US — Tires (China) 2009 Anna Chayko Sullay Conteh Daniel Eyassu

Intro Complainant: China Defendant = U.S Complaint: higher tariffs on Chinese tires imported by the U.S are inconsistent with Article I:1 of the GATT 1994 and have not been properly justified pursuant to Article XIX. Defendant = U.S Defense: Surge of Chinese Car and light truck tires negatively impacting domestic industry and this is contrary to the China WTO accession plan of 2001

Historical Context On April 20, 2009, the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union filed a petition with the U.S. International Trade Commission (ITC) requesting an investigation under Section 421 of the Trade Act of 1974, a trade remedy statute addressing import surges from China, to examine whether Chinese passenger vehicle and light truck tires were causing market disruption to U.S. tire producers. This union provided support to President Obama’s campaign to the tune of $50 million The president also sought their support in his health care push Section-421- Market Disruption : whenever imports of a Chinese product that is “like or directly competitive with” a domestic product “are increasing rapidly the president has the authority to remedy these effects by placing a surcharge of quota on such goods. The USITC initiated the investigation (TA-421-7) on April 24, 2009 As a result of its investigation the USITC in June 2009 voted 4-2 that imports of subject tires were causing domestic market disruption and recommended that the President impose an additional duty on these items for three years at an annually declining rate. On September 11, 2009, President Obama proclaimed increased tariffs (35%) on Chinese tires for three years effective September 26, 2009, although at lower rates than those recommended by the ITC.

Historical Context U.S. tariff increase is 35% ad valorem in the first year, 30% in the second year, and 25% in the third year. The president also authorized Labor and commerce departments to expedite trade adjustment assistance (TAA) applications for affected workers. While the President was authorized to review the tariffs after six months and to modify, reduce, or terminate them, he did not take any of these actions. On September 14, 2009 China sought consultation on this issue with the United States under the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes. Consultations not having resolved the issue, China requested a dispute settlement panel on December 21, 2009. The WTO Dispute Settlement Body (DSB) established a panel on January 19, 2010.

The main WTO issue GATT Article XIX and the WTO Agreement on Safeguards (GATT 1994) Article XIX of GATT provides safeguard provisions to counter emergency import surges that cause serious injury to domestic industry. Article 16 of China WTO Accession plan (2001-2013). 16.1, 16.2, 16.3, 16.4 Transitional safeguard mechanisms to protect WTO member from Chinese import surges.

The position of the main parties United States USITC determined that there was market disruption as a result of rapidly increasing imports of subject tires from China. USITC was able to establish a surge in imports and related domestic job loss. significant cause of material injury to the domestic industry, including loss of revenue and jobs (http://citizen.typepad.com/eyesontrade/china/) Source: USITR, 2008 Source: USTIR, 2008

The position of the main parties China China alleges that these measures are inconsistent with the United States' obligations under China's Protocol of Accession. According to China the higher tariffs are inconsistent with Article I:1 of the GATT 1994 and have not been properly justified pursuant to Article XIX  Restrictions are being imposed beyond the “extent necessary to prevent or remedy Restrictions are being imposed for a period of time longer than “necessary to prevent or remedy Imports from China were not “in such increased quantities” and were not “increasing rapidly”; and no material damage was caused to domestic industry.

The contested issue of U.S Rule Section 421 of the Trade Act of 1974 If the U.S. International Trade Commission (“ITC”) determines that there is injury, Sections 421 provide the President with a range of remedies to protect, temporarily, the domestic industry from import competition.   Section 421 of the Trade act of 1974 is specific to China. Trade Act of 1974 differ from other U.S. trade remedies in that no allegation of “wrongdoing” on the part of the exporters is required.  Rather, these provisions consider only whether a given import is causing or threatening to cause injury to the U.S. domestic industry. Provision was mandated for 12 years coinciding with China’s accession into the WTO in 2001. Essentially 421 was part of China’s accession protocol into the WTO and as such it was agreed upon. It expired on December 11, 2013.

