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T.7.1 Article 6 — Transitional safeguard back to top
T.7.1.1 US — Wool Shirts and Blouses, p. 16, DSR 1997:I, p. 323
at 337
(WT/DS33/AB/R, WT/DS33/AB/R/Corr.1)
We do not believe that these particular previous GATT 1947 panel
reports are relevant in this case. This case concerns Article 6 of the ATC.
The ATC is a transitional arrangement that, by its own terms, will
terminate when trade in textiles and clothing is fully integrated into the
multilateral trading system. Article 6 of the ATC is an integral
part of the transitional arrangement manifested in the ATC and
should be interpreted accordingly. As the Appellate Body observed in United
States — Restrictions on Imports of Cotton and Man-Made Fibre Underwear with
respect to Article 6.10 of the ATC, we believe Article 6 is “carefully
negotiated language … which reflects an equally carefully drawn balance
of rights and obligations of Members … ”. That balance must be
respected.
T.7.1.2 US — Cotton Yarn, para. 81
(WT/DS192/AB/R)
There is no need for the purpose of this appeal to express a view on
the question whether an importing Member would be under an obligation,
flowing from the “pervasive” general principle of good faith that
underlies all treaties, to withdraw a safeguard measure if
post-determination evidence relating to pre-determination facts were to
emerge revealing that a determination was based on such a critical factual
error that one of the conditions required by Article 6 turns out never to
have been met.
T.7.2 Article 6.2 — “determination”
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T.7.2.1 US — Cotton Yarn, para. 76
(WT/DS192/AB/R)
Unlike Article 3 of the Agreement on Safeguards, which provides
explicitly for an investigation by competent authorities of a Member,
Article 6 of the ATC does not specify either the organ or the
procedure through which a Member makes its “determination”. …
T.7.2.2 US — Cotton Yarn, para. 77
(WT/DS192/AB/R)
… The demonstration by a Member that a particular product is being
imported into its territory in such increased quantities as to cause
serious damage (or actual threat thereof) to the domestic industry can be
based only on facts and evidence which existed at the time the
determination was made. The urgent nature of such an investigation may not
permit the Member to delay its determination in order to take into account
evidence that might be available only at a future date. …
T.7.3 Article 6.2 — “domestic industry”
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T.7.3.1 US — Cotton Yarn, para. 86
(WT/DS192/AB/R)
A plain reading of the phrase “domestic industry producing like
and/or directly competitive products” shows clearly that the terms “like”
and “directly competitive” are characteristics attached to the
domestic products that are to be compared with the imported product. We
are, therefore, of the view that the definition of the domestic
industry must be product-oriented and not producer-oriented, and that
the definition must be based on the products produced by the domestic
industry which are to be compared with the imported product in terms
of their being like or directly competitive.
T.7.3.2 US — Cotton Yarn, para. 95
(WT/DS192/AB/R)
… Article 6.2 permits a safeguard action to be taken in order to
protect a domestic industry from serious damage (or actual threat thereof)
caused by a surge in imports, provided the domestic industry is identified
as the industry producing “like and/or directly competitive products”
in comparison with the imported product. The criteria of “like” and
“directly competitive” are characteristics attached to the domestic
product in order to ensure that the domestic industry is the appropriate
industry in relation to the imported product. The degree of proximity
between the imported and domestic products in their competitive
relationship is thus critical to underpin the reasonableness of a
safeguard action against an imported product.
T.7.4 Article 6.2 — “directly competitive products”. See
also Directly Competitive or Substitutable Products (D.1)
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T.7.4.1 US — Cotton Yarn,
paras. 96-98
(WT/DS192/AB/R)
According to the ordinary meaning of the term “competitive”, two
products are in a competitive relationship if they are commercially
interchangeable, or if they offer alternative ways of satisfying the same
consumer demand in the marketplace. “Competitive” is a characteristic
attached to a product and denotes the capacity of a product to
compete both in a current or a future situation. The word “competitive”
must be distinguished from the words “competing” or “being in actual
competition”. It has a wider connotation than “actually competing”
and includes also the notion of a potential to compete. It is not
necessary that two products be competing, or that they be in actual
competition with each other, in the marketplace at a given moment in order
for those products to be regarded as competitive. Indeed, products which
are competitive may not be actually competing with each other in the
marketplace at a given moment for a variety of reasons, such as regulatory
restrictions or producers’ decisions. Thus, a static view is incorrect,
for it leads to the same products being regarded as competitive at one
moment in time, and not so the next, depending upon whether or not they
are in the marketplace.
