BY: Yue Lang, Kristin Isabelli and Marko Lukic International Trade Relations-March 6, 2013

1. Wto dISPUTE sETTLEMENT- ds 399: US-Measures Affecting imports of certain passenger vehicle and light truck tyres from china BY: Yue Lang, Kristin Isabelli and Marko Lukic International Trade Relations-March 6, 2013

2. History/Context • The U.S. imposed additional duties on imports of passenger vehicles, light truck tyres for three years in September 2009-tyre and light truck industry had been affected by the volume of Chinese imports into the US • A petition was filed by the United Steel, Paper, Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union on April 20, 2009. • Increased Rate-Union alleged imports were disrupted market to domestic producers of like or competing products

3. History/Context • The petition was filed under section 421 of the Trade Act of 1974, as amended (19 U.S.C. § 2451) Section 421 implemented transitional safeguard measures contained in Section 16 of China’s Protocol of Accession to the WTO • The US ITC started investigation in April 2009 and found market disruption was because of the rapid increase of imports-causing major injury to domestic industry

4. History/Context ITC Investigatory Findings: • The US ITC looked data from 2004-2008 • The US ITC compared earlier rates to 2008 data to determine stress added to the industry • ITC found that in OEM market in 2004 Chinese imports increased 5.0-8% from 2004-2008 • Domestic Industry lost significant market share from 2004-2008 • USITC found that Chinese tyre imports played a major role in the closing of Bridgestone Continental, Goodyear plants in 2006 and 2008 • Closed Bridgestone and Goodyear tire facilities resulted in a loss of 30.1 million tyres in 2006 • US ITC found that because of increasing imports caused production capacity, net sales, wages, hours worked decreased every year from 2004-2008

5. History/Context • Prompted US to impose safeguard measures on imports subject tyres citing Article 19.1 of the GATT 1994 and the Agreement on Safeguard Measures • The US imposed additional import duties on Chinese imports for three years (Tyres Measure): • First year: 35 % ad valorem • Second year: 30% ad valorem • Three year: 25% ad valorem • The measure went into affect on September 26, 2009

6. Prior Proceedings • 14 September 2009, China (Complainant) requested consultations with the United States (Respondent) regarding tariffs on certain vehicle and light truck tyres from China –Third Party EU, Japan, Chinese Taipei, Turkey and Vietnam • On 19 January 2010, The DSB established a panel at the request from China • On 2 March 2010, the Director General created the panel • On 8 November 2010, the panel circulated its final report • On 13 December 2010, the panel report was circulated to Members • On 27 January 2011,China and the US requested the DSB to adopt a draft decision extending the 60 day time frame citing Article 16.4 of the DSU extending the time to 24 May 2011 • On 24 May 2011, China notified the DSB of it’s intention to appeal the decision to the Appellate Body • On 24 July 2011, the AB informed the DSU they would be unable to circulate the report within 60 days and estimated the report be circulated in September 2011 • On 5 September 2011, the Final AB report was circulated to Members

7. Business and Political Context • Financial Crisis in the US-In 2009, President Obama signs the $787 billion stimulus package which will create 3.5 million jobs for Americans within 2 years • Chrysler and GM file for bankruptcy. GM closes 14 plants and Chrysler joins with Fiat creating a partnership agreement • According to The Department of Labor, 2.6 million jobs were lost in 2008 • In Jan 2008 Unemployment rate: 5.0% (Seasonally adjusted) • In December 2008 Unemployment rate: 7.3% (Seasonally Adjusted) • In Jan 2009 Unemployment rate: 7.8% (Seasonally Adjusted) • In Dec 2009 Unemployment rate: 9.9& (Seasonally Adjusted) • China retaliated by imposing duties on Chicken, nylon and auto parts as part of an investigation on antidumping and subsidies (US later asked for WTO panel to investigate)

8. WTO Agreement and Provisions Involved • Agreement on Safeguard Measures • Article 11 of the DSU: Function of the panel is DSB in discharging responsibilities to assist the Function of Panels: assist the DSB in discharging its responsibilities. This means the panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements, and make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements. Panels should consult regularly with the parties to the dispute and give them adequate opportunity to develop a mutually satisfactory solution. • Section 421 of the US Trade Act of 1974 (19 U.S.C. § 2451): Under Section 421 of the US Trade Act of 1974, the Commission determines whether imports of a product from China are being imported into the United States 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. If the Commission makes an affirmative determination, it proposes a remedy. The Commission sends its report to the President and the U.S. Trade Representative. The President makes the final remedy decision.

9. WTO Agreement and Provisions Involved GATT1994 • Article I:1- the transitional safeguard measure was inconsistent as the United States did 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; • Article II- the transitional safeguard measure was inconsistent as the tariffs consist of unjustified modifications of US concessions on passenger vehicle and light truck tyres under the GATT1994; • Article XIX and the Agreement on Safeguards-The higher tariffs have not been properly justified

10. WTO Agreement and Provisions Involved China’s Accession Protocol • Article16.1&16.4-if imports are “in such increased quantities” and were “increasing rapidly”, if imports is a “significant cause” of material injury or threat thereof, and if the domestic subjects are experiencing “market disruption” or “material injury”; • Article16.3-if the restrictions are being imposed beyond the “extent necessary to prevent or remedy” any alleged market disruption; • Article16.6-if the restrictions are being imposed for a period of time longer than “necessary to prevent or remedy” any alleged market disruption.

