United States – Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres from China A Case Study of the WTO 2011 Safeguards Appeal by China against the United States Emily Bramnick Anjelika Bench Dylan Butler Source for photo: http://www.prosperousamerica.org/dave_johnson_china_caught_dumping_tires_in_us_again

Overview Part I - History and Context Part 2 - Analysis of the Issue Part 3 - Relevance to the WTO Conclusion - Our recommendations and observations

Case Summary To combat declining marketshare for US produced tires due to increased Chinese imports, the United States levied an ad valorum tax on certain passenger vehicle and light truck Chinese tires following a safeguard measure under Paragraph 16 Section 421 of the Trade Act of 1974. Following a request by China to form a Panel committee in 2010 in contention of the tax levy, the WTO released its final report on 5 September 2011. The results of the report will be explored in this presentation. Section 421—China Specific Safeguard Safeguards: A second important import relief mechanism is the special safeguard that helps U.S. industries and workers deal with import surges from China. This mechanism, found in Section 421 of the Trade Act of 1974 as amended, is available to the United States (and other WTO Members) for 12 years after China’s accession, or until December 11, 2013. This mechanism is distinctive because it is China specific, meaning that it allows the United States to apply safeguard measures that are targeted solely at Chinese products (rather than at imports from all countries, as is normally required by WTO rules).

History of the case - important dates April 20, 2009 September 11, 2009 September 14, 2009 September 26, 2009 December 9, 2009 December 21, 2009 January 29, 2010 On April 20, 2009, the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union filed a petition alleging that certain passenger vehicle and light truck tires being imported from China were being imported in such quantities to disrupt the domestic market. On September 11, 2009, President Obama imposed a safeguard measure on Chinese imported tires in the form of an ad valorum duty in three phases: · 35% ad valorem in the first year; · 30% ad valorem in the second year; · 25% ad valorem in the third year September 14, 2009 September 26, 2009: imposed measure into place December 9, 2009: China requested a panel review of the safeguards measure December 21, 2009: The Panel decision was deferred January 29, 2010: The Panel review was formed

Context - Why was this case important? “An increasingly acrimonious trade dispute between China and the United States over the past three days is officially about tires, chickens and cars, but is really much broader.” New York Times - September 14, 2009 On April 24, 2009, the USITC ruled on the complaint by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union. Per Huffbaur and Woollacott, “in 2009, the United States imported $1.9 billion of tires from China, 26.1 percent of the $7.3 billion total US tire imports and 27.7 percent of the $6.7 billion total PRC tire exports.” (2010) The USITC ruled that there was market disruption as a result of rapidly increasing imports of subject tires from China that were causing a significant amount of material injury to the domestic industry. Per time magazine, a widening trade dispute threatens to ratchet up tension in the China-U.S. relationship, with potential consequences for the entire world economy. The spat began on Sept. 11, when the Obama Administration announced it will slap tariffs of as much as 35% on Chinese-made tires, effectively pricing them out of the low end of the American market. Two days later, China's Ministry of Commerce said it would start antidumping investigations against imports of some U.S. chicken products and auto parts. Though the ministry's announcement made no mention of the tire tariffs, the timing of China's action appears as an eye-for-an-eye reaction to Obama's decision. On Monday, China sought talks with the U.S. through the World Trade Organization to resolve the dispute, while in a speech in New York, President Obama defended the tire tariff, saying trade agreements must be enforced if the global trading system is to function.

