TWN Info Service on WTO and Trade Issues (Dec10/12)
US claims victory in tyre dispute with China
Geneva, 14 Dec (Kanaga Raja) -- A dispute panel of the World Trade Organization (WTO) has ruled in favour of the United States in a dispute brought against it by China over measures imposed by the United States on imports of certain passenger vehicle and light truck tyres from China.
In the ruling issued on Monday (13 December), the panel found that in imposing the transitional safeguards measure on 26 September 2009 in respect of imports of the tyres from China, the United States "did not fail to comply" with its obligations under Paragraph 16 of the Protocol (Protocol on the Accession of China to the WTO) and Articles I: 1 and II: 1 of the GATT 1994.
Subject to any appeal that either party may prefer on grounds of law to the Appellate Body (AB) and the AB's ruling, the panel report and recommendations (if any) are to be automatically adopted by the Dispute Settlement Body (DSB) within 60 days.
According to media reports,
In a press release, US Trade Representative Ron
Kirk said: "This is a major victory for the
"Along with our recent panel win in
According to the
This safeguard measure, said the US, was imposed in response to a petition filed by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers Union under section 421 of the Trade Act of 1974, as amended (19 U. S. C. 2451). Section 421 implements the transitional safeguard contained in Section 16 of China's Protocol of Accession to the WTO.
On 14 September 2009,
On 19 January 2010, the DSB established a panel
pursuant to the request of
The three panellists are Professor Celso Lafer,
a former trade minister of
In a background to the dispute, the panel said
that this case is about a transitional product-specific safeguard measure
under Paragraph 16 of the Protocol that has been applied on imports
of certain passenger vehicle and light truck tyres from
A petition was filed by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (USW) on 20 April 2009, requesting the USITC to initiate an investigation under Section 421(b) of the Trade Act of 1974. The USITC instituted the investigation effective on 24 April 2009. It determined that there was market disruption as a result of rapidly increasing imports of subject tyres from China that were a significant cause of material injury to the domestic industry.
Following a Presidential decision, additional duties have been imposed on imports of subject tyres for a three-year period, in the amount of 35% ad valorem in the first year, 30% ad valorem in the second year, and 25% ad valorem in the third year. The tyres measure took effect on 26 September 2009.
China had several specific claims in this dispute and requested the panel to find that: (i) the United States failed to evaluate properly whether imports from China were in "such increased quantities" and "increasing rapidly" as required by paragraphs 16.1 and 16.4 of the Protocol; (ii) the US statute implementing the causation standard of paragraph 16 into US law is inconsistent "as such" with paragraphs 16.1 and 16.4 of the Protocol; (iii) the United States failed to evaluate properly whether imports from China were a "significant cause" as required by paragraphs 16.1 and 16.4 of the Protocol; (iv) the United States has imposed a transitional safeguard measure that goes beyond the "extent necessary", and thus it is inconsistent with paragraph 16.3 of the Protocol; and (v) the United States has imposed a transitional safeguard measure for a three-year period that is beyond "such period of time" that is "necessary", and thus it is inconsistent with paragraph 16.6 of the Protocol.
China also claimed that the transitional safeguard measure is inconsistent with the GATT 1994 and requested the panel to find that: (i) the transitional safeguard measure is inconsistent with Article I: 1 of the GATT 1994 as the United States does not accord the same treatment that it grants to passenger vehicle and light truck tyres originating in other countries to like products originating in China; and (ii) the transitional safeguard measure is inconsistent with Article II: 1(b) of GATT 1994 as the tariffs consist of unjustified modifications of US concessions on passenger vehicle and light truck tyres under the GATT 1994.
In its preliminary observations, the panel said that it was aware that there are a number of features of this particular case that provide a background against which the case has to be considered and constitute a context for dealing with the matters raised.
First, said the panel, this is the first case under the transitional product-specific safeguard mechanism in paragraph 16 of the Protocol. It thus raises questions that have not yet been dealt with in WTO dispute settlement, including the question of the relationship of this particular safeguard measure to the global safeguards mechanisms under the WTO Agreements: GATT Article XIX and the WTO Safeguards Agreement. Thus, the case raises important questions of the interpretation of the transitional product-specific safeguard mechanism that will obviously be of interest to other WTO Members even though the mechanism expires in 2013.
Second, the safeguard measure imposed in this
case under paragraph 16 of the Protocol on the Accession of China is
country specific, but nevertheless such a measure has effects on non-subject
imports of tyres into the
Third, imposition of a safeguard measure in this case was based on a determination of the USITC that was not unanimous. Two commissioners dissented on the critical issue of causation. Such a circumstance warrants the panel giving very careful consideration in particular to that aspect of the USITC determination, said the panel.
Fourth, the investigation that led to the imposition of a safeguard measure in this case against the importation of tyres from China was initiated, unusually, as the result of a petition by a labour union in the United States and not by the domestic producers of tyres. This, of itself, alerted the panel to the possibility that there was something different about this case, particularly where the domestic producers, the normal petitioners in such cases, had indicated that they would not make any adjustments notwithstanding that a safeguard remedy was put in place with adjustment purposes.
Fifth, the issue of "material injury" was not in question before the panel and, indeed, the determination of the USITC on this point was unanimous. Thus, a key issue in this case was causation, a matter that was complicated by the fact that the period of investigation involved in part a period of massive global economic downturn or recession.
