner, entertain further claims and protestations by Interested Parties, and may even invite and question other individuals or representatives of organizations who can provide added value to such deliberations. The Advisory Committee has 45 days to reach a conclusion and make recommendations to the Minister of the MOE with respect to a remedy that should be given, if at all.
Minister of Economy, Minister of Finance, and the Finance Committee of the Knesset
On the basis of the Commissioner’s report and any conclusions drawn from it by the Advisory Committee, the Minister of the MOE has 15 days to decide whether or not to impose anti-dumping duties on the imported products in question – a decision that is subject to vetoes by the Minister of Finance and the Finance Committee of the Knesset. If the Minister of the MOE chooses to impose such a duty, the Minister of Finance has 15 days to use a veto. If the anti-dumping duty clears this hurdle, it will be brought before the Finance Committee of the Knesset, which has an additional 14 days to begin deliberating whether or not to use its own respective veto. While the Finance Committee is not bound by any specific timeframe to reach its decision, it is the last stage of the investigation and decision-making process and must be completed within 18 months from the date the investigation was first commenced.
The "Dumping Determination"
As noted above, the Commissioner must determine the existence of three cumulative elements in order to suggest the imposition of anti-dumping duties on imported goods. These elements are (i) a margin of dumping between imported goods and like products in the domestic market; (ii) injury to the domestic market; and (iii) a causal link between dumped imports and the injury.
Calculating Dumping Margins
Dumping margins are calculated by subtracting the export price of goods from the price at which they are sold for domestic consumption in the market of the exporting country. However, sales in the exporting country's market must meet a few important conditions in order to be considered. First, prices used must reflect sales made during the ordinary course of business, and second, they must be at least 5% (in volume) of the exported goods sold in Israel. Furthermore, where the exporting country is a non-market economy, which complicates the calculation of "normal" domestic prices, the Anti-Dumping Law provides mechanisms for alternative calculations. The reason is that the Commissioner must compare 'like goods' sold under similar conditions in order to create an accurate comparison between sales and effectively determine if the trade practices in question are truly inequitable. Finally, as a rule of thumb, the Commissioner must calculate and determine a dumping margin for each importer in question.
When reviewing evidence of injury to the domestic market, the Commissioner is obligated to consider fifteen specific parameters that would be telling of injury. These are:
- The volume of dumped imports. Have there been significant increases in dumped imports, either in absolute terms or relative to production or consumption in Israel?
- The effect of dumped imports on local prices. This parameter is considered in three different ways. First, the Commissioner must consider whether price undercutting has taken place. In this regard, the Commissioner must determine whether the allegedly dumped imports have undercut the prices of Israeli products, by comparing the ex-factory export price to the ex-factory local price of the product. This comparison must be must be made at the same level of trade (i.e. post necessary adjustments). Second, the Commissioner must consider whether price depression has resulted from the allegedly dumped imports. This occurs when the export price forces down local market prices. Third, the Commissioner must determine whether price suppression has resulted from allegedly dumped imports. In this regard, the Commissioner must determine whether the allegedly dumped imports have prevented prices from increasing, which is done by calculating a "target price" to which products would have increased.
- Sales. How have allegedly dumped imports affected actual and potential declines in sales and profits?
- Output. How have allegedly dumped imports affected actual and potential declines in output?
- Market share. How have allegedly dumped imports affected actual and potential declines in the market share held by local products?
- Growth. What have been the effects of allegedly dumped imports on growth? Determinations regarding sales, output, and market share may indicate whether an industry's growth has been inhibited as a result of allegedly dumped imports.
- Productivity. How have allegedly dumped imports affected potential and actual declines in productivity? In this context, productivity is defined by various measures of the efficiency of production, which are expressed as the output to input ratio used in a production process (i.e. output per unit of input).
- Returns on investment. How have allegedly dumped imports affected potential and actual declines in returns on investments? Return on investments refers to a producer's investments into the development of its own products, such as research and development, maintenance, and purchasing of new machinery or equipment.