Business and Political Context Per Time Magazine, this trade dispute was the result of several related suits in a widening trade spat. In fact, two days after the safeguards measure went into effect, China's Ministry of Commerce said it would start antidumping investigations against imports of some U.S. chicken products and auto parts. If we look back, there were 13 trade disputes between China and the US between 2002 and 2009 (Huffbaur and Woollacott, 2010) WTO Agreement on Safeguards “widening trade dispute threatens to ratchet up tension in the China-U.S. relationship, with potential consequences for the entire world economy.” - Time Two days later, China's Ministry of Commerce said it would start antidumping investigations against imports of some U.S. chicken products and auto parts. Though the ministry's announcement made no mention of the tire tariffs, the timing of China's action appears as an eye-for-an-eye reaction to Obama's decision. On Monday, China sought talks with the U.S. through the World Trade Organization to resolve the dispute, while in a speech in New York, President Obama defended the tire tariff, saying trade agreements must be enforced if the global trading system is to function. -Time 13 Trade disputes (https://piie.com/sites/default/files/publications/wp/wp10-17.pdf): US complaints 1. Value-Added Tax on Integrated Circuits: March 2004 2. Measures Affecting Imports of Automobile Parts: March 2006 3. Measures Granting Refunds, Reductions, or Exemptions from Taxes and Other Payments: February 2007 4. Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products: April 2007 5. Measures Affecting the Protection and Enforcement of Intellectual Property Rights: April 2007 6. Measures Affecting Financial Information Services and Foreign Suppliers: March 2008 7. Grants, Loans, and Other Incentives: December 2008 8. Measures Related to the Exportation of Various Raw Materials: June 2009 China Complaints 1. Safeguard Duties Imposed on Imports of Certain Steel Products: March 2002 2. Antidumping Duties Imposed on Coated Free-Sheet Paper from China: September 2007 3. Antidumping Duties Imposed on Certain Products from China: September 2008 4. Measures Affecting Imports of Poultry from China: April 2009 5. Safeguard Duties Imposed on Certain Tires from China: September 2009 WTO Agreement on Safeguards: The term “safeguard” or “safeguard measure” refers to trade measures that are applied to protect domestic industries from competition with imports causing or threatening to cause serious injury to them. Article XIX of the GATT and the WTO Agreement on Safeguards (hereinafter referred to as “the Safeguards Agreement” or “SA”) authorizes Members to impose significant import restrictions designed to remedy or prevent serious injury to domestic industries that is caused by an increase in imports. Such general safeguard measures are to be distinguished from other special safeguard measures, which are either applied only to a specific category of imported product2 or do not require the existence of injury to a particular domestic industry.

China’s Position Appealed the Panel’s findings that USITC did not fail to present a proper analysis proving that tire imports from China were a significant cause to material injury to domestic producers Appealed Panel’s decision because of claims that they acted inconsistently with their duties outlined in the Dispute Settlement Understanding Neither the U.S. or Panel adequately explained why imports were “increasing rapidly” or what determines a “significant cause” to injury Therefore safeguard measure was deemed unnecessary United States – Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres from China (WT/DS399/AB/R, September 2011) https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds399_e.htm

United States’ Position USITC followed through proper procedures to prove that imports from China were “increasing rapidly” at a rate that was a significant cause to injury in the U.S. market Under Paragraph 16.4 of China’s Accession Protocol USITC is not explicitly or implicitly required to focus its analysis on the most recent imports Safeguard was justifiable WT/DS399/AB/R (September 2011) https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds399_e.htm

Third Parties Both the EU and Japan focused on the interpretation of certain terminology European Union China’s appeal too dependent on discovering errors in the Panel’s interpretation of “increasing rapidly” and “significant cause” Japan China’s Accession Protocol does not specify any particular methodology for how ITC could have conducted the assessment WT/DS399/AB/R (September 2011) https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds399_e.htm

Final Decision Appellate Body agreed with Panel’s decision that the U.S. did not act inconsistently any of its WTO obligations USITC did not falsely claim the conditions of the U.S. market in its assessment Interpretation of Paragraph 16.4 of the Protocol was not misrepresented The Panel did not act inconsistently with its duties as listed in the DSU WT/DS399/AB/R (September 2011) https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds399_e.htm

Contested Issue China’s Accession Protocol, paragraph 16.3 and 16.6 China failed to establish that the safeguards imposed by the U.S. exceeded the extent necessary to remedy market disruption, and exceeded necessary period of time China’s Accession Protocol, paragraph 16.4 Appellate Body found that the USITC properly established that tire imports from China were indeed “increasing rapidly” at a magnitude significant enough to be the cause of material injury to the domestic industry https://www.wto.org/english/tratop_e/dispu_e/cases_e/1pagesum_e/ds399sum_e.pdf