Sixth, said the panel, an important allegation
in this case relating to this key issue of causation was that the
In such circumstances, the argument went, this
case involved the invocation of a mechanism designed to protect a domestic
industry that did not want that protection and by its own actions had
precipitated the events that were now being invoked to justify the application
of the transitional product-specific safeguard mechanism of
Thus, the panel said it was aware that this aspect of the case raised the question of the suitability or relevance of safeguard mechanisms in the context of "outsourcing" and "globalization", matters of considerable systemic interest to WTO Members.
In order to properly assess the conformity of
Paragraph 16.1 of the Protocol provides: In cases where products of Chinese origin are being imported into the territory of any WTO Member in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products, the WTO Member so affected may request consultations with China with a view to seeking a mutually satisfactory solution, including whether the affected WTO Member should pursue application of a measure under the Agreement on Safeguards. Any such request shall be notified immediately to the Committee on Safeguards.
Paragraph 16.4 of the Protocol provides: Market disruption shall exist whenever imports of an article, like or directly competitive with an article produced by the domestic industry, are increasing rapidly, either absolutely or relatively, so as to be a significant cause of material injury, or threat of material injury to the domestic industry. In determining if market disruption exists, the affected WTO Member shall consider objective factors, including the volume of imports, the effect of imports on prices for like or directly competitive articles, and the effect of such imports on the domestic industry producing like or directly competitive products.
According to the panel, paragraphs 16.1 and 16.4 are interrelated. They should be read together, and each provision provides important context for interpreting the other. The interrelation between paragraphs 16.1 and 16.4, the joint reading of these provisions, and the definitional nature of paragraph 16.4, suggest that paragraph 16.4 clarifies the substance of the trigger conditions provided for in paragraph 16.1.
On the issue of whether the USITC was entitled
to find that imports were "increasing rapidly" in accordance
with paragraph 16 of the Protocol, the panel said that at first glance,
taking into account the absolute import data that has been outlined,
it saw no error in the USITC's conclusion that there was a rapid increase
in subject imports from China in absolute terms. It concluded that the
USITC did not fail to evaluate properly whether imports from
The panel also addressed
The panel said: "... we do not consider that
the Section 421 'contributes significantly' standard requires the
Also addressed by the panel was
According to the panel, China's claim is based on three principal arguments: the USITC failed to show that the conditions of competition between subject imports and the domestic product support a finding of causation; the USITC failed to establish any temporal correlation between rapidly increasing subject imports and material injury to the domestic industry; and the USITC failed to address alternative causes of material injury to the domestic industry, in the sense that the USITC failed to ensure that injury caused by other factors was not improperly attributed to subject imports.
On the issue of the non-attribution of injury
caused by other factors to increasing imports, the panel noted that
China further contends that the USITC relied on
four factors to reject the argument that domestic producers had voluntarily
ceded the low end of the market: (1) imports from China were increasing
before plant closures in 2006 and 2008; (2) significant purchases of
tyre-manufacturing equipment in China occurred over the past ten years;
(3) US producers were not the largest importers of Chinese tyres during
the period; and (4) a 2006 article noted that imports from China were
expected to increase.
The panel said that it was confronted with the
fact that the majority of the USITC and the dissenting commissioners
drew precisely the opposite conclusions on the issue of business strategy.
The majority took the view that the strategy to reduce
The dissenting commissioners took the view that
the business strategy of relocating production to
In these circumstances, the panel said that it would be inappropriate for it simply to make a choice between the views of the majority and the dissenting commissioners.
"In fact, our own assessment of the record
indicates that it is difficult to separate out the business strategy
from the increasing imports. It may well be, as the dissenting commissioners
say, that the strategy of relocating to
The panel said it can see no basis for determining
that the USITC's analysis of the alternative business strategy was in
error. "It was for
On the 2008 recession, the panel noted that
The panel recalled the USITC's finding that: imports
continued to increase rapidly even in 2008 when
In making this finding, said the panel, the USITC properly established that the injury to the domestic industry could not be attributed in whole to the fall in demand resulting from the 2008 recession. The fact that subject imports continued to increase significantly during that recession, forcing the domestic industry to absorb virtually all of the resultant fall in demand, indicates that subject imports were having an adverse impact on the domestic industry independent of the effects of the fall in demand during the 2008 recession.
Having carefully considered all of the arguments
of the parties, and taking into account its standard of review, the
panel found that the USITC did not fail to properly establish that rapidly
increasing imports from
On whether the transitional safeguard measure went beyond the "extent necessary", contrary to paragraph 16.3 of the Protocol, the panel found that China has failed to establish prima facie that the tyres measure exceeds "the extent necessary to prevent or remedy" the market disruption caused by rapidly increasing subject imports, contrary to paragraph 16.3 of the Protocol.
On the issue of the duration of the remedy exceeded
the period of time necessary to prevent or remedy market disruption,
The panel recalled that there was no obligation
The panel found that
On the issue of whether the US tyres measure is
inconsistent with Articles I: 1 and II: 1 (B) of the GATT 1994, the
panel said that China's GATT 1994 claims are entirely dependent on its
claims under paragraph 16 of the Protocol. "Since we have not accepted
In its overall conclusions, the panel found that in imposing the transitional safeguards measure on 26 September 2009 in respect of imports of subject tyres from China, the United States did not fail to comply with its obligations under paragraph 16 of the Protocol and Articles I: 1 and II: 1 of the GATT 1994. +