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Complaint by China.
On 14 September 2009, China requested consultations with the United States concerning increased tariffs on certain passenger vehicle and light truck tyres (subject tyres) from China. The decision was announced on 11 September 2009 following an investigation pursuant to section 421 of the Trade Act of 1974 (19 U.S.C. 2451 et seq.). The USITC determined that there was market disruption as a result of rapidly increasing imports of subject tyres from China that were a significant cause of material injury to the domestic industry. Following a Presidential decision additional duties were imposed on subject tyres imports for a three year period in the amount of 35 per cent ad valorem in the first year, 30 per cent ad valorem in the second year and 25 per cent ad valorem in the third year (the tyres measure). This measure took effect on 26 September 2009.
According to China the higher tariffs are inconsistent with Article I:1 of the GATT 1994 and have not been properly justified pursuant to Article XIX of the GATT 1994 and the Agreement on Safeguards.
China also maintains that these measures are not properly justified as China-specific restrictions under paragraph 16 of its Protocolof Accession. Specifically, China alleges that the US statute defines “significant cause” more narrowly than required by the ordinary meaning of that phrase as used in paragraph 16.4 of the Protocol of Accession.
China also alleges that these measures are also inconsistent, as applied, with the United States' obligations under China's Protocol of Accession, specifically:
- paragraphs 16.1 and 16.4 because (a) imports from China were not “in such increased quantities” and were not “increasing rapidly”; (b) imports from China were not a “significant cause” of material injury or threat thereof; and (c) the domestic tyre producers were not experiencing “market disruption” or “material injury”;
- paragraph 16.3 because the restrictions are being imposed beyond the “extent necessary to prevent or remedy” any alleged market disruption; and
- paragraph 16.6 because the restrictions are being imposed for a period of time longer than “necessary to prevent or remedy” any alleged market disruption.
On 9 December 2009, China requested the establishment of a panel. At its meeting on 21 December 2009, the DSB deferred the establishment of a panel.
Panel and Appellate Body proceedings
At its meeting on 19 January 2010, the DSB established a panel pursuant to the request from China. The European Union, Japan, Chinese Taipei, Turkey and Viet Nam reserved their third-party rights. On 2 March 2010, China requested the Director-General to determine the composition of the panel. On 12 March 2010, the Director-General composed the panel. On 31 May 2010, the Chairman of the panel informed the DSB that the panel would not be able to complete its work in six months in light of scheduling conflicts. The panel expected to complete its work in November 2010.
On 8 November 2010, the final report was issued to the parties. On 13 December 2010, the panel report was circulated to Members. China made seven specific claims in this dispute based on paragraph 16 of the Protocol, and GATT 1994. In respect of the Protocol, China asked the panel to find that:
- the United States failed to evaluate properly whether imports from China were in “such increased quantities” and “increasing rapidly” as required by paragraphs 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;
- the United States failed to evaluate properly whether imports from China were a “significant cause” as required by paragraphs 16.1 and 16.4 of the Protocol;
- the United States imposed a transitional safeguard measure that went beyond the “extent necessary”, and thus it was inconsistent with paragraph 16.3 of the Protocol;
- the United States imposed a transitional safeguard measure for a three-year period that went beyond “such period of time” that was “necessary”, and thus it was inconsistent with paragraph 16.6 of the Protocol.
Regarding China's claims under GATT 1994, China asked the panel to find that:
- the transitional safeguard measure was inconsistent with Article I:1 of the GATT 1994 as the United States did not accord the same treatment that it grants to passenger vehicle and light truck tyres originating in other countries to like products originating in China;
- 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.
China asked that the panel recommend that the United States promptly comply with its obligations and withdraw the tyres measure.
The United States asked the panel to reject China's claims in their entirety.
The relationship between paragraphs 16.1 and paragraph 16.4 of the Protocol
China argued that the phrase “in such increased quantities” in paragraph 16.1 of the Protocol, which also appears in Article 2.1 of the Agreement on Safeguards, was a base level requirement in addressing increasing imports under the Protocol. In accordance with case law under the Agreement on Safeguards, China argued that imports, as a first step, needed to be sudden enough, sharp enough, and significant enough to cause injury. Only after that first step had been achieved would the focus then shift to paragraph 16.4 of the Protocol where imports would also need to meet the requirement of “increasing rapidly”.
The panel rejected this approach. The panel found that paragraph 16.4 clarified the substance of the conditions for taking action under paragraph 16 of the Protocol — i.e. that imports had to be “increasing rapidly” and that there had to be “a significant cause” of material injury to the domestic industry. Therefore, in this regard the panel's findings focused on paragraph 16.4 of the Protocol rather than paragraph 16.1.
