1. Dispute Resolution Case Study Bat Baasan Kevin Beck Lillian Bork
United States v.s. China Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres from China
Dispute Resolution Case Study
Bat Baasan Kevin Beck Lillian Bork

2. Content History and Context US Perspective China Perspective
Overview and Articles
Findings
Conclusion
Resources

3. History and Context
USITC: Jun 25, 2009, Evidence of ‘Rapid increasing in volume and value’ and ‘significant material injury and threat’
Vast majority have rim diameters ranging in size from 14 to 20 inches
Evidence suggests rapid increase and injury in respected category
Proposed Remedy of USITC: 3 year impose a duty (ad valorem); 55 percent, 45 percent, 35 percent
The quantity of subject imports ROSE by percent between 2004 and 2008, by 53.7 percent between 2006 and 2007, and by 10.8 percent between 2007 and The value of subject imports ROSE even MORE rapidly, increasing by percent between 2004 and 2008, by 60.2 percent between 2006 and 2007, and by 19.8 percent between 2007 and
Injury is idling of productive facilities, the inability of firms to operate at a reasonable level of profitability, and unemployment or underemployment
Industry components: Rubber Product Manufacturing, Automotive Parts, & Tire Stores, Motor Vehicle & Motor Vehicle Parts & Supplies, Merchant Wholesalers, Employment Services (
Employment 22,000; Mean of Hourly Wage $15-$21; Annual $30k -$43k;
Highest Employment Level: S. Carolina, Alabama, Georgia, N. Caroline, Ohio

4. US Market Segmentation: 10 (25) vs. 36 (75 firms)
Petitioners
10 Domestic Unions
The United Steel, Paper, and Forestry
Rubber
Manufacturing
Energy
Allied Industry and Service Workers Int’l Union, Pittsburgh, PA
Respondents
The American Coalition for Free Trade in Tires
American Pacific Industries Inc.,
Fullrun Tyre Corp. Ltd.,
Cooper Tire & Rubber Company
GITI Tire (China) Investment Co., Ltd.,
GITI Tire (USA) Ltd.,
Les Schwab Warehouse Center, Inc.,
Subcommittee of Tire Producers of the China Chamber of Commerce of Metals, Minerals, and Chemicals Imports & Exporters
TBC Corporation

5. Context of Dispute
Source:

6. U.S. Trade Act of 1974
In order for the U.S. to bring a trade remedy law under section 421 of the U.S. Trade Act, two facts must be present
There is either market disruption or the threat of market disruption to U.S. manufacturers.
It must be due to an increase in Chinese imports that threatens these markets.

7. Tiers in the tire market
Quality of tires are divided into 4 tiers, but mostly 3 are recognized.
Tier 1: Premium brands such as Goodyear, Michelin, Bridgestone. 60% of U.S. production.
Tier 2: Mid-market brands such as Continental AG, Firestone, Yokohama, BF Goodrich.
Tier 3: Value brands such as GT Radial, Runway, Primewell

8. Original Equipment Manufacturer (OEM) market
This is the original equipment placed on a new car being sold.
These are the tires that are on a vehicle when you buy it new. Think of a new car lot instead of a used car lot. Chinese companies had only 2-3% of this market.
Replacement Market
This is the market for tires when a tire is blown or sold on a used car lot.
This is the market that the Chinese tire companies were able to penetrate. Their tires were significantly cheaper than U.S. producers in Tier 3.

9. U.S. Perspective
China’s substantial increase in imports directly affected the deteriorating financial position, layoffs, production and capacity of U.S. firms.
Four plants were closed because of the increase of Chinese imports and underpricing strategy.
Between Chinese imports of tires increased by 215.5%
Price of imports from China were on average 19% lower than American companies
Underselling American manufacturers even more between

10. U.S. Perspective
Because of these facts, the president has the authority to impose tariffs in order to stop this market disruption. He did so, and China disputed the case within the WTO for the tariffs imposed on their imports.

11. Chinese Perspective
Three main reasons why U.S. producers were losing market share.
Shift by U.S. manufacturers producing higher end tires in Teis 1 and 2 rather than Tier 3.
Decline in demand due to 2008 crisis and consumers looking for cheaper alternative tires.
Other importing countries not referred to in case such as Korea were affecting U.S. tire sales.

12. Chinese Perspective
Disputed the time frame studying tire trade from Said that more recent data shows that imports from China have reduced dramatically and were not as high during that period.
Stated that during the years when Chinese imports increased, that the profitability of U.S. manufacturers increased, displaying no “significant injury” to the U.S. manufacturers.
Between , there was an increase of 34 % of Chinese tire imports, but in 2008 it was only 10%.
American consumers were looking for lower cost tires in the Tier 3

13. Chinese Perspective
Disagreed with the USITC and the panel decision that the increases in imports from China to the U.S. markets caused a “significant injury” to the U.S. domestic industry.
Argued that domestic producers were focusing on Tier 1 and Tier 2, where they accounted for 60%
Domestic producers were focusing production on these Tiers, where the quality of the tires are better and the sales margins are larger. Best market for original manufacturing equipment.
Chinese were only providing tires in Tier 3 because U.S. manufacturers had willfully and knowingly taken themselves out of the market. China was providing lower cost tires for a consumer market that desperately needed it, thus the increase in imports.
The 3 production facilities in the United States that were closed were not closed simply because of Chinese imports, but also non-subject imports such as Korea.

