Eric LeMasters, Ryan Liu, Samantha Lohse

1. DS399U.S. – Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tires from China Eric LeMasters, Ryan Liu, Samantha Lohse

2. History • April 20, 2009 • Several unions gathered to file a petition to investigate rapid increases in imports of passenger vehicle and light truck tires from China Taken from Wall Street Journal (online.wsj.com) Tire Imports Spur Market-Disruption Case.

3. History • April 24, 2009 • ITC began to investigate whether or not this surge was causing market disruption in the U.S. • In June of 2009, the ITC concluded that market disruption was occurring and suggested that the President impose additional tariffs for three years • September 26, 2009 • Duties imposed by President Obama on tires from China took effect • Tariff rates: • 35% ad valorem 1st year • 30% 2nd year • 25% 3rd year

4. History • China requested consultations with the U.S. in September of 2009 and filed a complaint with the WTO • China argued that the additional tariffs were inconsistent with U.S. obligations under China’s Protocol of Accession • They asserted that the imports were not increasing rapidly or causing market disruption • China also stated that the three year period was longer than needed to remedy the alleged issue

5. Business and Political Context • China entered the WTO in 2001 • Upon their entry, Section 421 authorized the President to impose import surcharges in the case of market disruption • Previously, six petitions had been filed with the ITC claiming market disruption, but President Bush chose not to move forward with import relief • President Obama was authorized to revisit the tariffs after six months and decide if they needed to be modified or eliminated, but he left them as they were

6. The Main WTO Issue • Market disruption violation under Section 421 of the Trade Act of 1974 • Safeguard measures enforced under para. 16 of China’s Accession Protocol

7. Section 421 - Trade Act of 1974 • Section 421 • The commission determines if a product from China is being imported at increased quantities and is causing market disruption • If the commission decides market disruption is occurring, it proposes a remedy • This authorizes the President to impose safeguards if market disruption occurs

8. Safeguard vs.China-specific Safeguard China Specific, U.S. China Specific, International All WTO Members, International All WTO Members, U.S.

9. Legality • PROTOCOL ON THE ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA 16. Transitional Product-Specific Safeguard Mechanism “1. 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…” “4. 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.” • TRADE ACT of 1974 Section 421, Action to address market disruption “(a) PRESIDENTIAL ACTION.—If a product of the People’s Republic of China is 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 a like or directly competitive product, the President shall, in accordance with the provisions of this section, proclaim increased duties or other import restrictions with respect to such product, to the extent and for such period as the President considers necessary to prevent or remedy the market disruption.“

10. Contested Issues • China argued that despite the absolute increases in subject imports, a decline in the rate of increase in the final year of the period of investigation (2008) meant that subject imports were not “increasing rapidly” in accordance with paragraph 16.4 of the Protocol.  • China asserted that the United States' “contributes significantly” definition in its statute was at odds with the ordinary meaning of the “significant cause” standard in paragraph 16.4 of the Protocol. • China claimed that the USITC failed to properly demonstrate that subject imports were a “significant cause” of market disruption.  China's claim was based on three principal arguments: (1) a failure by the USITC to show conditions of competition between subject imports and the domestic product to support a finding of causation; (2) a failure by the USITC to establish any temporal correlation between rapidly increasing subject imports and material injury to the domestic industry; and (3) a failure by the USITC to address alternative causes of material injury to the domestic industry.  • China claimed that the remedy applied in this case was inconsistent with paragraph 16.3 of the Protocol as it was not limited to the market disruption caused by rapidly increasing imports; and that, contrary to paragraph 16.6, the three year duration exceeded the period of time necessary to prevent or remedy the market disruption. 

11. Panel & Appellate Body Conclusion • 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.  • The panel also found that there was no “as such” violation in respect of the US statute implementing the causation standard of paragraph 16 of the Protocol.  • The Appellate Body upheld all the Panel findings.

12. Domestic Politics and China – U.S. Trade Relations

13. Qui Bono? Obama: Chinese “flooding us” with cheap tires Romney: “Protectionism stifles productivity” United Steel Workers Union: China must “live by the rules”

14. “This spat about tires and chickens could turn ugly very quickly” – Eswar Prasad, IMF 2009: China places 36% tariff on certain nylon imports U.S. imposes duties on steel, paper and steel products 2010: China places 105% tariff on poultry from U.S. 2011: China places 21% tariff on certain American vehicles U.S. launches anti-dumping probe on Chinese-made solar panels

17. ….And everyone came to different conclusions “By every measure, success has been achieved. Jobs have been retained and created, production has rebounded, investments in plant and equipment have been made and many companies have returned to profitability. That's why the law was enacted, and it worked.” - Leo Gerard, President, United Steel Workers "You look at the imports, and imports did not go down. Instead of coming from China, they came from Korea, Indonesia, Thailand.“ - Roy Littlefield, Executive Vice President, Tire Industry Association "The tariffs didn't have any material impact on our North American business. The stuff coming in from China is primarily low end. We got out of that market years go.“ - Keith Price, Spokesman, Goodyear Tire & Rubber Co. No comment - Rubber Manufacturers Association

18. China & U.S. Trade: Main Drivers Actions on both sides seen as largely symbolic Chinese nationalism vs. U.S. bravado: Each makes a convenient political punching bag Trade still strong – neither wants to upset the boat

19. Questions?