Safeguards under the WTO Agreement: Issues and Proposals for a More Effective Mechanism

* This publication is in Japanese. An English translation is not available.

The Aims of this Book and Awareness of the Issues it Presents

The editors of this work, who have been interested in the study of the multilateral trading system since the days when the governing instrument of the system was still called the General Agreement on Tariffs and Trade (GATT 1947), are of the impression that academics and practitioners traditionally have not paid much attention to the importance of safeguard issues. At the end of the 1980s when we first entered this arena (Araki took charge of GATT-related affairs at the former Ministry of International Trade and Industry (MITI) in 1989 while Kawase began studying GATT as a 3rd year law student in 1988), it just so happened to be the heyday of the voluntary export restraint (VER) arrangements, which largely escaped the multilateral discipline on safeguards. Moreover, in sectors with a strong protectionist tradition like agriculture and textiles there were sui generis regimes held in place to maintain "order" in trade. Further, it was also a time when antidumping duties, rather than safeguard measures, were used heavily for various products not controlled under those regimes.

It was in such circumstances that improvements in the international system on safeguards were agreed on as an agenda item of the Uruguay Round of trade talks, aimed at restoring the health of the multilateral trading system. The resulting Agreement on Safeguards became an integral part of the World Trade Organization (WTO) Agreement. National invocation of safeguard measures increased following the inauguration of the WTO, while on the other hand there have been significant WTO dispute settlement cases involving safeguards. In particular, the emplacement of safeguards in Japan has made remarkable strides, especially over the last three years. In 2001, for the first time Japan initiated safeguard investigations into the imports of welsh onions, fresh shiitake mushrooms, and tatami rushes and what is more, went so far as to impose provisional safeguard measures on these products. The development of these measures into a large-scale trade dispute with China is still fresh in people's memories. In March 2002, wide-ranging safeguard measures put in place on steel products by the U.S. invited a strong response from many exporting countries in Europe, China, and Japan among others, and induced a series of retaliatory suspensions of concessions (so-called "rebalancing" measures) and new safeguard measures to address trade diversion allegedly caused by the U.S. measures.

As these examples show, unlike in previous times the imposition of safeguard measures today (in particular those by large trading nations like Japan and the U.S.) has become an issue of economic concern that attracts public attention. In particular, the two examples mentioned above attracted great political attention including summit-level discussions, and the pros and cons of the imposition of safeguards have called for wide national debate in the mass media. Efforts have already begun with the aim of adding scholarly investigation to the mix with respect to how Japan should deal with the safeguard system, while over the last few years there has been some excellent discussion concerning safeguards that have been engaged in around the world, as can be seen in the list of reference works at the end of this volume. Of particular note is a symposium on the theme of safeguards, which was held at the 2002 Research Convention of the Japan Association of International Economic Law, where a number of scholars in various fields and actual participants in the safeguard investigation process presented their views. This was published in issue 12 of "International Economic Law," the annual report of the Association (2003).

Taking such activities into account, this work scans each point at issue in the actual operational management of safeguards within the WTO framework. It analyzes problem areas in the current system in detail and in general, mainly from a legal perspective, to make suggestions regarding possible directions for improvement of the system. Yoo (1994) has provided a comprehensive survey of the safeguard issues available to Japan under GATT 1947 but with almost 10 years having elapsed since the establishment of the WTO the prospectus of this work is to bring the discussion up to date.

This book is the product of the study group "Current Aspects of the Safeguards System," a project undertaken from 2002-03 at the Research Institute of Economy, Trade and Industry, Incorporated Administrative Agency (RIETI). Kawase, one of the editors, stepped away from his university teaching position in September 2001 to take up a fixed-term role in the Ministry of Economy, Trade and Industry's Multilateral Trade System Department. Kawase's interest in these issues, arising on the occasion of his participation in the two aforementioned safeguard disputes, was shared by Araki, who was then research director of the RIETI, and when Kawase became a Visiting Researcher at the institute (later changed to Consulting Fellow), they established the study group mentioned above. The two researchers assembled an easygoing group focused on spirited young researchers and, mutually approachable, committed themselves to serious discussion without fear of criticism. The results of the discussion are summarized in this book.

Structure of this Book

This book is made up of the following nine chapters.

After first confirming the legal structure of the safeguards in the WTO agreement, the first chapter looks back on the history of negotiations leading up to the establishment of the WTO as an introduction to the book as a whole. Next, along with providing a broad overview of the actual conditions for the operational management of the safeguards under the WTO framework, it attempts to examine the future political policy implications for Japan. The writer, Araki, was involved in the Uruguay Round negotiations and was deeply involved in the preparation of the system to implement the Safeguards Agreement domestically. Based on this background, he is able to make observations here from a working-level viewpoint.

The second chapter is a comparative discussion of safeguards and other trade remedy measures. The author, Joost Pawelyn, associate professor at School of Law, Duke University, has written elsewhere about the rules of the WTO in the context of public international law. He attempts here to understand differences in the various systems deductively looking at the structure of their treaty languages rather than their historical background, from the standpoint of integrated understanding of WTO rules with the principles of general international law. In particular, safeguards are often explained as being measures to counter "fair" trade and therefore are subject to more stringent requirements, differing from antidumping and countervailing duties. Pauwelyn verifies whether or not this explanation is consistent with the actual existing legal structure of the WTO.