Panel Findings and Conclusions The panel disagreed with China and found that tire imports were increasing rapidly, both absolutely and relatively, in accordance with the Protocol. Hence Panel agreed there was a surge in imported tires. USITR, 2008

Panel Findings and Conclusions The panel rejected China’s assertion that the U.S definition of “contributes significantly” and “significant cause” were at odds with the ordinary meaning of the rules. Panel rejected China’s claim that the USITC failed to demonstrate significant injury to domestic industry. Job Loss Revenue loss for American producers Manufacturing contraction Closure of 3 plants in 2006 and 1 in 2007 USITR, 2008

Appellate Body Findings On 24 May 2011, China notified the DSB of its decision to appeal to the Appellate Body certain issues of law and legal interpretation covered in the panel report. The Appellate Body upheld the Panel's finding that the USITC did not fail to properly evaluate whether imports from China met the specific threshold under Paragraph 16.4 of China's Accession Protocol of “increasing rapidly”.  import trends over a sufficiently recent period were shown to increase by the USITC Appellate Body upheld the finding that rapidly increasing imports from China were a significant cause of material injury to the domestic industry. China had claimed decline in tires sales were attributed to lower demand The Appellate Body also upheld the Panel's finding that China failed to establish that the USITC improperly attributed injury caused by other factors to imports from China.  Panel believes the USITC’s assessment on the market impact of Chinese imported tires were correct.

Specific WTO Agreement Agreement: China-specific restrictions under paragraph 16 of its Protocol of Accession. because WTO members anticipated possible surge of Chinese products into their markets following China's accession into the WTO, they negotiated a transitional product-specific safeguard mechanism in order to mitigate the effects of mass importation of Chinese products. Tires are one such product that fall in this category. GATT Article XIX Emergency action plans to prevent any unforeseen surges of imports Article XIX of GATT provides safeguard provisions to counter emergency import surges that cause serious injury to domestic industry.

Consistency U.S action by increasing tariffs on Chinese tires is consistent with the terms of WTO obligations, in that a country has the right to place surcharge tariffs if and when import surge has been established. The U.S. statute is fully consistent with Paragraphs 16.1 and 16.4 of the China WTO Accession Protocol of 2001. The data evidence supports the U.S claim and is consistent with WTO provisions. Significant increase in Chinese made tires caused disruption to U.S industry Subject imports increased by 215.5% between 2004 and 2008, by 53.7% between 2006 and 2007, and by an additional 10.8% in 2008.

Implementation and Sanctions U.S tariffs were upheld by WTO ruling. China fought back by imposing penalties on U.S. shipments of chicken parts.  This American chicken producers $1 billion in sales. Sanction under article 16 of the China accession plan expired in 2013, as per the original agreement.

Proposal Indeed, the tariffs didn't bring the tire-making jobs back to previous levels -- a similar trend that's played out for the rest of U.S. manufacturing. But they did help to stem the job losses in the specific industry. In addition, American brand tires made in China were restricted by U.S Tariffs

Observation Source: US Bureau of Labor Statistic calculations Other countries rushed to fill the void and tire imports from other sources increased after a brief decline following the Obama Tariffs on Chinese made tires

Observation: Saving a few jobs at the expense of U. S consumers Observation: Saving a few jobs at the expense of U.S consumers Source: US Bureau of Labor Statistic calculations The usual estimate is that about 1,200 jobs were saved at a cost to US consumers of $1.1 billion. That’s $900,000 per job, which is obviously a bad deal, but it’s also a diffuse deal. Unions and tire workers were happy regardless of how things turned out, while consumers probably barely noticed that they were paying an extra dollar per tire.

Observation Did the economic meltdown of the late 2000s have anything to do with declining tires sales as China had claimed? No, demand for domestic tires in the U.S started to decline before the economy was affected by the financial crisis and continued until tariffs were imposed by President Obama China indirectly retaliated by imposing surcharge tariffs on U.S chicken parts is indicative of China’s disagreement with WTO In the grand scheme of things the U.S saved very few jobs as compared to the overall negative impact on consumers.

References ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA Decision of 10 November 2001 General Agreement on Tariffs and Trade 1994- Article XIX Kevin Drum. A Trump Tariff Wall Would Help a Little, But Hurt a Lot. Mother Jones. Retrieved December 24, 2016, from https://www.motherjones.com/kevin-drum/2016/12/trump-tariff-wall-help-little-hurt-lot/ Dylan Matthews. How Obama’s tire tariffs have hurt consumers. Retrieved October 23, 2012 from https://www.washingtonpost.com/news/wonk/wp/2012/10/23/how-obamas-tire-tariffs-have-hurt- consumers/?utm_term=.528091f98512 WORLD TRADE ORGANIZATION. (n.d.). Retrieved February 25, 2018, from http://www.WTO.org/] United States Trade Representative. (n.d.). Retrieved February 25, 2018, from https://ustr.gov/ Andrews, E. L. (n.d.). U.S. Adds Tariffs on Chinese Tires. New York Times. Retrieved September 11, 2009, from http://www.nytimes.com/2009/09/12/business/global/12tires.html