- With increased execution of trade agreements by India, there is often increased competition with the imported products, at reduced Customs duties. Bilateral safeguard measures are an important tool to address any adverse impact of such competition.
- Bilateral safeguard measures can be imposed pursuant to an increase in imports, which causes or threatens to cause injury to the industry in India.
- It is imperative to demonstrate that the increase in imports is due to the concessions given or duties eliminated under trade agreement.
- Bilateral safeguard measures would take the form of suspension of any further reduction in Customs duty, or withdrawal of concessions given under the agreement.
- The duration of safeguard measures is normally limited, and the industry must demonstrate the steps it would take to adjust to the concessional duty rates, once the measures are allowed to lapse.
- Similar to safeguard measures under the Agreement on Safeguards, bilateral safeguard measures must be progressively liberalized over the period.
- Some of the trade agreements also incorporate a provision concerning transition period, and no measure can be invoked once the transition period is over.
With an increase in bilateral trade agreements being executed, bilateral safeguard measures have increasingly become a fundamental tool for regulating trade. Trade agreements eliminate or reduce Customs duty, thereby allowing the signing countries to improve their trade relations and integrate their economies. They also contribute to the growth of local and small producers by giving them access to new markets. However, these tariff concessions often come at the expense of increased competition for the local producers, who may find it difficult to maintain their market and performance, faced with an influx of imports. Since member parties to an agreement are generally keen to ensure that the interests of their domestic producers are safeguarded, trade agreements generally have a bilateral safeguard provision that acts as an emergency measure. The provision allows a member county to apply temporary restrictive measures on the bilateral member country by suspension of tariff reductions to protect its domestic industry from serious injury caused by a sudden increase in imports from the other party to that agreement.
Provisions concerning bilateral safeguard measures were first introduced by the United States in a trade agreement between the United States of America and Mexico in 1942 where the USA included an 'escape clause' to withdraw the concessions granted, in case they cause injury to the domestic producers of the importing country. After this, the USA began to include this clause in all its future agreements. Gradually, bilateral safeguard provisions have become an important clause in trade deals and negotiations and ensure economic growth which is not at the cost of the domestic producers.
Pre-conditions for imposition of bilateral safeguard measures
The prerequisites for invocation of bilateral safeguard measures are a) there must be a sudden increase in the imports of a particular product; b) the increase should be a result of tariff concessions granted under a trade agreement and c) such increase has caused or threatens to cause serious injury to domestic producers of that product. Essentially, a country under an agreement can impose bilateral safeguard measures to remedy the injury caused due to a significant increase in imports as a result of the reduction or elimination of Customs duty pursuant to that agreement. These measures can be in the form of:
- suspension of any further reduction of Customs duty on that particular product or,
- an increase in the rate of Customs duty to the lower of Custom
duty applicable on the imports from most favoured nations as on
- date on which measures are taken.
- date on which the agreement was entered into.
Provisions normally incorporated in bilateral trade agreements
The specific provisions concerning conditions for invocation of bilateral safeguard measures, and the procedure to be followed may vary from agreement to agreement. Further, the provisions concerning production of like article or directly competitive article in India, constitution of domestic industry, analysis of injury, existence of causal link, and allowing participation to various stakeholders, remain similar to that in other trade remedial investigations. However, certain special features which can be normally found in various agreements signed by India are as follows:
Duration
Bilateral safeguard measures may be applied for such period as required to remedy the serious injury that has been caused to the domestic producers. However, almost all agreements executed by India prescribe a maximum duration of 2 years, which is extendable for a further period of up to 3 or 4 years. Therefore, bilateral safeguard measures are normally invoked for shorter duration.
Adjustment Plan
The domestic producers are normally required to provide their plan for adjusting to the reduced tariffs when the safeguard measures expire. Adjustment plans are steps intended to be taken by the industry to adapt to import competition during the application of the measure. Since the bilateral safeguard measures are of temporary nature, the purpose of the adjustment plan is to evaluate how the industry will become more competitive considering including progressive liberalization of the measure over time.
Imposition of Provisional Measures
Provisions concerning bilateral safeguard measures usually allow for imposition of provisional measures, pending conclusion of the investigation. Such provisional measures are intended to address critical circumstances, where any delay in applying the measures would cause damage to the domestic producers, which may be difficult to repair. Such provisional measures may be imposed for a period not exceeding two hundred days.
Progressive Liberalisation
The country applying the safeguard measure is also normally required to progressively liberalise the measures imposed at regular intervals. This process helps facilitate the domestic industry to adjust to the increased competition and allows for the gradual opening of trade by making the measure less restrictive, typically over a period of more than one year. Safeguard measures once imposed cannot remain at the same level over their life and have to be gradually reduced. For example, in a recently concluded bilateral safeguard investigation on imports of Ferro Molybdenum from Korea, the Directorate General of Trade Remedies had recommended bilateral safeguard measures for two years in the form of increased rate of Customs duty to 100% level of duty applicable to most favoured nations in the first year which was then gradually reduced to 75% in the second year.
Transition Period
Certain agreements also have a clause for transition period, that is, the maximum period during which a bilateral safeguard measure can be invoked. Agreements may provide that bilateral safeguard measures may only be invoked in case the imports increase, and cause injury to the domestic industry of the importing country, during a temporary period of transition. For example, in case of the ASEAN India Free Trade Agreement, the members have a right to initiate a safeguard measure on any product within the transition period of 5 years for that product only. This implied that the industry could file an application only within 5 years from the date of complete elimination of measures. Since the period of 5 years has already expired for most products under India-ASEAN agreement, it is not possible to seek bilateral safeguard measures at this stage. However, in case of India UAE Free Trade Agreement, the requirement for the transition period has been removed.
Thus, it is evident that the imposition of bilateral safeguard measures is subject to strict requirements. Nevertheless, they remain a key remedy available to the industry, to safeguard their interests in situations where the imports show a dramatic increase pursuant to a free trade agreement. This is especially crucial since India is moving towards a more liberalised foreign trade strategy with a significant number of trade deals being negotiated. With multiple free trade agreements already in force, and many ongoing negotiations for new agreements, it is clear that the Government is focused on increased use of trade agreements to make the country a global manufacturing powerhouse. With the increased liberalized trade, bilateral safeguard measures would become a key for ensuring that the interests of the Indian industry are duly addressed.
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