It is significant that the word “competitive” is qualified by the
word “directly”, which emphasizes the degree of proximity that must
obtain in the competitive relationship between the products under
comparison. As noted earlier, a safeguard action under the ATC is
permitted in order to protect the domestic industry against competition
from an imported product. To ensure that such protection is reasonable, it
is expressly provided that the domestic industry must be producing “like”
and/or “directly competitive products”. …
When … the product produced by the domestic industry is not a “like
product” as compared with the imported product, the question arises how
close should be the competitive relationship between the imported product
and the “unlike” domestic product. It is common knowledge that unlike
or dissimilar products compete or can compete in the marketplace to
varying degrees, ranging from direct or close competition to remote or
indirect competition. The more unlike or dissimilar two products are, the
more remote or indirect their competitive relationship will be in the
marketplace. The term “competitive” has, therefore, purposely been
qualified and limited by the word “directly” to signify the degree of
proximity that must obtain in the competitive relationship when the
products in question are unlike. Under this definition of “directly”,
a safeguard action will not extend to protecting a domestic industry that
produces unlike products which have only a remote or tenuous competitive
relationship with the imported product.
T.7.4.2 US — Cotton Yarn, para. 105
(WT/DS192/AB/R)
… we find that combed cotton yarn produced by vertically integrated
fabric producers for their internal consumption is “directly competitive”
with combed cotton yarn imported from Pakistan. …
T.7.5 Article 6.2 —
“like products” back to top
T.7.5.1 US — Cotton Yarn, para. 97
(WT/DS192/AB/R)
… Like products are, necessarily, in the highest degree of
competitive relationship in the marketplace. In permitting a safeguard
action, the first consideration is, therefore, whether the domestic
industry is producing a like product as compared with the imported product
in question. If this is so, there can be no doubt as to the reasonableness
of the safeguard action against the imported product.
T.7.6 Article 6.4 — Attribution of serious damage. See also Principles
and Concepts of General Public International Law, Proportionality (P.3.6)
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T.7.6.1 US — Cotton Yarn,
paras. 114-115
(WT/DS192/AB/R)
The first requirement is that the attribution be confined to only those
Members from whom imports have shown a sharp and substantial increase.
Such Members will be identified on an individual basis by virtue of the
wording in Article 6.4, second sentence, “on the basis of a sharp and
substantial increase in imports, actual or imminent, from such a Member or
Members individually” (footnote omitted). The Panel interpreted the term
“sharp” to refer to the rate of the import increase, and the term “substantial”
to the amount of that increase. These interpretations of the Panel have
not been appealed and are, therefore, not before us.
The second requirement of Article 6.4, second sentence, is a
comparative analysis, in the event that there is more than one Member from
whom imports have shown a sharp and substantial increase in its imports.
The conduct of the comparative analysis is governed by the latter part of
the second sentence of Article 6.4 …
T.7.6.2 US — Cotton Yarn, paras. 118-119
(WT/DS192/AB/R)
Article 6.4 provides, in relevant part, that “[t]he Member or Members
to whom serious damage … is attributed, shall be determined on the
basis of a sharp and substantial increase in imports … from
such a Member or Members” (emphasis added). The clear inference from
this phrase is that the sharp and substantial increase of imports from such
a Member determines not only the basis, but also the scope of
attribution of serious damage to that Member.
In consequence, where imports from more than one Member contribute to
serious damage, it is only that part of the total damage which is
actually caused by imports from such a Member that can be attributed to
that Member under Article 6.4, second sentence. Damage that is actually
caused to the domestic industry by imports from one Member cannot, in our
view, be attributed to a different Member, imports from whom were not the
cause of that part of the damage. This would amount to a “mis-attribution”
of damage and would be inconsistent with the interpretation in good faith
of the terms of Article 6.4. Therefore, the part of the total serious
damage attributed to an exporting Member must be proportionate to the
damage caused by the imports from that Member. Contrary to the view of the
United States, we believe that Article 6.4, second sentence, does not
permit the attribution of the totality of serious damage to one Member,
unless the imports from that Member alone have caused all the serious
damage.
