WTO APPELLATE BODY RULES ON STEEL SAFEGUARDS

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November 10, 2003

WTO APPELLATE BODY RULES ON STEEL SAFEGUARDS

 

             On November 10, 2003, the WTO Appellate Body released its report[1] on the appeal of the United States against the Panel’s finding[2]that the U.S. steel safeguards were GATT-illegal.  The complaints had been brought by China, the European Communities, New Zealand, Norway, Japan, Korea, and Switzerland.  Essentially, the United States lost the appeal, although it prevailed on certain points.  The Appellate Body found that the International Trade Commission had failed to set forth a reasoned and adequate basis for their finding, and stated that Panels have a responsibility in WTO dispute settlement to assess whether a competent authority has complied with its obligation under Article 3.1 of the  Agreement on Safeguards  to set forth findings and reasoned conclusions for their determinations.  The Appellate Body’s view was that  panels could not fulfill this responsibility if they were left to deduce for themselves from the report of that competent authority the rationale for the determinations from the facts and data contained in the report of the competent authority.  The Appellate Body stated that it is not for panels to find support for such conclusions by cobbling together disjointed references scattered throughout a competent authority's report.

 

             The United States argued that the Panel had been wrong in finding that the surge in imports had to have a “certain degree of recentness, suddenness, sharpness and significance".  The United States argued that the phrase "in such increased quantities" in the Agreement on Safeguards simply stated the requirement that, in general, the level of imports at (or reasonably near to) the end of the period of investigation must be higher than at some unspecified earlier point in time.   The Appellate Body agreed with the Panel that assessment of whether an increase is "recent enough, sudden enough, and significant enough to cause or threaten serious injury" is to be made  on a case-by-case basis  by the competent domestic authority—and is  not,  therefore, a determination that is made in the  abstract.  The explanation provided must be explicit, not merely suggestive.  The Appellate Body stated that the "extraordinary nature" of the domestic response to increased imports does not depend on the absolute or relative quantities of the product being imported.  Rather, it depends on the fact that the increased imports were unforeseen or unexpected. 

 

             The United States’ position on this was that the  overall effects  of the Asian and Russian financial crisis together with the strong US dollar and economy acted to displace steel to other markets.  Both the Panel and the Appellate Body found that although the United States had described a plausible set of unforeseen developments that may have resulted in increased imports to the United States from various sources, their theory fell short of demonstrating that such developments actually resulted in increased imports into the United States, causing serious injury to the relevant domestic producers.  The  Panel had also observed that the USITC did not provide any data to support its general assertion that the confluence of unforeseen developments resulted in the  specific  increased imports at issue in this dispute.  The Panel agreed with the complaining parties that "the USITC's explanation relates to steel production in general and does not describe how the unforeseen developments resulted in increased imports in respect of the  specific  steel products at issue.   The Appellate Body found this analysis to be correct, ruling that to trigger the right to apply a safeguard measure, the development must be such as to  result  in increased imports of  the specific product that is subject to the safeguard measure.  The Appellate Body also agreed with the panel’s view that the complexity of the unforeseen developments pointed to by USITC called for a more elaborate demonstration and supporting data than that provided by the USITC.    Where the ITC relied upon macroeconomic events having effects across a number of industries, it was for the ITC to demonstrate the 'logical connection' between the alleged unforeseen developments and the increase in imports in relation to each measure, not for the Panel to read into the report linkages that the ITC failed to make.  The Appellate Body said that the USITC may indeed have considered all the relevant data contained in its report or referred to in the footnotes thereto.  However, it did not use those data to  explain  how "unforeseen developments" resulted in increased imports.  Tellingly, the Appellate Body stated that “[h]ence, what is wanting here is not the data, but the reasoning that uses those data to support the conclusion.” 

 

             The Appellate Body also agreed with the panel that "competent authorities are required to examine trends"  in imports.  Because imports of certain carbon (and alloy) flat-rolled steel (CCFRS) decreased from 1999, and did not recover, the USITC should have focused on, or at least accounted for, this most recent trend and given an explanation of how the trend in imports supported the competent authority's finding that the requirement of "such increased quantities" within the meaning of Articles XIX:1(a) and 2.1 had been fulfilled.  Relating to hot-rolled bar, the U.S. failed to provide a reasoned and adequate explanation of how the facts supported its finding that imports of hot-rolled bar "increased", as required by Article 2.1 of the  Agreement on Safeguards, which was all the     more serious in the light of the fact that the intervening trend of decreasing imports that was not addressed by the USITC occurred at the very end of the period of investigation.    The Appellate Body said that its own review of the facts suggested that the facts might actually support the ITC's conclusion relating to increased imports, specifically noting that they did not necessarily share the Panel's conclusion about those facts.  However, this was not the issue before them—rather, it was whether the USITC provided an explanation in its report on whether imports increased relative to domestic production.  On that point, the Appellate Body agreed with the Panel that the USITC did not explain why, despite the decline that occurred at the end of the period of investigation, the facts nevertheless supported a determination of "increased imports" within the meaning of Article 2.1. 