Contested Issue Dispute Settlement Understanding, Article 11 The Panel is required to make an objective assessment. China claimed that the Panel failed to conduct a thorough and fair assessment of the evidence the USITC presented, and failed to consider China’s argument addressing competition between subject imports and domestic tires in the U.S. replacement market. https://www.wto.org/english/tratop_e/dispu_e/cases_e/1pagesum_e/ds399sum_e.pdf

WTO Agreements China's Accession Protocol- China became a member of the WTO in 2001, when the agreement was signed during the Doha round in Doha, Quatar Accession definition

Chinese Accession into the WTO “Each accession to the WTO is a unique event, but few would argue with the proposition that China's accession has been more unique than others. After all, China was one of the 23 original contracting parties to the GATT in 1948 and her application for readmission to the multilateral trading system dates back 15 years to July 1986, easily making it the longest and most arduous accession negotiation in the history of the GATT/WTO.” http://siteresources.worldbank.org/INTRANETTRADE/Resources/Gertler.pdf -china had left the GATT in 1950, although it was one of the forming members

Chinese Membership in the WTO https://www.foreignaffairs.com/about-us/sponsors/china-grows-up What is at stake for China in the WTO

Provisions of the Accession Agreement The Accession Agreement of 2001 states the following categories of the terms of China’s membership agreement in the WTO: 1) conclusion of bilateral market-access negotiations 2) conclusion of multilateral negotiations in the Working Party, including the draft Protocol and its Annexes, as well as the Working Party Report, these documents together setting out the terms of China's accession to the WTO 3) approval and acceptance of these terms of accession by WTO Members and by China, respectively. Document: Accession of the People’s Republic of China- November 2001 Summary of the purpose of the agreement

Article 16 of the Accession Agreement 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, including whether the affected WTO Member should pursue application of a measure under the Agreement on Safeguards. Any such request shall be notified immediately to the Committee on Safeguards Document: Accession of the People’s Republic of China- November 2001

Product-Specific Safeguards “The Agreement on Safeguards (“SG Agreement”) sets forth the rules for application of safeguard measures pursuant to Article XIX of GATT 1994. Safeguard measures are defined as “emergency” actions with respect to increased imports of a particular product, where such imports have caused or threaten to cause serious injury to the importing Member’s domestic industry (Article 2). Such measures, which in broad terms take the form of suspension of concessions or obligations, can consist of quantitative import restrictions or of duty increases to higher than bound rates. This is one of the three types of contingent trade protection measures, along with anti-dumping and countervailing measures, available to WTO Members.” http://www.sukhan.com.pk/?page_id=252

Did the parties involved violate Article 16 of the China Accession Protocol? Appellate decision says no Cartoon: http://www.activistpost.com/2013/01/chinese-takeover-with-free-trade-zones.html

Implementation of Sanctions • “DSU Art. 19.1 (Panel and Appellate Body's recommendations – suggestion on implementation): The Appellate Body did not find that the United States acted inconsistently with its WTO obligations in imposing a product-specific safeguard measure on subject tyres from China. Hence, the Appellate Body made no recommendation under Art. 19.1” https://www.wto.org/english/tratop_e/dispu_e/cases_e/1pagesum_e/ds399sum _e.pdf

Our Observations and Recommendations China has the intention of selling goods around the world, but there is a direct contrast with the domestic competitiveness of local markets. The Safeguards measure proposed by President Obama was done fairly and in- line with WTO rules to both protect its domestic competition and prevent market disruptions from imported goods. Understanding the legal interpretation outlined in agreements is essential to winning cases. For point two I forsee this being a fair interpretation of the rules, but the case is a larger reflection of increased global competitiveness of goods and services from two market superpowers. In addition, the US is able to levy these kind of trade sanctions, but what about the many smaller economies without the leverage and unions to establish trade principles.