14. DS399 Overview Complaint: China Respondent: United States
Third Parties: European Union, Japan, Chinese Taipei, Turkey, Viet Nam
Services (GATTS) Articles:
GATT 1994: Art I: 1; II, XIX
Protocol of Accession: Art: 16.1; 16.3; 16.4; 16.6
Request for Consultations: September 14, 2009
Panel Report Circulated: December 13, 2010
Appellate Body Report Circulated: September 5, 2011
DSB Adopted Appellate Body Report: October 5, 2011

15. As cited in request for consultations
Agreements
GATT 1994
Art.I.1 Non-discrimination
Art. II Equal Treatment
Art. XIX Emergency Withdrawal
Protocol of Accession
Art.16.1 Request for Consultations w China
Art 16.3 Request for Withdrawal
16.4 Affected parties shall consider objective factors
16.6 Right to Suspend
As cited in request for consultations
Art I. 1. … accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.
Art II. … no less favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement.
Art XIX. Emergency Action on Imports on Particular Goods. … to suspend the obligation in whole or in part or to withdraw or modify the concession.
16.1
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.
16-3.
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.
16-4.
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.
16-6.
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 the 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. (Source:

16. Contested Issues
According to Article 16 (Transitional Product-Specific Safeguard Mechanism) of China’s Protocol of Accession and GATT 94, the U.S. failed to evaluate whether imports from China are in “such increased quantities” and “increased rapidly” and that the higher tariffs are inconsistent with Article I.1 and have not been properly justified pursuant to Article XIX of the GATT and the Agreement on Safeguards.
The claims China brought in relation to Article 16 the Protocol and Article I:1 and II:1 of the GATT 94 are:
The U.S. failed to evaluate properly whether imports from China were a “Significant Cause” as required by the paragraph 16.1 and 16.4 of the Protocol.
The US Statute implementing the causation standard of paragraph 16 into US law was inconsistent “as such” with paragraphs 16.1 and 16.4 of the Protocol.

17. Contested Issues (cont’d)
4. The US imposed a transitional safeguard measure that went beyond the “extent necessary” and was thus inconsistent with paragraph 16.3 of the Protocol.
5. The US imposed a three-year safeguard period that went beyond the “necessary” period of time and was hence inconsistent with paragraph 16.6 of the Protocol.
6. The transitional safeguard measure was inconsistent with Article I:1 (Most-Favoured-Nation Treatment) of the GATT 94, as the US did not have the same treatment to Chinese imports as it does to other countries’ imports
7. The transitional safeguard measure is inconsistent with Article II:1(b) of the GATT 1994 as the tariffs consist of unjustified modifications of US concessions on passenger vehicle and light truck tyres under the GATT 1994.

18. Panel’s Findings The panel concluded that:
The United States did not fail to comply with its obligations under paragraph 16 of the Protocol and Articles I:1 and II:1 of the GATT 1994.
There was no “as such” violation in respect of the US statute implementing the causation standard of paragraph 16 of the Protocol.

19. For the Appeal China appealed specifically the following elements:
The U.S. measure did not exceed the extent and the period of time necessary to prevent or remedy the market disruption (3-year period).
The U.S. causation standard in Section 421 of the 1974 Trade Act was not inconsistent with the Section 16 of the Chinese Protocol of Accession.

20. Appellate Body Decision
Under Section 16 of the Protocol, other WTO Members have the right to impose safeguard measures on imports from China alone when such imports are “increasing rapidly” so as to be a “significant cause” of material injury to the domestic industry.
The United States did not act inconsistently with its obligations
The Appellate found that Paragraph 16.4 requires investigating authorities to assess import trends over a sufficiently recent period, and to determine whether imports are increasing significantly, either in absolute or relative terms, within a short period of time.
The Appellate Body upheld the Panel's finding that the USITC did not fail to properly evaluate the situation.

21. Continues...
The Appellate Body explained that an investigating authority can make a determination as to whether subject imports are a “significant” cause of material injury only if it ensures that effects of other known causes are not improperly attributed to subject imports.
The Appellate Body in fact further upheld the Panel's finding that the USITC's reliance on overall coincidence between an upward movement in imports from China and a downward movement in injury factors supported the USITC's finding of significant cause of material injury to the domestic industry from China imports.
Add to notes about US plants closing

22. The Appellate Body upheld all the Panel findings
Who Won?
The United States did not fail to comply with its obligations under Article 16 of the Protocol and Articles I:1 and II:1 of the GATT 1994.
The panel also found that there was no “as such” violation in respect of the U.S. Statute implementing the causation standard of paragraph 16 of the Protocol.
The Appellate Body upheld all the Panel findings

23. Lessons Learned Chinese Protocol is subtle, yet demanding
WTO members will have to adjust their strategies and legal defences
Strong case for causation

24. Questions?

25. Resources https://www. wto