The Puzzle of WTO Safeguards and RTAs Joost Pauwelyn Duke University, Law School WTO Seminar on RTAs and the WTO Geneva, 14 November 2003

WTO Seminar on RTAs Geneva, 14 November What is a Safeguard ? Emergency action in case a product is imported in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers (GATT Article XIX)

WTO Seminar on RTAs Geneva, 14 November Safeguards in RTAs ? The RTA (EU) imposes a WTO safeguard One regional partner (USA) imposes a WTO safeguard The RTA has its own internal safeguard mechanism (SADC)

WTO Seminar on RTAs Geneva, 14 November US Safeguard on Steel CAN the US exclude Mexico & Canada ? (MNF nature of safeguards) MUST the US exclude Mexico & Canada ? (RTA must liberalize internal trade) CHOICE

WTO Seminar on RTAs Geneva, 14 November Proposed Solution: Injury determination must exclude regional imports (in most cases) Safeguard measure itself can exclude regional imports (whether it must do so will depend on the RTA itself)

WTO Seminar on RTAs Geneva, 14 November Injury Determination must exclude Mexico & Canada GATT Article XIX: Increased imports causing injury must be as a result of … the effect of the obligations incurred … under this Agreement [GATT], including tariff concessions

WTO Seminar on RTAs Geneva, 14 November Based on GATT Art. XIX the injury determination cannot take account of surges in regional imports since they are caused by the RTA (not GATT) and it is the RTA (not GATT) that prevents a tariff hike in response Injury Determination must exclude Mexico & Canada (cont. …)

WTO Seminar on RTAs Geneva, 14 November End of support Strike Regional Imports Other Imports TOTAL INJURY SERIOUS INJURY Injury Determination based solely on third party imports

WTO Seminar on RTAs Geneva, 14 November The Safeguard Itself SG Article 2.2 (MFN): safeguard measures shall be applied to a product being imported irrespective of its source USA & Argentina included all imports for injury determination & excluded regional imports from eventual safeguard

WTO Seminar on RTAs Geneva, 14 November Can Safeguard Exclude Regional Imports? Appellate Body Parallelism requirement Cases so far violate parallelism Proposal Safeguard is clearly discriminatory Question is whether GATT Article XXIV justifies it Tackle inclusion of all imports in injury determination under GATT Article XIX

WTO Seminar on RTAs Geneva, 14 November Problems with Parallelism INJURY DETERMINATION SAFEGUARD ITSELF All importsExclude Canada & Mexico Only third partiesOnly third parties ?? (contra MFN) Only ChinaOnly China ?? (contra MFN)

WTO Seminar on RTAs Geneva, 14 November GATT XXIV and Safeguards Can safeguards be imposed within a RTA? RTA must liberalize internal trade Can GATT XXIV justify safeguards that exclude regional imports? MNF nature of safeguards

WTO Seminar on RTAs Geneva, 14 November GATT XXIV permits intra-regional safeguards Duties and regulations must only be eliminated with respect to substantially all the trade (GATT XXVI:8) List of permitted restrictions (XI, XII, XIII, XIV and XX) is not exhaustive Intra-regional safeguards (be it under WTO or RTA itself) are consistent with WTO rules

WTO Seminar on RTAs Geneva, 14 November Can GATT XXIV justify a violation of the Safeguards Agreement? Is GATT XXIV available as a defense under the Safeguard Agreement: YES What conditions must be met for GATT XXIV to justify a selective safeguard?

WTO Seminar on RTAs Geneva, 14 November Appellate Body criteria (Turkey – Textiles) SG exclusion must be introduced upon the formation of the RTA SG exclusion must be necessary to form RTA consistent with GATT XXIV SG exclusion is after RTA formation SG exclusion is not necessary to have RTA conform XXIV (flexibility permits regional SG)

WTO Seminar on RTAs Geneva, 14 November The ABs Timing Criterion is Flawed GATT provisions shall not prevent … the formation of a customs union or of a free- trade area (XXIV:5, chapeau) No reference to timing or measures introduced upon the formation ofa RTA Absurd: if perfect RTA after its conclusion, violation would remain

WTO Seminar on RTAs Geneva, 14 November The ABs Necessity Criterion is Flawed the provisions in this Agreement [GATT] shall not prevent … the formation of a customs union or free-trade area … Provided that … (XXIV:5, chapeau) No reference to measures necessary for the formation of a RTA Contrast with XX(b): nothing in [GATT] shall be construed to prevent … measures … necessary to protect human … health Absurd: if perfect already valid RTA then it is not necessary

WTO Seminar on RTAs Geneva, 14 November An Alternative Proposal AGGREGATE TESTS Economic test XXIV:5 Definitional test XXIV:8 INDIVIDUAL TESTS Measure must be part of the formation of a RTA Part of formation to be interpreted with reference to other provisions

WTO Seminar on RTAs Geneva, 14 November Is Excluding Regional Imports part of the formation of a CU/FTA? Removing intra-regional restrictions is implied in the definitional test (XXIV:8) Safeguard on third parties is not based on XXIV but because of import surge from those third parties (unlike Turkey - Textiles) Check objective of facilitating trade … and not to raise barriers with third parties (XXIV:4)

WTO Seminar on RTAs Geneva, 14 November In Summary Exclude regional imports from the injury determination (less WTO safeguards) Parallelism requirement is an unnecessary complication GATT XXIV does not prohibit intra-regional safeguards Under current AB criteria, GATT XXIV cannot justify safeguard excluding regional imports AB criteria are flawed; GATT XXIV can justify a safeguard on third parties only