The Problems Left by the U.S. Steel Safeguard Dispute - The Success of Rebalancing and the Limits of the Safeguard Agreement (Part 2)
Summary of Part 1:
Safeguard measures on steel products imposed by the United States in March 2002 were repealed in December of last year. This was as a result of the WTO's ruling that the measures violated the Safeguards Agreement, as well as the pressure of retaliatory action (rebalancing measures) by trading partners. But while rebalancing thus proved effective, the case also exposed the fact that the process and procedure for taking such action are unclear due to the poor wording of Article 8 of the Safeguards Agreement and that it is difficult to act swiftly against safeguard measures that clearly violate WTO agreements. I believe that rebalancing needs to be strengthened to prevent the extreme abuse of safeguard measures, just as in the steel case, but would also like to call attention to the fact that effective rebalancing can lead to unexpected results such as those cited below.
The side-effects of effective rebalancing
The New York Times reported on Dec. 5 last year that White House officials were aware of how high the costs of the rebalancing measures in the steel case would be for the United States (New York Times, Dec. 5, 2003, at A28). In such cases where the cost of imposing and maintaining safeguard measures becomes enormous, how do WTO member nations respond? The answer can be seen in the series of actions (and reportedly planned actions) taken by the U.S.
First, the U.S. will continue to maintain its licensing system for imports of products targeted by the safeguard measures and monitor import trends of the products. A monitoring system like this was used in the 1970s and 1980s as a way of implementing voluntary export restraints (VER), and figures released by authorities and their reaction to those figures were interpreted by exporters as "warnings" which presaged the introduction of more drastic protectionist measures. In the steel case, U.S. steel manufacturers submitted a letter addressed to President George Bush [PDF:60KB] calling for voluntary export restraints on steel from Japan and South Korea, and as if to respond to this, the President's Statement announcing the repeal of the safeguard measures clearly promises that the government will continue to monitor steel imports "so that my Administration can quickly respond to future import surges." Reflecting this atmosphere in the U.S., the Japanese steel industry is taking a cautious approach toward resuming exports to the United States (Nikkei Business Daily, Dec. 8, 2003, p3; Yomiuri Shimbun, Dec. 6, 2003, p11).
While there have been no negotiations, let alone any bilateral agreement, either formal or informal in connection with the steel case, there is a growing trend to turn to so-called "gray measures," such as VER, in cases where it is difficult to impose trade remedies, like safeguard measures, even though this is banned under Article 11 of the Safeguards Agreement. In 2001, Japan also introduced import monitoring programs and held bilateral negotiations with China on production volume of some agricultural/fishery products (including leeks, shiitake mushrooms and eel) when it decided to forego imposing safeguard measures on those products from China. In extreme cases, countries are so bold as to sign voluntary export restriction agreements, as that on softwood lumber between the U.S. and Canada [PDF:1MB]!
Second, according to some media reports, there are indications that the U.S. government may initiate new antidumping investigations, and review and raise antidumping duties currently imposed on certain steel products (Inside US Trade, Dec. 5, 2003, at 1). Rebalancing does not apply to antidumping duties or countervailing duties and therefore, even if these measures are determined to be in violation of WTO rules, there is no way of resolving the issue except by waiting for the completion of procedures under the Dispute Settlement Understanding (DSU). In such a case, as Mexico pointed out on the occasion mentioned in Part 1, it takes a very long time for the matter to be settled in this process. For example, in the case of the antidumping duties that the U.S. imposed on Japanese hot-rolled steel products, the two countries agreed on Dec. 10, 2003, to extend the deadline for the compliance with the DSB recommendation again to July 31 of this year. The Appellate Body report on this issue was adopted in August 2001, and so it turns out that while three years (nearly five years from the initial request for bilateral consultations!) have passed since the duties were found to have been in violation of WTO rules, there is yet still no guarantee that the WTO-inconsistent measure will be fully corrected.
Furthermore, while WTO rules stipulate that antidumping duties and countervailing duties must be repealed after five years unless they are reviewed and investigating authorities determine that the expiry of the duty would be likely to lead to continuation or recurrence of dumping and injury (the so-called "sunset clause," Article 11 of the Antidumping Agreement and Article 21 of the Agreement on Subsidies and Countervailing Measures), there is a high likelihood that the duties will be continued by the sunset review regime dictated under current U.S. trade laws and regulations. However, Appellate Body reports on the application of the sunset clause in U.S. countervailing duties on Germany and U.S. antidumping duties on Japan, both regarding certain corrosion-resistant carbon steel flat products, did not find the U.S. sunset review in violation of WTO rules, and exposed the functional limitations of the current sunset clauses. Thus, in the event that remedies such as antidumping duties are imposed instead of safeguard measures, it is very difficult to have them repealed.
"Malfunctioning" safeguard measures in force
In view of the above, while the abuse of safeguard measures must be kept in check, the system must be one that can be used in moderation so that countries do not turn to more serious protectionist measures. This is why safeguard measures are regarded as "safety valves" against protectionist pressures. In addition, without relief measures for the future emergency where a surge of imports hurts domestic industries, countries would hesitate to liberalize trade. In such unexpected situations, if relief can be secured through safeguard measures, countries would feel secure when committing themselves to trade liberalization. For this reason also, it must be made clear to WTO members that safeguard measures can be imposed in times of emergency.
For safeguard measures to function in this way, it must be clear to everyone when and how they can be imposed so that they are WTO-consistent and not subject to rebalancing. Nevertheless, neither the Safeguards Agreement nor the interpretations of the agreement by WTO panels and the Appellate Body have provided a clear answer as to what sort of safeguard measures fall into such a category. This is the situation despite the fact that rulings in all eight (11 cases, including the textile safeguard measures) disputes on safeguard measures found them to be inconsistent with WTO rules.
