WORLD TRADE  
ORGANIZATION  TN/RL/GEN/40 
13 May 2005 
 (05-1941) 
Negotiating Group on Rules Original:   English 
  
 
PROPOSAL ON MATERIAL RETARDATION 
 
Communication from Egypt
 
  
 The following communication, dated 12 May 2005, is being circulated at the request of the 
Delegation Egypt.   The submitting delegation has requested that th is paper, which was submitted to the Rules 
Negotiating Group as an informal document (JOB(05)/76), also be circulated as a formal document. 
 
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  This proposal refers to the necessity  of clarifying the concept of " material retardation ", while 
taking into account the main problems that investig ating authorities have faced, in particular in 
developing country Members, to implement this concep t.  This proposal is intended to further identify 
an issue previously examined (TN/RL/W/105).  Egypt welcomes information on experiences of other Members with respect to " material retardation " and reserves its right to specify its proposal further to 
the discussions amongst participants on this matter.  Issue:  Material retardation  
 
 Relevant Provision:  Article 3 of the Anti-Dumping Agreement.  Description of problems : 
 
 Article VI of the General Agreement on Tariffs and Trade (GATT) provides that " the 
contracting parties recognize that dumping, by whic h products of one country are introduced into the 
commerce of another country at less  than the normal value of the produc ts, is to be condemned if it 
causes or threatens material injury to an established i ndustry in the territory of a contracting party or 
materialy retards the establishment of a domestic industry
." 
 
 Footnote 9 to Article 3 of the Anti-Dumping Agreement further provides that " under this 
Agreement, the term 'injury' shall, unless otherwise specified, be taken to me an material injury to a 
domestic industry, threat of material injury to a domestic industry or material retardation of the 
establishment of such an industry ". 
 
 It is noted that, while determinations of both " material injury " and " threat of material injury " 
are specifically addressed in the Anti-Dumpi ng Agreement, no provision defines nor governs 
"material retardation" determinations.  The concept of " material retardation " is intimately connected 
to the definition of the concept of " industry in the process of establishment ".  It is generally accepted 
that material injury refers to actual injury and threat of material injury to clearly foreseen and 
imminent injury but material retardation  remains to be precisely defined.  There is currently no 
indication in the Anti-Dumping Agreement of how the terms " material retardation of the TN/RL/GEN/40 
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 establishment of the industry " should be interpreted.  Also the Anti-Dumping Agreement fails to 
identify tests similar to those laid down in Ar ticle 3 of the Anti-Dumping Agreement concerning 
material injury and threat thereo f with respect to material retard ation.  The criteria set forth under 
Articles 3.4 and 3.7 of the Anti-Dumping Agreement cannot be used to determine whether industries 
in the process of establishment suffer injury. 
 
 In order to ensure the effectiveness of the An ti-Dumping Agreement, Egypt considers that it 
is essential that the concept of " material retardation " be defined in terms similar to those defining the 
concepts of " material injury " and " threat of material injury ".  A common definition of the concept of 
"material retardation " will also serve to ensure a more consistent implementation of the Anti-
Dumping Agreement by all Members.  The interpretation of the  concept of " material retardation " 
and the determination of specific criteria will no l onger be left to the discretion of each Member.  
Furthermore, as detailed below, a definition of the concept of " material retardation " will ensure that 
Members and, in particular, developing countries, whose domestic industries are not very developed, 
can seek remedies against injurious dumping. 
 
Illustrative example of situations unaddressed  under Article 3 of the Anti-Dumping Agreement : 
  Egypt presents a summary of situations that  are not properly addressed under the current 
version of the Anti-Dumping Agreement.  These situ ations do not intend to describe all the difficulties 
resulting from the implementation of the concept of " material retardation ".  They only aim to present 
some of the difficulties that Egypt has faced si nce the entry into force of the Anti-Dumping 
Agreement.  Egypt welcomes experiences of othe r participants in implementing or failing to 
implement the concept of " material retardation ". 
 - New company in a developing domestic market 
 
 Developing countries, such as Egypt, are generally characterized by small domestic markets and small domestic industries.  When domestic c onsumption is limited, it is common to have single-
company domestic industries.  With the developm ent of domestic consumption, opportunities for new 
domestic investors are generally created.  During th e initial period of growth in the domestic market, 
the transition from a single-company domestic i ndustry to a multiple-company domestic industry the 
domestic industry is delicate.  The growth of the domestic market gives rise to fiercer competition as 
newcomers on the market are eager to rapidly co nquer market shares.  In  such circumstances, 
exporting producers may be tempted to sell their pr oducts at dumped prices in order to make them 
more competitive on a new market.  
 During the transition period, until new domestic  companies are established and have begun 
producing, the domestic industry, within the meaning of Article 4 of the Anti-Dumping Agreement, is 
composed of the company(ies) that were producing before the development of the domestic market.  
As a result, companies that have not begun produc tion cannot request, by themselves, the initiation of 
an anti-dumping investigation even if their establishmen t is materially retarded.  This situation can be 
particularly problematic when the company(ies) th at were established before the development of the 
domestic market have decided not to develop themselves to meet increasing market demand and may 
not be suffering any material injury or threat thereo f.  In such circumstances, it is submitted that 
investors cannot protect their domestic investment  against effects of injurious dumping under the 
current version of the Anti-Dumping Agreement.  
- Upgrade of production facilities 
  Domestic industries in developing countries ar e also generally characterized by their limited 
level of technological development.  With the de velopment of domestic consumption, companies in 
developing countries, however, invest to upgrade their production facilities and to better satisfy  TN/RL/GEN/40 
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 market demand.  The introduction of new products, can even lead existing domestic companies to 
make significant investments to meet domestic market demand for these new products.  If the new 
products for which investments are being made, but  which are not yet produced, are not considered 
like or directly competing with the products that  these companies normally produce, they will not be 
in a position to claim that they are materially injured or suffer a threat of material injury as a result of 
dumped imports of the new products that they intend to produce. 
  Some Members may argue that these compan ies could claim that their establishment is 
materially retarded under the current wording of  the Anti-Dumping Agreement.  However, other 
Members may consider that since these companies ar e part of established domestic industries that are 
not suffering material injury or threat thereof for th eir current production, they cannot claim that their 
establishment is materially retarded.  - Privatization  
 In an important number of developing country Members such as Egypt, the privatization of 
important sectors of the economy that were previous ly controlled by the state constitutes one of the 
essential features of the economic reforms undertaken in recent years.  Privatization is encouraged by 
international organizations, such as the World Bank and the International Monetary Fund, as well as 
by developed countries and participates to th e liberalization of international trade. 
 
