1. DISPUTE RESOLUTION CASE STUDY CHINA - U.S. TIRES (DS399) (AB2011) TYLER CAMPBELL LISA CASTRO CINTHYA CHATÉ

2. BUSINESS AND POLITICAL CONTEXT The issue: US transitional product-specific safeguard measure applied under paragraph 16 of China’s Accession Protocol. Product at issue: Certain passenger vehicle and light truck tires from China. April 2009: Petition filed by: United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union. USITC initiated investigation.

3. OBAMA ADMINISTRATION ACTIONS September 2009: Imposed tariffs over a three year period.  35% ad valorem in year one  30 % ad valorem in year two  25 % ad valorem in year three

4. TIMELINE September 2009: China requests for consultations. No remedies during consultations. January 2010: China requests the establishment of a Panel. March 2010: Panel formed. June and July 2010: Arguments heard.

5. TIMELINE September 2010: Interim report submitted. November 2010: Panel issued its final report. May 2011: China notified DSB of its intention to appeal. July 2011: Oral hearing.

6. PRINCIPLE WTO ISSUE Safeguards - GATT Article XIX, Global Safeguards Agreement Most Favored Nation (MFN) – GATT Article I:1, Article II:1 (b)

7. SPECIFIC PROVISIONS INVOLVED Paragraph 16 of China’s Protocol for Accession 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. 3.If consultations do not lead to an agreement between China and the WTO Member concerned within 60 days of the receipt of a request for consultations, the WTO Member affected shall be free, in respect of such products, to withdraw concessions or otherwise to limit imports only to the extent necessary to prevent or remedy such market disruption. Any such action shall be notified immediately to the Committee on Safeguards. 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. In determining if market disruption exists, the affected WTO Member shall consider objective factors, including the volume of imports, the effect of imports on prices for like or directly competitive articles, and the effect of such imports on the domestic industry producing like or directly competitive products. 6. A WTO Member shall apply a measure pursuant to this Section only for such period of time as may be necessary to prevent or remedy market disruption. If a measure is taken as a result of a relative increase in the level of imports, China has the right to suspend the application of substantially equivalent concessions or obligations under the GATT 1994 to the trade of the WTO Member applying the measure, if such measure remains in effect more than two years. However, if a measure is taken as a result of an absolute increase in imports, China has a right to suspend the application of substantially equivalent concessions or obligations under the GATT 1994 to the trade of the WTO Member applying the measure, if such measure remains in effect more than three years. Any such action by China shall be notified immediately to the Committee on Safeguards.

8. PARTIES’ POSITION – CHINA’S ARGUMENTS The U.S. & Paragraph 16 of Protocol 1.Failed to properly evaluate whether imports from China were in "such increased quantities" and "increasing rapidly" as required by Paragraphs 16.1 and 16.4 of the Protocol. 2.Statute implementing the causation standard of Paragraph 16 is inconsistent "as such" with Paragraphs 16.1 and 16.4 of the Protocol. 3.Failed to evaluate properly whether imports from China were a "significant cause" as required by Paragraphs 16.1 and 16.4 of the Protocol.

9. PARTIES’ POSITION – CHINA’S ARGUMENTS 4.Transitional safeguard measure imposed goes beyond the "extent necessary", and thus it is inconsistent with Paragraph 16.3 of the Protocol; 5.Transitional safeguard measure imposed for a three-year period is beyond "such period of time" that is "necessary", and thus is inconsistent with Paragraph 16.6 of the Protocol.

10. PARTIES’ POSITION – CHINA’S ARGUMENTS The U.S. & GATT Articles I:1 and II:1(b) 1.Transitional safeguard measure imposed is inconsistent with Article I:1 of the GATT 1994 as the United States does not accord the same treatment that it grants to passenger vehicle and light truck tires originating in other countries to products originating in China. 2.Transitional safeguard measure is inconsistent with Article II:1(b) of GATT 1994 as the tariffs consist of unjustified modifications of U.S. concessions on passenger vehicle and light truck tires.

11. PARTIES’ POSITION – U.S. COUNTER-ARGUMENTS Protocol does not preclude a competent authority regarding imports as “increasing rapidly”

12. PARTIES’ POSITION – U.S. COUNTER-ARGUMENTS China's argument is inconsistent with the text of its Protocol regarding "significant cause" of imports Meaning of “Significant Cause” USITC evaluates casual link between imports and domestic tires. Correlation between Import Increases, Domestic Prices, and Profitability.

14. PARTIES’ POSITION – U.S. COUNTER-ARGUMENTS Length of transitional safeguard is appropriate Exact amount of time of needed is unknown. Minimum necessary time to address market disruption. “Addresses short- and long-term effects.”

15. PANEL AND APPELLATE REPORT Panel Based on the USITC findings, the U.S. did comply with its obligation under Paragraph 16 of Protocol. Dismisses China's claims. China Appeals Appeal Appellate body supports prior findings - upholds Panel's decision.

16. CONTESTED ASPECTS OF INT’L LAW Implementation of Safeguard Measures: Standards of implementation under the Protocol vs. other WTO agreements (GATT Article XIX). Most Favored Nation principle: Implementing safeguard measures under the Protocol violates the MFN principle because the measures apply only to Chinese goods. In this case, the majority of the disagreement focused on the technical aspects of the USITC’s review and whether these were reasonable.

17. OBSERVATIONS 1.Clarified aspects of China’s Accession Protocol Although no longer in effect, the decision clarified the meanings of some terms in the Protocol and may serve as a precedent for similar agreements in the future (increasing rapidly/market disruption).

18. OBSERVATIONS 2. All duly enacted agreements, including Accession Protocols, are honored, even if seemingly in conflict with other tenets of the WTO. Because China (and other WTO members) had agreed to the Protocol, it was held to the terms contained within that agreement. Arguments that certain aspects of the Protocol needed to be interpreted very stringently because they violated other WTO tenets (namely MFN) was rejected by the Panel and Appellate body.

19. OBSERVATIONS 3. Deference to the determinations of the national investigative body: Both the Panel and the Appellate body agreed that their role was to investigate the reasonableness of the review conducted by the national body (here the USITC); they did not substitute their own conclusions or conduct a de novo review. Panel seemed to accept that the USITC had some flexibility in the types and timeframes of data to be reviewed, and concluded that these decisions were reasonable.

20. OBSERVATIONS Personal Observations: We believe that China made an attempt to throw just about everything at the USITC’s ruling to have it reversed, even though the language was reasonably clear. China seemed to want to “escape” some of the terms of its Accession Protocol. There was a considerable amount of deliberation on words, grammar, etc. To some extent this is to be expected in a matter of international law, though we are curious to see if it is the same in other such cases.