The Hindu Business Line : Improper use of WTO safeguards rules

The dispute between the US and eight other WTO members is an illustration of a case where a country rushes to protect its domestic manufacturers of steel products from competitive imports, in the process erroneously using WTO regulations governing the adoption of safeguard measures vis-à-vis imports.

THE steel imports dispute between the US and eight other WTO members — which has recently been settled by the Disputes Settlement Body of the Geneva-based organisation substantially in favour of the latter group — is an illustration of a case where a country (here as important as the US) rushes to protect its domestic manufacturers of steel products from competitive imports, in the process erroneously using WTO regulations governing the adoption of safeguard measures vis-à-vis imports which have the effect of disrupting domestic manufacturing activity. The effort here is to provide, in a nutshell, as clear a picture as possible of what the dispute was all about.

First, who were the protagonists? Of course, the US was on one side and ranged against it were eight other WTO members — China, Brazil, Japan, Korea, the EU, Switzerland, Norway and New Zealand.

The products in question were: certain carbon flat-rolled steel items (CCFRS), tin mill products, hot-rolled bar, cold-finished bar, rebar, welded pipe, stainless steel bar, stainless steel rod, stainless steel wire items, and carbon and alloy fittings, flanges and tool joints (FFTJ).

What was the genesis of the dispute? In late June 2001, the US International Trade Commission began safeguard investigations at the request of the USTR "in order to determine whether certain steel products were being imported into the United States in such increased quantities as to cause or threaten to cause serious injury to the domestic industry producing like or directly competitive products".

The USITC made "affirmative determinations" of serious injury to the domestic industry with respect to imports of CCFRS, hot-rolled bar, cold-finished bar, rebar, FFTJ, stainless steel bar and stainless steel rod; and a determination of threat of serious injury with regard to imports of welded pipe.

Divided determinations resulted for tin mill products, stainless steel wire, stainless steel fittings and flanges and tool steel. On its part, the USITC recommended that tariffs and tariff-rate quotas be imposed on the products for which it had made affirmative determinations.

Following this finding, in early March 2002, the US President imposed definitive safeguard measures on imports of certain steel products. The presidential proclamation imposed tariffs ranging from 30 per cent to 8 per cent on imports of certain carbon flat-rolled steel, hot-rolled bar, cold-finished bar, rebar, welded pipe, fittings, flanges and tool joints, stainless steel bar, stainless steel rod, tin mill products, and stainless steel wire - all products on which the USITC had made affirmative determinations.

As regards the products on which a divided determination had been made (that is, tin mill products and stainless steel wire), the President decided "to consider the determinations of the groups of commissioners voting in the affirmative with regard to each of these products to be the determination of the USITC". The measures took effect from March 20, 2002 for a period of three years and one day. Of interest is the fact that imports of these specific products from Canada, Israel, Jordan, and Mexico were excluded from the purview of the special import duties.

The EU was first off the block when it asked for a disputes settlement panel to be formed, which was duly set up in June 2002. Brussels wanted the panel to examine the "consistency" of the safeguard measures applied by the US on certain steel imports.

By the end of July the other parties had also submitted their complaints to the WTO disputes settlement body. In their requests for the establishment of a panel, the complaining parties claimed that the 10 safeguard measures applied by the US on imports of certain steel products were inconsistent with the obligations of the US contained in Articles 2, 3, 4, 5, 7, 8, 9, and 12 of the Agreement on Safeguards, Articles I, II, X, XIII, and XIX of the GATT 1994, as well as Article XVI of the WTO Agreement.

The findings of the panel, which issued eight panel reports in the form of one document, were communicated to the WTO members in the middle of July 2003, their burden being that all ten US safeguard measures were inconsistent with the Agreement on Safeguards and the GATT 1994.

Consequently, the recommendation was that the WTO disputes settlement body request the US to bring all the safeguard measures into conformity with the relevant WTO provisions. Expectedly, in August, the US went in appeal on "certain issues of law" covered in the panel reports.

What were the specific issues raised in the appeal? The first point of note is that "no US law, regulation, or methodology, as such" had been challenged by the eight complainants. Secondly, in the words of the appellate body, WTO members had agreed in the Agreement on Safeguards that members could suspend their trade concessions temporarily by applying import restrictions as safeguard measures if certain prerequisites were met.

These prerequisites were set forth in Article XIX of GATT 1994, which dealt with "Emergency Actions on Imports of Particular Products", and also in the Agreement on Safeguards. To quote the appellate body: "Together, Article XIX and the Agreement on Safeguards confirm the right of WTO members to apply safeguard measures when, as a result of unforeseen developments and of the effect of obligations incurred, including tariff concessions, a product is being imported in such increased quantities and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products.

However, as Article 2.1 of the Agreement on Safeguards makes clear, the right to apply such measures arises `only' if these prerequisites are shown to exist" (emphasis in original).

There were nine points of "findings and conclusions" by the appellate body, three of which clearly upheld the decisions taken by the panel while two reversed the panel's less substantive observations.

Among other things, the appellate body set its seal on the panel finding concerning complaints made by China, the EU, New Zealand, Norway and Switzerland by holding that "the application of all safeguard measures at issue in this dispute is inconsistent with the requirements of Article XIX: 1(a) of the GATT 1994 and Article 3.1 of the Agreement on Safeguards because `the United States failed to provide a reasoned and adequate explanation demonstrating that `unforeseen developments' had resulted in increased imports causing serious injury to the relevant domestic producers'."

It was also found that the application of the safeguard measures on imports of CCFRS, stainless steel rod and hot-rolled bar was inconsistent with the requirements of Articles 2.1 and 3.1 of the Agreement on Safeguards because the US "failed to provide a reasoned and adequate explanation of how the facts supported its determination with respect to `increased imports'."

As a matter of course, the appellate body has recommended that the WTO disputes settlement body request the US "to bring its safeguard measures...into conformity with its obligations" under the Agreement on Safeguards and the GATT 1994. Washington has no alternative but to do so.

But it also has a powerful domestic steel lobby to contend with in the run-up to the 2004 presidential elections. How the Bush Administration gets out of this difficult corner will be watched with interest.

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