T.7.6.3 US — Cotton Yarn, para. 121
(WT/DS192/AB/R)
… most significantly, if the totality of serious damage could be
attributed to only one of those Members the imports from whom have
contributed to it, there would be no need to undertake a comparative
analysis of the effects of imports from that one Member, once the imports
from that Member have been found to have increased sharply and
substantially; such an interpretation would reduce a whole segment of
Article 6.4 to inutility.
T.7.6.4 US — Cotton Yarn,
paras. 122-124
(WT/DS192/AB/R)
We now turn to the question of how to conduct the comparative analysis
required by Article 6.4. This analysis is to be seen in the light of the
principle of proportionality as the means of determining the scope or
assessing the part of the total serious damage that can be attributed to
an exporting Member. We recall that Article 6.4 enjoins the importing
Member to conduct this comparative analysis on a multifactor basis
including “levels of imports”, “market share” and “prices”,
while specifying that none of these factors alone or in combination with
other factors can necessarily give decisive guidance. The comparison is to
take place between the effects of imports from the Member in question, on
the one hand, and those of imports from other sources, on the other. The
comparison must thus be based on a variety of factors, each of which has a
different significance and weight, and is to be measured on a different
scale.
It is of course possible to compare the level of imports of one Member
with the level of imports from other sources taken together. Likewise, it
is possible to establish the market share of one Member in comparison with
all other imports and the output of the domestic industry. However, the
full effects of the level of imports from, and the market share of, one
Member can only be assessed if this level and this share are compared individually
with the level of imports from, and the market share of, the other
Members from whom imports have also increased sharply and substantially.
This conclusion is even more obvious for the comparison of import and
domestic prices. The price of imports from one Member can be compared with
the average price of imports from other sources and with domestic prices.
However, prices of imports from the other Members may vary widely from one
another. A fair assessment of the effects of the price of imports from one
Member will therefore require a comparison with the price of imports from
other Members taken individually. Moreover, these different factors
interact in different ways, producing different effects, under different
circumstances, not to mention the possible existence of other relevant
factors (and their effects) that must be taken into account in the
comparison according to the proviso at the end of Article 6.4, second
sentence.
An assessment of the share of total serious damage, which is
proportionate to the damage actually caused by imports from a particular
Member, requires, therefore, a comparison according to the factors
envisaged in Article 6.4 with all other Members (from whom imports have
also increased sharply and substantially) taken individually.
T.7.7 Article 6.10 — No backdating of a safeguard
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T.7.7.1 US — Underwear, p. 14, DSR 1997:I, p. 11 at 22
(WT/DS24/AB/R)
It is essential to note that, under the express terms of Article 6.10, ATC,
the restraint measure may be “applied” only “after the expiry of the
period of 60 days” for consultations, without success, and only within
the “window” of 30 days immediately following the 60-day period.
Accordingly, we believe that, in the absence of an express authorization
in Article 6.10, ATC, to backdate the effectivity of a safeguard
restraint measure, a presumption arises from the very text of Article 6.10
that such a measure may be applied only prospectively. …
T.7.7.2 US — Underwear, p. 19, DSR 1997:I, p. 11 at 28
(WT/DS24/AB/R)
The conclusion we have arrived at, in respect of the issue of
permissibility of backdating, is that the giving of retroactive effect to
a safeguard restraint measure is no longer permissible under the regime of
Article 6 of the ATC and is in fact prohibited under Article 6.10
of that Agreement. The presumption of prospective effect only, has
not been overturned; it is a proposition not simply presumptively correct
but one requiring our assent. …
T.7.8 Article 6.11 — Provisional application of a safeguard
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T.7.8.1 US — Underwear, p. 20, DSR 1997:I, p. 11 at 28
(WT/DS24/AB/R)
… The importing Member is, however, not defenceless against a
speculative “flood of imports” where it is confronted with the
circumstances contemplated in Article 6.11. Its appropriate recourse is,
in other words, to action under Article 6.11 of the ATC, complying
in the process with the requirements of Article 6.10 and Article 6.11.
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