Designations of Developing and Least- Developed Countries Under the Countervailing Duty Law by the United States Trade Representative

On 10 February 27, the United States Trade Representative (USTR) published a revised a list of countries that would be treated as developing countries in future US subsidy and countervailing duty investigations (CVDs). CVD investigations arise when domestic producers allege that imports benefit from the World Trade Organisation ((WTO)-illegal government subsidies that are said to give an unfair price advantage over like goods produced domestically. The processes and criterion for such investigations are set out in detail in the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement) to which WTO Members must abide. If domestic producers’ allegations are proven in the investigation, a countervailing duty can be applied against the subsidised imports to offset the unfair advantage.

In general, under WTO rules, Members determine for themselves whether they are developed or developing countries but under the WTO SCM Agreement, WTO Members with a per capita gross national income (GNI) below $12,375 are treated as developing countries. The SCM Agreement provides that when WTO developing country Members are found to provide subsidies that amount to less than 2 per cent ad valorem on the product, the investigation must be terminated. The termination threshold for developed countries is more stringent at 1 per cent. The SCM also provides that the investigation must be terminated if the volume of subsidized imports from a country is ‘negligible’. For developing countries, the negligibility threshold is no more than 4 per cent of total imports, and for developed countries the threshold is set at 3 per cent.

Now, the new USTR designation adds to the GNI measure the following criteria to determine which WTO Members will be considered developed or developing for the purposes of CVDs under US law. WTO Members accounting for 0,5 per cent or more of world trade; Organisation for Economic Co-operation and Development (OECD) Members and those in accession; all EU Member States; Members of the Group of Twenty (G20); and WTO Members who did not declare themselves to be developing countries during their WTO accession process will be treated as developed. In other words, the one per cent ad valorem and 3 per cent negligibility thresholds will now apply to an additional 34 developing countries, including South Africa.

The implications of this change in the US application for South Africa will need further assessment. However, as the South African Government does not provide subsidies to industry or agriculture that are illegal under the terms of the WTO SCM, the new USTR designation should have no direct impact.

The change in designation, however, may not be unrelated to US efforts at the WTO over the past two years to restrict the application of the principle of special and differential treatment (SDT) that provides all developing countries to flexibilities in WTO negotiations. The US has requested many developing countries, including South Africa, to forgo such flexibility in future negotiations.

It should be recalled that under the Uruguay Round negotiations, South Africa was treated as a developed country and was required to undertake deep and wide tariff reductions that have contributed to deindustrialisation and high unemployment in South Africa. South Africa and many other developing countries have not been prepared to forego SDT in future negotiations based on the experience of the Uruguay Round outcomes.

It should be noted that the current USTR review of South Africa under the US Generalised System of Preferences (GSP) is a separate and distinct process that is not related to the CVD matter. This GSP review had been initiated by a petition by some US firms that raise concerns about South Africa’s Copyright Amendment Bill. The South African Government has been engaged constructively in this process and the review is still unfolding.

Sidwell Medupe-Departmental Spokesperson
Tel: (012) 394 1650
Mobile: 079 492 1774
Issued by: The Department of Trade and Industry
Follow us on Twitter: @the_dti

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