Panel's findings and conclusions
Essentially, China's claims focused on five issues:
- China argued that despite the absolute increases in subject imports, a decline in the rate of increase in the final year of the period of investigation (2008) meant that subject imports were not “increasing rapidly” in accordance with paragraph 16.4 of the Protocol. The panel disagreed and found that subject imports were increasing rapidly, both absolutely and relatively, in accordance with the Protocol.
- China asserted that the United States' “contributes significantly” definition in its statute was at odds with the ordinary meaning of the “significant cause” standard in paragraph 16.4 of the Protocol. The panel rejected this “as such” argument.
- China claimed that the USITC failed to properly demonstrate that subject imports were a “significant cause” of market disruption. China's claim was based on three principal arguments: (1) a failure by the USITC to show conditions of competition between subject imports and the domestic product to support a finding of causation; (2) a failure by the USITC to establish any temporal correlation between rapidly increasing subject imports and material injury to the domestic industry; and (3) a failure by the USITC to address alternative causes of material injury to the domestic industry. The panel rejected all of China's arguments.
- China claimed that the remedy applied in this case was inconsistent with paragraph 16.3 of the Protocol as it was not limited to the market disruption caused by rapidly increasing imports; and that, contrary to paragraph 16.6, the three year duration exceeded the period of time necessary to prevent or remedy the market disruption. The panel found that China had failed to establish a prima facie case in relation to both of these remedy claims.
- The panel found that China's claims under GATT 1994 were dependent on its claims under paragraph 16 of the Protocol. They were, therefore, similarly unsuccessful.
The panel concluded that in imposing the transitional safeguards measure on 26 September 2009 in respect of imports of subject tyres from China, 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. The panel also found that there was no “as such” violation in respect of the US statute implementing the causation standard of paragraph 16 of the Protocol.
On 27 January 2011, China and the United States requested the DSB to adopt a draft decision extending the 60-day time period stipulated in Article 16.4 of the DSU, to 24 May 2011. At its meeting on 7 February 2011, the DSB agreed that, upon a request by China and the United States, the DSB, shall no later than 24 May 2011, adopt the panel report, unless the DSB decides by consensus not to do so or China or the United States notifies the DSB of its decision to appeal pursuant to Article 16.4 of the DSU.
On 24 May 2011, China notified the DSB of its decision to appeal to the Appellate Body certain issues of law and legal interpretation covered in the panel report. On 22 July 2011, the Chair of the Appellate Body informed the DSB that due to the time required for completion of its report, the Appellate Body would not be able to circulate its report within 60 days. The Appellate Body estimated that the report will be circulated no later than 5 September 2011.
On 5 September 2011, the Appellate Body report was circulated to Members.
Summary of key findings
China appealed aspects of the Panel's finding that, in imposing the safeguard measure in respect of imports of certain passenger vehicle and light truck tyres from China, the United States did not act inconsistently with its obligations under Section 16 of China's Accession Protocol. 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 Appellate Body upheld the Panel's finding that the USITC did not fail to properly evaluate whether imports from China met the specific threshold under Paragraph 16.4 of China's Accession Protocol of “increasing rapidly”. 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.
With respect to the particular causation standard set out under Paragraph 16.4 of China's Accession Protocol, the Appellate Body found that the term “a significant cause” in Paragraph 16.4 of the Protocol requires that rapidly increasing imports make an “important” or “notable” contribution in bringing about material injury to the domestic industry. 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.
Turning to China's specific claims of error in relation to the Panel's review of the USITC's causation analysis, the Appellate Body upheld the Panel's finding that the USITC did not err in its assessment of the conditions of competition in the overall US tyres market. The Appellate Body 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 that rapidly increasing imports from China were a significant cause of material injury to the domestic industry.
The Appellate Body also upheld the Panel's finding that China failed to establish that the USITC improperly attributed injury caused by other factors to imports from China. The Appellate Body found that the Panel did not err in its review of the USITC's analysis of the US industry's business strategy and the reasons for certain US plant closures; did not err in concluding that the USITC properly found that imports from China had injurious effects independent of changes in demand; and did not improperly attribute to Chinese imports the effects of imports from third countries. The Appellate Body said it considered the Panel's analysis to have been sufficient particularly given that, under Paragraph 16.4 of the Protocol, rapidly increasing imports from China may be one of several causes that contribute to producing or bringing about material injury to the domestic industry.
Finally, the Appellate Body found that the Panel did not act inconsistently with Article 11 of the DSU in its review of the USITC's causation analysis.
On 5 October 2011, the DSB adopted the Appellate Body report and the panel report, as upheld by the Appellate Body report.
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