About Safeguard Duty

Frequently Asked Questions about Safeguard Duty

Sudden increase in imports as a result of trade liberalization can put strain on domestic industries. Safeguards are a type of safety-valve built in to the WTO to protect domestic producers temporarily while they adjust in order to become more competitive with foreign producers.

WHAT IS A SAFEGUARD? Back To Top

A safeguard is a form of temporary relief. They are used when imports of a particular product, as a result of tariff concessions or other WTO obligations undertaken by the importing country, increase unexpectedly to a point that they cause or threaten to cause serious injury to domestic producers of “like or directly competitive products”. Safeguards give domestic producers a period of grace to become more competitive vis-à-vis imports.

If this happens, the government of the importing country may suspend the concession or obligation, but will be expected to provide compensation by offering some other concession. Otherwise, the affected WTO member(s) can retaliate by withdrawing equivalent concessions. Industries or companies often request safeguard action by their governments.

Safeguards usually take the form of increased duties to higher than bound rate or standard rates or quantitative restrictions on imports.

WHY DO WE HAVE SAFEGUARDS? Back To Top

Safeguards can be seen as the brakes on the trade liberalization car. By offering a temporary escape route, safeguards give WTO members, confidence to offer each other greater liberalization measures in trade negotiations than they might otherwise do.

HISTORY OF SAFEGUARDS Back To Top

The roots of this trade remedy lie in Article XIX of GATT, 1994 (and its pre-WTO version). This provision allows a WTO member to restrict temporarily imports of a product (known as ‘safeguards’ action) if its domestic industry is affected by a surge in imports.

Safeguards were rarely used before the Uruguay Round. Some governments preferred to protect their domestic industries by persuading exporting countries to restrain exports “voluntarily” or to agree to other means of sharing markets. “Grey area measures” of this kind, circumventing the GATT were negotiated bilaterally for a wide range of products including motor vehicles, steel and semi-conductors. These measures were not subject to multilateral discipline through the GATT and their legality was doubtful. Some safeguard actions actually taken under Article XIX were left in place indefinitely, providing a permanent level of protection.

THE PURPOSE OF AGREEMENT ON SAFEGUARDS Back To Top

The Agreement on Safeguards sets out the rules for application of safeguard measures and requirements for safeguard investigations by national authorities. The Agreement emphasizes transparency and avoidance of arbitrariness through laying down rules. The goal of the Agreement is to encourage structural adjustment on the part of the industries adversely affected by increased imports, thereby enhancing competition in international markets.

The agreement also aims to cure the problems caused by ‘grey area measures’, permanent safeguard actions, Voluntary Export Restrains and orderly marketing arrangement. The Agreement prohibits the future use of ‘grey area measures’ for the purpose of trading multilateral control. The Agreement on Safeguards requires the existing ‘grey area measures’ to be phased out and to be brought in conformity into the Agreement on Safeguards by the end of December, 1998.

WHEN CAN SAFEGUARDS BE APPLIED? Back To Top

A safeguard measures may be applied when:

• there are increased imports – the increased quantity of imports may be either an absolute increase or an increase relative to domestic production.
• There is serious injury or a threat of serious injury –
  
  ‘Serious injury’ is defined as a significant overall impairment in the position of a domestic industry. In determining whether serious injury is present, investigating authorities must evaluate all relevant factors having a bearing on the condition of the industry, including the absolute and relative rate and amount of increase in imports, the market share taken by the increased imports, as well as changes in level of sales, production, productivity, capacity, utilization, profit and losses, and employment of the domestic industry.
  
  ‘Threat of serious injury’ means a clear and imminent danger of serious injury.
  
  There must be objective evidence of the existence of a causal link between increased imports of the products concerned and serious injury. Injury caused to the domestic industry at the same time by factors other than increased imports must not be attributed to increased imports to the domestic industry.
  
  ‘Domestic industry’ means the producers -
  
  • as a whole of the like article or a directly competitive article in India; or
  • whose collective output of the like article or a directly competitive article in India constitutes a major share of the total production of the said article in India.

SAFEGUARDS AND NON-DISCRIMINATION Back To Top

The WTO principle of non-discrimination is embodied in the Agreement on Safeguards. It provides that, in most cases, safeguard measures must be applied on a non-selective (most favoured nation or “MFN”) basis, must be progressively liberalized while in effect and give rise to a duty on the member imposing them to compensate other members whose trade is affected.

WHAT PROCEDURES MUST BE FOLLOWED FOR SAFEGUARDS INVESTIGATIONS? Back To Top

New safeguard measures may be applied only following an investigation conducted by competent authorities in accordance with established procedures to ensure transparency. The Agreement on Safeguards sets out some rules for how the investigation process must operate but leaves the details for members to determine within their own territories.