11. Positions of the Main Parties China • China appeals Panel’s findings • Imports were not “increasing rapidly” • Thus, was not a “significant cause” of material injury” • Paragraphs 16.1 and 16.4 of China’s Protocol • Panel acted inconsistently within its duty to conduct an objective assessment of the matter as required under Article 11 of the DSU. • Therefore, China requested that the AB reverse its findings

12. Positions of the Main Parties-China continued • USITC assessment of import increases were conducted between 2004-2008 • 2004-2008: 34% increase • 2008: 10.8% increase • Therefore, China believes that the USITC did not provide a legitimate explanation of whether import increases were “large, rapid and continuing”

13. Positions of the Main Parties-China continued • Causation • Panel erred in interpreting the causation standard in Paragraph 16.4 of China’s Protocol. • USITC failed to properly evaluate conditions of competition in the U.S. market • Other factors must have attributed to market injury • No direct correlation between import increases and market injury

14. Positions of the Main Parties-China continued • Other possible causes of injury • The domestic industry’s business strategy to shift to higher-value products • Decline in demand within the market • Non-subject imports

15. Positions of the Main Parties-United States • The Panel did not err in upholding the USITC’s findings • The panel did not act inconsistently with its duty to conduct an objective assessment of the matter.

16. Positions of the Main Parties-US continued • The U.S. argues that the USITC was not required to focus its analysis on the most recent import increases • Paragraph 16.4 of Protocol does not provide that an authority must focus on import data for the “most recent” period. • USITC and the Panel found that 2008 import data indicates that import increases were “large, continuing and rapid”. • Panel did not err in finding that the USITC was not required to focus its analysis on the rates of increase in subject imports.

17. Positions of the Main Parties-US continued • Panel did not err in failing to require the USITC to assess the rates of increase in imports in 2008 relative to rates of increase in earlier periods. • The protocol does not contain language suggesting that the transitional safeguard mechanism was intended as an “emergency action”, or that import increases must be the result of “unforeseen developments”.

18. Positions of the Main Parties-US continued • Causation • USITC properly established that rapidly increasing imports were “a significant cause” of material injury • Panel did not err in its interpretation of the term “a significant cause” • USITC properly assessed the conditions of competition in the U.S. market. • USITC was entitled to rely on the overall correlation between import increases and injury factors • USITC was properly ensured that injury caused by other factors was not attributed to the injury caused by imports from China

19. Decision and Implementation 1.) Were imports “increasing rapidly? The Panel and AB upheld the panel’s findings that the US ITC had correctly determined that imports of Chinese tyres were increasing at a rapid pace and had met that “threshold” as outlined in paragraph 16.1 and 16.4 of China’s Accession protocol. 2.) Was the US definition of “Contributes significantly” at odds with the meaning as stipulated in Article 16.4 of China’s Accession Protocol? The AB found that the US did define the term properly. The AB found that the investigating authority can determine whether imports are a “significant cause” of material injury if the body ensures no other factors are to blame. 3.) Did the US fail to properly demonstrate that subject imports were a “significant cause” of market disruption? The AB and Panel determined that significant increases in imports must occur in a short amount of time and must cause significant injury to the domestic industry. The AB and Panel determined that the USITC was able to prove this

20. Decision and Implementation 4.) Did the Panel error in reviewing the USITC’s causation analysis? The AB agreed with the Panel’s review and that the USITC did not error in its findings of analysis competition in US tyre market. The AB also upheld the panel’s findings that the USITC’s connection between rapidly increasing imports and domestic industry injury were correct and China’s imports were to blame for the material injury to the domestic market. 5.) Did the USITC incorrectly attribute injury to the domestic industry? The AB upheld the panels decision that the USITC had correctly attributed Chinese imports as the reason for injury to the domestic industry not from other factors. The AB found that the Panel had correctly analyzed the US industry’s business strategy and the reasons for certain US plant closures. The AB also upheld that the Panel correctly found China’s imports did affect changes in demand.

21. Decision and Implementation • The Panel and AB found that China failed to prove the measure exceeded the ability to help the market disruption caused by rapidly increasing imports contrary to paragraph 16.3 and (ii) the measure exceeded the period of time necessary to help fix the market disruption under paragraph 16.6 of China’s Accession Protocol

22. Decision and Implementation 6.) Did the Panel act inconsistently within with its duties under Article 11 of the DSU? • The AB found that the panel did not act inconsistently under Article 11 of the DSU when reviewing the USITC’s data analysis as China had accused the Panel of doing: • 1.) Totality of Evidence • 2.) Balanced Assessment of Evidence • 3.) Rationale and Reasoning in the US ITC Determination • 4.) Consideration of Certain Arguments made by China

23. Decision and Implementation • DSU: The Panel and Appellate Body found that the US’s actions were not inconsistent with its WTO obligations in implementing safeguard measures on light passenger trucks and Chinese tyres for a period of three years • Implementation: The Appellate Body had no recommendations under Art 19.1 and the adoption of this case occurred 5 October 2011-No other actions were taken

24. Questions, Comments, Concerns Do you think the decision was correct?