In keeping an eye on trade disputes in the pipeline, I was recently looking over the USMCA Chapter 31 complaint brought by Canada against the U.S. solar safeguard measures. I haven't read the submissions closely enough to have a view on who is right and who is wrong here, but what did occur to me was that there's a big picture question related to how governments sometimes react to safeguard measures that puzzles me. Perhaps someone more familiar with either safeguard measures or how governments think has some insights.
Let me note at the outset that I support trade liberalization (obviously), but nevertheless I can see the political need for a "safety valve" by which a government lets affected domestic industries ask for temporary tariff protection from foreign competitors. Safeguards seems like the best way to do this. There's no formal allegation of "unfairness," but rather just a request for some temporary protection to help facilitate adjustment to competition with imports.
But safeguards have not worked very well in this regard, at least according to some people. Maybe it's the requirement that safeguards be imposed on a global basis, rather than allowing them to be used in a country-specific way. Or maybe it's the limited period for which they can be imposed. Or maybe it's the requirement that the imposing country offer compensation to affected countries. Or perhaps it's the explicit tie of safeguard measures to adjustment of the domestic industry. Whatever the reason, in practice, anti-dumping may be acting as the safety valve instead of safeguards. In my view, this has led to serious problems for the trading system, as governments push the boundaries of appropriate dumping methodologies and everyone accuses each other of unfair trade.
Those are some pretty big picture points, but let me turn now to a more specific one. In the solar safeguards USMCA case, Canada has challenged various aspects of the U.S. measure. I can see why Canada would bring a complaint under the USMCA as a matter of principle. What I don't understand, though, is why Canada wouldn't demand compensation right away. (And as I understand it, Mexico hasn't done so either). Filing complaints can be useful in some cases, but pushing for compensation seems like it would be a quicker way to get the result you want (rebalancing or modification/withdrawal of the measure). It may be true that the compensation requirement weakens safeguards as a safety valve in general, but the requirement is in there, and in specific cases I would think the affected countries would want to take advantage of it.
In terms of the mechanics of compensation, the Safeguards Agreement sets it out as follows:
Article 8: Level of Concessions and Other Obligations
1. A Member proposing to apply a safeguard measure or seeking an extension of a safeguard measure shall endeavour to maintain a substantially equivalent level of concessions and other obligations to that existing under GATT 1994 between it and the exporting Members which would be affected by such a measure, in accordance with the provisions of paragraph 3 of Article 12. To achieve this objective, the Members concerned may agree on any adequate means of trade compensation for the adverse effects of the measure on their trade.
2. If no agreement is reached within 30 days in the consultations under paragraph 3 of Article 12, then the affected exporting Members shall be free, not later than 90 days after the measure is applied, to suspend, upon the expiration of 30 days from the day on which written notice of such suspension is received by the Council for Trade in Goods, the application of substantially equivalent concessions or other obligations under GATT 1994, to the trade of the Member applying the safeguard measure, the suspension of which the Council for Trade in Goods does not disapprove.
3. The right of suspension referred to in paragraph 2 shall not be exercised for the first three years that a safeguard measure is in effect, provided that the safeguard measure has been taken as a result of an absolute increase in imports and that such a measure conforms to the provisions of this Agreement.
Thus, under the Safeguards Agreement, the procedure is somewhat complicated and you may not even be able to get anything until the measure has been in force for three years.
However, Canada and Mexico also have rights under the NAFTA/USMCA, pursuant to which the rules for compensation are less demanding. Here is NAFTA Article 802.6:
The Party taking an action pursuant to this Article shall provide to the Party or Parties against whose good the action is taken mutually agreed trade liberalizing compensation in the form of concessions having substantially equivalent trade effects or equivalent to the value of the additional duties expected to result from the action. If the Parties concerned are unable to agree on compensation, the Party against whose good the action is taken may take action having trade effects substantially equivalent to the action taken under paragraph 1 or 3.
See also USMCA Article 10.2(6). So under the NAFTA/USMCA rules, there's no need to wait until year 4 for compensation. Canada and Mexico can demand it right away.
The solar safeguards measure went into effect on February 6, 2018, so we are coming up on four years now (and the ITC is hearing arguments relating to an extension of the measure). And yet, as far as I know, Canada and Mexico have not demanded anything in terms of compensation. That means Canada is litigating under USMCA Chapter 31, but apparently not taking the step of pushing for compensation. (Sometimes these issues fly under the radar, so it's possible there have been conversations that were not reported publicly or that I missed.)
The amounts here are not massive, but they are also not nothing. For the sake of simplicity, just to focus on one of the categories covered by the presidential proclamation, 8541.40.60 (solar cells, whether or not assembled into modules or made up into panels), by my rough calculations based on data from ITC DataWeb, in 2017 Mexico was the 6th leading source of U.S. imports of these products, with about $275 million of imports; and Canada was 10th with about $148 million. By 2020, after the measure had been applied for a couple years, Mexico was down to less than $94 million and Canada was down to around $52 million.
We can argue about the policies, and whether it would be better to loosen up the requirements for safeguards in order to shift people away from anti-dumping, but for the most part the rules are clear: Governments affected by safeguard measures have the right to compensation. So why wouldn't they demand it here?