THE RULES IN THE AGREEMENT Back To Top

That investigation procedure must be established and published prior to being used. There must be reasonable public notice for any investigation. The investigating authorities must publish a detailed analysis of the case in the form of a report presenting and explaining their findings on all pertinent issues, including a demonstration of the relevance of the factors examined. The investigating authorities must hold public hearings or provide other appropriate means for interested parties (must notably the importer, exporters and producers) to present their views and respond to the views of others with respect to the matters being investigated. The parties’ views must be sought on whether or not a safeguard measure would be in the public interest.

TREATMENT OF CONFIDENTIAL INFORMATION Back To Top

Information for which confidential treatment is requested must be accompanied by a public summary or an explanatory of why no such summary is possible. If confidentiality is found not warranted and the party submitting the information is unwilling to summarize it or authorize its disclosure, the authorities may disregard the information, unless through other sources it is demonstrated to be correct.

HOW LONG CAN SAFEGUARDS BE IN PLACE? Back To Top

No safeguard measures may last longer than four years, unless through a new investigation its continuation is found to be necessary to prevent or remedy serious injury and there is evidence that the industry is adjusting. The sum of the initial period of application and any extension may not exceed eight years (or ten years for developing countries). In addition, safeguard measures due to last longer than one year must be progressively liberalized at regular intervals during the period of application. This requirement also carries over into any extended period.

REVIEW OF SAFEGUARD MEASURES Back To Top

Any measures due to last more than three years must be reviewed at mid-term and based on that review, if appropriate, the WTO member applying the measure must withdraw it or accelerate its liberalization.

EXTENT OF SAFEGUARD MEASURES Back To Top

Members are obliged to apply safeguard measures only to the extent necessary to remedy or prevent serious injury and to facilitate adjustment. In the case of tariff measures, the agreement does not specify any maximum increase in the tariff above the bound rate.

COMPENSATION FOR AFFECTED MEMBERS Back To Top

WTO members applying safeguard measures generally must compensate other members for their effects. They must offer a substantially equivalent level of concessions and other obligations to affected members for the duration of the safeguard. If there is no agreement on trade compensation within 30 days, the affected exporting members individually may suspend substantially equivalent concessions and other obligations – that is, raise tariffs – unless the Council for Trade in Goods disapproves of this. During the first three years of application of a safeguard measure, however, this remedy is not available if the measure is taken in response to an absolute increase in imports and otherwise conforms to the provisions of the safeguards agreement.

RE-APPLICATION OF SAFEGUARD MEASURES Back To Top

Another rule in the Agreement on Safeguards aimed at a pre-Uruguay Round abuse is that a safeguard may not be reapplied to a product until the longer of two years and a period equal to the duration of the original safeguard measure has elapsed. For developing country members, this period is replaced with the longer of 2 years and half the duration of the original safeguard. Other members too may reapply a safeguard measure of 180 days or less provided at least a year has elapsed since the date of the original safeguard measure was introduced and no more than two safeguard measures have been applied on the product during the five years immediately preceding the date of re-application.

PROVISIONAL SAFEGUARDS Back To Top

Under circumstances where delay would cause damage that would be difficult to repair, provisional safeguard measures may be imposed on the basis of a preliminary determination that there is clear evidence that increased imports have caused or threaten to cause serious injury. Such measures should be in the form of refundable tariff increases and may be maintained for a maximum of 200 days. The period of application of any provisional measure must be included in the total application of a safeguard measure. Consultations must be initiated immediately after provisional measures are applied.

DEVELOPING COUNTRIES AND SAFEGUARDS Back To Top

Safeguard measures shall not be applied against a product originating in a developing country Member as long as its share of imports of the product concerned in the importing Member does not exceed 3 per cent, provided that developing country Members with less than 3 per cent import share collectively account for not more than 9 per cent of total imports of the product concerned.

COMMITTEE ON SAFEGUARDS Back To Top

The Committee on Safeguard is set up to monitor, report on and make recommendations to the Council for Trade in Goods on the implementation and operation of the Agreement on Safeguards; review WTO members’ notifications; make findings as to another member’s compliance with respect to the procedural provisions of the Agreement on Safeguards for the application of safeguard measures, when requested by a WTO member; assist with consultations; monitor the phasing out of pre-existing measures; and review proposed suspension of concessions in the absence of compensation.

NOTIFICATION REQUIREMENTS Back To Top

Members must notify to each other through the Committee on Safeguards; their own laws, regulations and administrative procedures for safeguard measures and any changes to them, initiations of investigations into the existence of serious injury or threat and the reasons for them, findings of serious injury or threat caused by increased imports, decisions to apply or extent safeguard measures or provisional measures (which must contain the relevant information on which the decisions are based, though members need not disclose confidential information in their notifications).

