Trade defence instruments relate to those General Agreement on Tariffs and Trade (GATT)/WTO-legal measures that countries can use to counter and protect their industries against 'unfair' trade, arising out of dumping or inappropriate subsidies. Countries are also allowed under certain circumstances to use safeguards to provide temporary relief against rapid import growth that causes or threatens serious injury to a domestic industry.
The Uruguay Round Agreement on Subsidies and Countervailing Measure provides a definition of subsidy – as a trade defence measure – that establishes the types of practices covered by WTO obligations. It expanded the illustrative list of prohibited practices, strengthened the disciplines on domestic subsidies, and created a new category of non-actionable subsidies granted for specified purposes that do not cause serious adverse trade effects. The agreement also required most developing country members of the WTO to adhere to the subsidy obligations after a transition period. In essence, the agreement comprised a basic trade-off: stronger disciplines on export and domestic subsides and in return allowance for certain "desirable" subsidies that support R&D, pollution control investment, etc. not targeted at specific industries. Although it created the potential for expanding subsidies in these categories, it contained safeguards to prevent this potential abuse.
The Uruguay Round reforms have been criticised by some for having weakened countries' ability to undertake anti-dumping actions, and by others for having allowed national agencies too much discretion to act against exports. In fact, the new rules did a little of both, but did not change to any significant extent the perceived problems with the use or misuse of anti-dumping measures. More importantly the changes did not fundamentally alter the incentives of domestic industries to resort to anti-dumping actions, or the spread of anti-dumping to developing countries.
In the period before and after the Uruguay Round, many developing countries have acquired and increasingly utilised contingent protection measures themselves. The net economic welfare impact will be negative, and the social impact may be more evident than in developed countries as poor consumers are confronted by higher prices. The imbalance in power and resources needed to make use of the trade defence mechanisms means that developing countries will be more severely affected by developed country measures taken against their exports than would be the case when developing countries initiate measures against develop country import products.
There are potential economic gains to both the EU and developing countries if the trade defence instruments become more effectively circumscribed by WTO rules. Without further strengthening of the rules in the new round, there may be a further growth in the incidence of contingent protection measures, with consequential damaging impact on the growth in global economic welfare.
Given that the issue of trade defence relates to particularly sensitive and opaque areas of discretionary, national trade and industrial policy where multilateral influence has been in practice relatively limited, it is extremely difficult to be precise about future developments in this area. This uncertainty relates both to the nature of further WTO disciplines and of their actual influence on the conduct of trade defence (or offence) measures at the national level.
Given that previous attempts to constrain trade defence instruments have not been very effective in preventing the increased use of contingent protection measures by industrial countries and their spread to developing countries, it may be realistic to expect further growth in the use of "unfair"(defensive or offensive) trade measures.
The EU is currently one of the major users of anti-dumping (AD) measures.
Global economic welfare of trade is reduced as a result of trade defence instruments being used to constraint international trade.