As Professor Sykes lashed out at this state in his recent work [PDF:530KB] that serves as a sequel to the paper I cited in Part 1, calling it a "policy at sea," the specific ideal of acceptable safeguard measures, such as by how much imports should increase and how to analyze the causal relationship between import and damage to domestic industry, remains unclear. Especially, on the issue of causation, while Article 4:2b of the Safeguards Agreement and its interpretation of the Appellate Body stipulate that increases in imports must be clearly separated and distinguished from other factors and that the nature and extent of injury caused by each factor to the domestic industry must be identified, it does not offer sufficient guidelines for handling this process, which is a very challenging quantitative analysis. Having said this, the Appellate Body states that such injury need not be the result of import surges alone. Altogether these rulings seem incomprehensible.
Under current circumstances, safeguard measures are far from being a useful tool. Add to this the fact that rebalancing can be actually quite effective - as seen in the recent steel case - and it is not difficult to see why WTO members will seek to avoid safeguard measures and instead turn to alternative protectionist measures.
The Appellate Body's passive stance toward "political" disputes
Sadly to say, there was no improvement in the clarification of standards for the implementation of safeguards over the U.S. steel dispute, so far as can be seen from reading the report by the Appellate Body [PDF:1MB] (see ASIL Insight, the American Society of International Law, for summaries of the reports of the panel and the Appellate Body). While this political spectacle went on behind the U.S. move, as my colleague RIETI Fellow Nozomi Sagara has explained in her column from March 2002, a good friend of mine, who is a Geneva-based veteran trade lawyer, commented "[G]iven the extremely high political profile of this dispute... this is one of the most important Appellate Body decisions in recent memory. Yet from a legal perspective, the Appellate Body's decision is unremarkable." Regrettably, the truth of the matter is that because of the political nature of the case, the Appellate Body adjudicated as minimum a claim as possible just to condemn the U.S. measures and refrained from providing much of clear legal reasoning.
Let's take some examples. In this case of the U.S. steel safeguard, of the six members of the U.S. International Trade Commission (ITC), one deemed that imports hurt the tin-mill industry, while two others saw injury to a more broadly defined industry that included products other than tin-mill. President Bush added these together to get the three votes necessary under U.S. trade laws to invoke the safeguard measures. Multiple injury findings in different product and industry definitions are based on different sets of import and injury data, and in essence are irreconcilable. The WTO panel ruled, pointing out this contradiction among the three commissioners' views, that the imposition of the U.S. safeguard measures constituted a violation of WTO rules because they were not based on substantial grounds. The Appellate Body, however, reversed the panel's conclusion because it failed to consider the individual views of the three commissioners, and even did not rule on whether safeguard measures can be rationally justified if they are imposed based on the plural injury findings of each differently defined industry. If I may say so, risking accusations of reading too much into it, perhaps the Appellate Body deliberately avoided any debate that could have been taken as interference in the independent administrative commissions with multimember decision-makings, which form the governing structure of the U.S.
The same thing can be said about causation. On the steel dispute, the Appellate Body clearly stated that because the safeguard measures were in obvious violation of WTO rules on other claims, there was no need to rule on causal relationship between imports and serious injury to domestic industry. The Appellate Body, while recognizing that the U.S. as a complained party had strongly sought a ruling on this issue, pounced on a U.S. demand during an oral hearing for a ruling that would serve as a guideline for future agreement consistency, and stopped at merely introducing some precedents as "guidelines." The Appellate Body's attitude not only failed to contribute to the development of case law on the opaque matter of causal relationships that is widely criticized by member nations, it is also questionable whether it was legally appropriate in light of Article 17:12 of the DSU, which stipulates that all questions presented to the body must be answered ("The Appellate Body shall address each of the issues raised...").
It is true that overlooking the DSU shows that its principle aim is clearly to settle individual disputes, and that the findings of a panel or the Appellate Body only affect the members concerned in a particular case, and do not bind their rulings. But on the other hand, Article 3:2 of the DSU describes the dispute settlement process as "a central element in providing security and predictability to the multilateral trading system," and clarification of the agreements through the accumulation of precedents is an important objective of the dispute settlement process. I recently had an opportunity to see the minutes of speeches by Mr. James Bacchus, who had been a member of the Appellate Body since the WTO's establishment and served two four-year terms before leaving last December. Coincidentally, the steel dispute was the last case for which he chaired a division before leaving the body, and the minutes show that he was sufficiently aware of the fact that the WTO was developing through a certain form of precedent law...
Safeguard measures that can be used in moderation and the prevention of their abuse - although it is difficult, the Safeguards Agreement must contribute to maintaining this balance. The current system, however, clearly lacks this balance because safeguard measures themselves are very hard to handle and rebalancing still remains a vulnerable system. In my view, the U.S. steel case brought these issues into sharp relief again and prompted member nations to reconsider what safeguard measures should be under the WTO regime.
However, the reality is that revision of the Safeguards Agreement is not included in the Doha Development Agenda. Even if it had been included, it is not hard to imagine that negotiations would have fallen into a quagmire as a result of lengthy debates on technical issues, just as in the ongoing negotiations to clarify and improve the Antidumping Agreement. Under such circumstances, there is probably no other choice for the time being but for member nations to exercise prudence and refrain from the political abuse of safeguard measures so as not to burden the WTO system.
January 4, 2004
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