 The privatization of state-owned companies may give rise to specific situations that are not 
addressed under the current version of the Anti-Dump ing Agreement.  Privatization is often linked 
with market liberalization.  State-owned monopoli es are privatized at the same time the domestic 
market is open to domestic and foreign competiti on.  The transformation of former state-owned 
companies which were not previously led by mark et considerations, such as profit and consumer 
demand, into commercial companies in a highly co mpetitive environment can be very problematic if 
the market is disrupted by dumped imports.  It is submitted that the concepts of "material injury " and 
"threat of material injury ", as defined in the current version of the Anti-Dumping Agreement, do not 
always ensure that former state-owned companies can initiate investigations to remedy the negative 
effects of dumped imports.  For example, shortly af ter privatization and market liberalization, it is 
difficult for investigating authorities to assess the causal link between dumped imports and the 
material injury or threat thereof that may ha ve been established since a comparison between a non-
market and a market situation has to be made.  In summary, investigating authorities must establish 
whether a newly privatized company must be c onsidered as a newly established company or as a 
successor of the state-owned company.  Elements of a Solution  
 
- Definition of the concept of material retardation   In order to address the above-described situati ons and situations that may be specific to 
developing countries, that do not fall with in the definition of the concepts of " material injury " and 
"threat of material injury ", it is proposed to clarify the current text of footnote 9 to Article 3 to clarify 
that the concept of " material retardation " is not limited to industries which are established from zero, 
but should apply to all domestic industries which are characterized by a limited level of development 
and/or a new organization.  
- Material retardation test 
  In addition, in order to ensure that the concept of material retardation is uniformly applied, it 
is proposed to clarify Article 3 of the Anti-Dump ing Agreement to specify criteria determining in 
which circumstances material retardation occurs. TN/RL/GEN/40 
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 Egypt welcomes proposals of other participants  to reach a common definition of the concept 
of "material retardation " and to set forth criteria to determine when material retardation is occurring. 
 
Explanation  
 
- Definition of the concept of material retardation   This proposal intends to clarify in whic h cases investigating authorities should examine 
whether material retardation occurs.  Egypt co nsiders that it is crucial not to limit the " material 
retardation " test to industries which are newly established.   Egypt is particularly concerned with the 
embryonic, restructuring and newly privatized indus tries which should also be regarded as industries 
in the process of establishment.  This matter is of specific concern to developing country Members 
since their domestic industries are rarely developed.  
- Material retardation test 
  While Article 3 of the Anti-Dumping Agreemen t clearly identifies the factors and elements 
which must be considered in order to determine whethe r material injury or threat of material injury is 
established, it does not indicate which factors are relevant for the determ ination of whether the 
domestic industry suffers from materi al retardation.  Egypt considers that it is essential to identify 
tests which will help the investigating authorities to determine whether there is material retardation, 
thereby avoiding uncertainty.   Footnote 9 to Article 3 specifies that injury wh ich shall also mean material retardation shall 
be interpreted in accordance with the provisions of Article 3 of the Agreement.  Therefore, Egypt 
understands that investigating author ities should consider and evaluate the factors listed in Article 3.4 
also in case of material retardation.  This  seems supported by the Panel's findings in Mexico – HFCS .  
In that case, the Panel explained that Article 3.7 sets out additional factors that must be considered in 
a threat case, but does not eliminate the obligation to consider the impact of dumped imports on the 
domestic industry in accordance with the requirements of  Article 3.4.  In other words, according to the 
Panel, investigating authorities should consider both the factors listed in Ar ticle 3.7 as well as the 
factors listed in Article 3.4 in a threat case.  The Pa nel explained that this conclusion is mandated by 
the text of Article 3 which, as a whole deals with the determination of inju ry which is defined as 
material injury, threat of material injury, or mate rial retardation of the establishment of a domestic 
industry.  
 Even if investigating authorities are required to consider the factors listed in Article 3.4 in the 
framework of a material retardation case, the Agreement does not include any indication as to when  
there is material retardation.  The purpose of a new paragraph in Article 3 would be to list factors on 
the basis of which investigating authorities can establish that there is material retardation. 
 
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