Also to be notified are – the results of consultations, results of mid-term review of measures taken, any form of concession and / or proposed suspension of concession and ‘grey area measures’ that were in force as on the date of entry into force of the WTO agreement, together with a timetable for phasing out the later or bringing them into conformity with the agreement within the allowed transition period.

Members may also counter notify other WTO members’ relevant laws and regulations, actions, or measures in force.

WHAT HAPPENS IF THERE IS A DISPUTE OVER THE LEGALITY OF A SAFEGUARD Back To Top

The Agreement on Safeguards directs members to pursue consultations and disputes arising under the general WTO dispute settlement procedures.

DOES INDIA APPLY ANY SAFEGUARDS Back To Top

The Customs Tariff Act, 1975 has been amended to include various provisions for giving relief to the domestic producers against injury caused to them by imports in accordance with the Agreements. These include Section 8B, Section 8C, Section 9A, Section 9B and Section 9C of the Customs Tariff Act, 1975 and the Rules made thereunder. These provisions are aimed at offsetting the adverse effects of increased imports, subsidized imports or dumped imports & imports from Peoples’ Republic of China. The Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997 and Customs Tariff (Transitional Products Specific Safeguard Duty) Rules, 2002 govern the procedural aspects.

WHO CAN FILE THE APPLICATION? Back To Top

An application for initiation of a safeguard investigation can be made by any aggrieved producer / manufacturer, trade representative body, firm or association, which is representative of domestic industry

WHAT INFORMATION IS REQUIRED TO BE INCLUDED IN THE APPLICATION? Back To Top

The application should contain, inter alia, the following information :-

1. General Information about the applicant(s).
2. Product in respect of which increase in imports noticed.
3. Increased imports.
4. Domestic production.
5. Injury.
6. Cause of injury.
7. Submissions.

Format as Prescribed under Rule 5(2) of Safeguard Duty Rules

WHEN CAN ONE FILE AN APPLICATION? Back To Top

An application for imposition of safeguard duty can be filed when increased imports of particular product cause or are threatening to cause serious injury to the domestic producers of like or directly competitive articles.

WHAT IS THE MEANING OF ‘LIKE ARTICLE’ AND ‘INTERESTED PARTY’? Back To Top

1.  ‘Like article’ means an article which is identical or alike in all respects to the article under investigation.
2. ‘Interested Party’ includes –
   1. any exporter or foreign producer or the importer of an article subjected to investigation for purposes of imposition of safeguard duty or a trade or business association, majority of the members of which are producers, exporter or importers of such an article;
   2.  the government of the exporting country; and
   3. a producer of the like article or directly competitive article in India or a trade or business association, a majority of members of which produce or trade the like article or directly competitive article in India.

HOW TO COLLECT INFORMATION ABOUT IMPORTS IN THE COUNTRY? Back To Top

Data on the volume and value of imported goods can be compiled from some published sources such as Directorate General of Commercial Intelligence & Statistics (DGCIS) publication, Customs Daily lists and / or information otherwise available, Source of information must be specified while furnishing information.

WHAT HAPPENS IF SOME INFORMATION IS NOT MADE AVAILABLE OR IF THE CONCERNED PARTIES DO NOT CO-OPERATE? Back To Top

In case where an interested party refuses access to or otherwise does not provide necessary information within a reasonable period or significantly impedes the investigation, the Director General may record his findings on the basis of the facts available to him and make such recommendations to the Central Government as he deems fit under such circumstances.

WHEN SHOULD ONE APPLY FOR ANTI-DUMPING DUTY, COUNTERVAILING DUTY OR SAFEGUARD DUTY? Back To Top

CAN ONE APPLY SIMULTANEOUSLY FOR BOTH ANTI-DUMPING DUTY AND SAFEGUARD DUTY? Back To Top

The Safeguard duty Rules require that in case the injury to the domestic industry is caused due to dumping, the domestic industry should seek for the imposition of anti-dumping duty and not safeguard duty.

CASES INVESTIGATED BY THE DIRECTOR GENERAL Back To Top

The Director General has carried out 18 investigations so far as under:

CONSIDERATION OF D.G.'s RECOMMENDATIONS Back To Top

The Final Findings and the Recommendations of the Director General is considered by the Standing Board on Safeguards under the chairmanship of Commerce Secretary. Then the views of the Standing Board on Safeguards are placed before the Finance Minister for approval in respect of Safeguard Duties & to the Commerce Minister for imposition of Quantitative Restrictions. Back To Top