 

             However, the Appellate Body reversed the Panel's conclusions that the application of the safeguard measures on imports of tin mill products and stainless steel wire was inconsistent with Articles 2.1 and 3.1 of the Agreement on Safeguards because the United States failed to provide a reasoned and adequate explanation of how the facts supported its determination with respect to 'increased imports' and ‘'causal link' between any increased imports and serious injury’—the Panel had made this finding because that the explanation given by the ITC consisted of alternative explanations.     The Appellate Body did not believe that the determinations could not be reconciled; that an affirmative finding with respect to a broad product grouping, on the one hand, and an affirmative finding with respect to one of the products contained in that broad product grouping, on the other hand, are, necessarily, mutually exclusive.  The Appellate Body stated that it may be that they are irreconcilable, but that will depend on the facts of the case.  Here, the Panel did not inquire into the details of the findings as they related to increased imports and, hence, was not adequately informed as to whether the three findings were reconcilable or not.   Secondly, the Appellate Body noted that Section 3.1 of the  Agreement on Safeguards merely requires the competent authority, to publish a report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law, and did not read Article 3.1 as necessarily precluding the possibility of providing multiple findings instead of a single finding in order to support a determination under Articles 2.1 and 4 of the  Agreement on Safeguards. 

 

             Finally, the Appellate Body upheld the Panel's conclusions that the application of all safeguard measures at issue in this dispute was inconsistent with Articles 2.1 and 4.2 of the Agreement on Safeguards because the United States failed to comply with the requirement of 'parallelism' between the products for which the conditions for safeguard measures had been established, and the products which were subjected to the safeguard measure.  This is the principle whereby, for purposes of applying a safeguard measure, a Member has conducted an investigation considering imports from  all  sources (that is,  including any members of a free-trade area), that Member may not, subsequently, without any further analysis, exclude imports from free-trade area partners from the application of the resulting safeguard measure.  The word "parallelism" is not in the text of the  Agreement on Safeguards;  rather, the Appellate Body’s view was that the requirement that is described as "parallelism" is found in the "parallel" language used in the first and second paragraphs of Article 2 of the  Agreement on Safeguards, which uses the phrase “products being imported”. Nevertheless, imports from Canada, Israel, Jordan, and Mexico were excluded by the ITC from the application of the safeguard measures at issue.  Therefore, the ITC’s safeguard measures contained an impermissible gap between the imports that were taken into account in the investigation performed by the USITC and the imports falling within the scope of the measures as applied. The gap may only be permitted if  the competent authority provides a reasoned and adequate explanation of how the facts support their determination and it must be explicit, leaving nothing merely implied or suggested;  it must be clear and unambiguous.  Thus the USITC was obliged by the Agreement on Safeguards to provide a reasoned and adequate explanation of how the facts supported its determination that imports from sources other than Canada, Israel, Jordan, and Mexico satisfy, alone,  and in and of themselves, the conditions for the application of a safeguard measure, but it failed to do so.  With regard to stainless steel rod, the Appellate Body’s view was that of the view that, rather than making two separate determinations—excluding either Canada and Mexico, or, alternatively, Israel and Jordan—from the underlying data on which it based its overall determination, the USITC should have, as the Panel found, provided one single joint determination, supported explicitly by a reasoned and adequate explanation, on whether imports from  sources other  than  Canada,  Israel,  Jordan,  and  Mexico,  by themselves, satisfied the conditions for the application of a safeguard measure.  The U.S. had also argued that the exclusion was proper given the small volume of imports from those countries, but the panel said that the Agreement on Safeguards gave no exclusion for small volumes, and they could not read those words into the Agreement.

 

             The Appellate Body declined to rule on whether USITC failed to provide a reasoned and adequate explanation demonstrating that a "causal link" existed between increased imports and serious injury, as required by Articles 2.1, 4.2(b) and 3.1 of the  Agreement on Safeguards, for   CCFRS, hot-rolled bar, cold-finished bar, rebar, welded pipe, FFTJ, and stainless steel bar. 

 

             Under the Dispute Settlement Understanding Article 22, any retaliatory measures would have to be approved by a Article 22 arbitration panel (usually consisting of the original panel members), who set the level of compensatory measures.  However, with the European Union threatening retaliation by mid-December, it remains to be seen whether the EU will comply with the terms of the Understanding on Dispute Settlement, or take impermissible unilateral action.  Such unilateral action would not be the first in the history of the WTO, but may further undermine the authority of the WTO and respect for its dispute settlement mechanism.  The European Union has announced its intention to proceed and impose equivalent retaliatory tariffs by mid December of up to 30% on $2.2 billion worth of U.S. products, which has the potential to trigger a new transatlantic trade crisis.  Pascal Lamy, the EU Trade commissioner, stated that it was a "certainty, " the tariffs would be imposed if the U.S. steel tariffs are not withdrawn within five days of the Dec. 10, 2003 adoption of the WTO appellate body report by the WTO Dispute Settlement Body.   U.S. products that would be subjected to retaliatory tariffs include steel products, electric tools, printing machinery, fruit juices, fruit vegetables, and garments, among others.