- Production capacity. How have allegedly dumped imports impacted potential and actual declines in the use of production capacity? This parameter considers the relationship between actual output produced with installed equipment, and potential output which could be produced with the same equipment if production was at full capacity.
- Domestic prices. How have allegedly dumped imports affected domestic prices?
- Dumping margin. What is the magnitude of the alleged margin of dumping?
- Cash flow. What have been the effects of allegedly dumped imports on cash flow?
- Inventory. What have been the effects of allegedly dumped imports on inventories – have inventories of the product in question grown or has the domestic industry succeeded in selling?
- Employment and wages. What have the potential and actual negative affects of allegedly dumped imports been on employment and wages?
- Ability to raise capital and investments. Has the domestic industry been able to continue raising capital and investments despite its economic losses? This parameter recognizes that the fact that an industry suffers injury (regardless of whether such injury is the result of dumping or other factors), does not necessarily mean that such industry's ability to continue raising capital and other forms of investment have been inhibited.
It is important to emphasize that the Commissioner has a statutory obligation to consider the alleged injury through the lens of each one of these parameters, bar none. The reason for is that while one parameter may clearly indicate injury to the domestic market, other parameters may, simultaneously, show that the domestic market is healthy and unaffected by or succeeding despite the alleged dumping. Certain parameters may be irrelevant to the domestic industry in specific cases of alleged dumping, however, this does not discharge the Commissioner from the obligation to consider each parameter. Where a parameter is irrelevant, the Commissioner may explain why this is the case in his or her report.
Furthermore, when reviewing evidence concerning the alleged threat of material injury, the Commissioner must consider the following factors:
- Volume of imports. Has there been a significant increase in the volume of dumped imports, which indicates a real possibility that such an increase will continue?
- Production capacity. Has there been a significant increase in the production capacity of the imported goods, or is an increase expected to occur in the near future, such that there is a real risk of a significant increase in the volume of dumped imports? In this context, the Commissioner must consider whether a real possibility exists for importing goods from other countries.
- Pricing and demand. Will the price of imported goods effect either (i) a significant decrease in the price of domestic products or (ii) a significant increase in their price, such that an increase in the demand for imported goods is likely?
- Inventory. How large is the inventory of imported goods?
It should be noted that in making a determination regarding the threat of material injury, that determination must be based on facts and not conjecture or remote possibility, and the threat must be anticipated in the near future.
Establishing a Causal Link
The fact that a domestic industry is hurting economically at the same time as like goods are being dumped into its market does not necessarily mean that the "dumping" is the cause of such injury. For this reason, the MOE may only apply protectionist measures to help the domestic industry if these economic woes are the direct result of dumping. Otherwise, the MOE will have to look at the Israeli economy in order to determine what the source of the economic problems are and what the most appropriate response would be other than anti-dumping duties.
While the Commissioner has to examine the existence of a causal link between dumping and injury, dumping is not necessarily a sine qua non of injury. In this regard, the Commissioner is responsible for considering all factors that may have impacted the domestic market when analyzing the injury suffered as a result of dumping. The reason is that, even if dumping may have negatively impacted the domestic market, this part of the injury may be negligible, and the substantial injury may have been caused by alternative factors. While the list of factors that the Commissioner should consider is open, he or she must review, at the very least, the following factors:
- The volume of imports of other 'similar goods' that were imported at normal prices (i.e., they were neither subsidized by the exporting country nor dumped into Israel's domestic market);
- Negative changes in local demand for 'similar goods' or a change in their consumption patterns;
- An arrangement between foreign and Israeli producers to limit the competition;
- Developments in technology and export performance;
- A decrease in export performance or in the productivity of the domestic production industry.
After investigating the alleged dumping practices, if the Commissioner determines that a margin of dumping exists and that, as a result of this dumping, the domestic industry of 'like goods' has suffered injury, then anti-dumping duties may be imposed by the Minister of the MOE for periods of up to 5 years.