Chapter three is concerned with the standards used in the definition of "domestic industry" under the safeguards. Yoshiko Naiki, deputy director of Multilateral Tradigng System Department, METI, the author's research up to this point has mainly focused on the obligations of national treatment under Article III of GATT. Paragraph 2 of this article covers regulations for national treatment related to taxation systems. There is an accumulation of precedents related to GATT Article III:2 with respect to the definition of markets based on a product's potential for direct competition in GATT dispute settlement procedures since the GATT Explanatory Notes contain the wording, "competition with directly competitive or substitutable products." With this as a lead, the author presents an interpretative discussion of the wording "directly competitive products" in GATT Article XIX. The author also presents a critical examination of the current product-focused management of domestic industry definition standards, while making reference to the practices of the United States International Trade Commission (USITC).

Chapter four presents research concerning the issue of standard of review. In the dispute settlement process relating to safeguards, panels and the Appellate Body examine the investigations conducted by WTO Members and the measures they put in place, leaning on the standard of review in Article 11 of the Dispute Settlement Understanding (DSU). However, in the case of safeguards, there are no specific requirements relating to standard of review equivalent to Article 17.6 of the Antidumping Agreement. The standard of review is laid out specifically in the detail concerning responsibilities in the actual regulations applied, so the writer, Shigo Seryo, professor at Faculty of Law, Doshisha University, after straightening out the major requirements for imposition of the safeguards, clarifies the contents and characteristics of the standard of review for safeguards by focusing on standard of review for establishment of "serious injury," which presents some very interesting material regarding the establishment of the facts and legal interpretations by WTO Members' investigating authorities.

Chapter five is an analysis of the causality requirements in the Safeguards Agreement. The Safeguards Agreement calls for the demonstration of a rigorous cause and effect relationship between increased imports and injury to a domestic industry in the application of a safeguard (Article 4.2(b)). After analyzing in detail the precedents of the Appellate Body with respect to this point, the writer, Yoshinori Abe, associate professor at Faculty of Law, Gakushuin University, concludes that the judgments of the Appellate Body, which calls for (a) the separation of effects arising from increased imports and effects arising from other causes (the non-attribution rule) and (b) "reasoned and adequate explanation" of how the facts support the investigating authority's conclusions are not necessarily unfair in practice. On that basis, he advocates that domestic authorities ensure they abide by the Appellate Body's requests for analysis of cause and effect relationships using economic methods like the one studied in the present chapter.

Chapter six analyzes the relationship between safeguards and regional economic integration. The proliferation of bilateral and regional trade liberalization initiatives as trends in recent trade and industry policy is well known. However, in contrast to the principle of GATT Article XIX that safeguard measures be imposed without discrimination, and irrespective of a product's origin, GATT Article XXIV recognizes under certain conditions the extension of trade preferneces to specific countries that constitute a customs tariff union or free trade area, and its adjustment requires urgent attention. The writer, Yoshizumi Tojyo, associate professor at Faculty of Law, Rikkyo University, as well as analyzing the development of the Appellate Body jurisprudence, makes recommendations with regard to possible directions in the development of appropriate interpretations of the principle of law that calls for strict parallelism between products to be examined and measures to be enacted if products from countries making up customs tariff unions and free trade areas are to be included in safeguard examinations.

Chapter seven looks at the so-called rebalancing issue touched on above. The writer, Kawase, first points out the structural deficiencies of Article 8 of the Safeguards Agreement, which stipulates with regard to rebalancing, through analysis of a dispute between Slovakia and Poland. Based on this, he introduces and analyzes as a real-life example the performance of Japan and the EC in the U.S. steel safeguards case, which he was involved in personally, particularly interpretations of the imposition of rebalancing measures separating the short-list and long-list. By perceiving this positively from the viewpoint of treaty interpretation, he searches for a means to make up for defects in the current safeguard rules.

Chapter eight is a discussion of structural adjustment and safeguards. There is a line of thinking that looks for the significance of the safeguard system's existence in the promotion of structural adjustment in domestic industry. However, the development of structural adjustment at the time of implementing safeguards depends to a respectable degree on the condition of the domestic laws and regulations of the various member states that implement and supplement the WTO agreement. The author, Arata Kuno, analyst at UFJ Institute Ltd., compares specifically related domestic laws and regulations in Japan and the U.S. to consider the management of domestic systems for the effective and efficient development of structural industrial adjustment. On that basis, as a means to solve the trilemma of the maintenance and expansion of the free trade system, rigorous management of safeguards, and the response to domestic political demands for protection, Kuno examines the possibility of the introduction of a trade adjustment assistance policy in Japan.

Chapter nine is an analysis of the terms and conditions for transitional safeguards stipulated in the accession protocol for China, which became a WTO member at the end of 2001. With respect to these transitional safeguards as regards China, the author, Fujio Kawashima, associate professor at Faculty of Law, Kanazawa University, has written a series of deep analyses of the negotiation process that saw China admitted to the WTO. In the present work, as an extension of these writings, he adds an examination of the extent to which the requirements for imposition in the transitional safeguard measures vis-a-vis China, which authorizes the application of discriminatory measures, have been mitigated or invigorated, by casting light on the current status of interpretations of the main requirements for imposition of the general safeguards (import surge, serious injury, cause and effect relationship, etc). On the basis of the most recent USITC determination relating to transitional safeguards with respect to China, the points made in discussing their management are very interesting.

ARAKI Ichiro and KAWASE Tsuyoshi