WTO Rules Against US Safeguard Measures on Steel

Eliza Patterson
November 18, 2003
On November 10, 2003 the World Trade Organization Appellate Body issued its report in the complaint brought by Brazil, China, the European Communities, Japan, Korea, New Zealand, Norway, and Switzerland against the US imposition of safeguard measures on certain steel products. [1] The Appellate Body upheld a prior Panel ruling that the US measures were inconsistent with the WTO Safeguards Agreement and GATT 1994. [2] Consequently the Appellate Body recommended that the WTO Dispute Settlement Body request the US to bring its measures into conformity. [3] [4]
In June 2001, the US International Trade Commission (USITC) initiated a safeguard investigation under Section 201 of the Trade Act of 1974 [5] at the request of the US Trade Representative in order to determine whether certain steel products were being imported into the United States "in such increased quantities as to cause or threaten to cause serious injury to the domestic industry producing like or directly competitive products." [6]
Pursuant to the investigation the USITC made affirmative determinations for numerous steel product categories under investigation and recommended that tariffs be increased on those products. Based on the USITC recommendation, President Bush, on March 5, 2002, signed a proclamation imposing increased tariffs on imports of ten categories of steel products. [7] [8]   The duties, referred to as "safeguard measures," ranged from 30% to 8% and went into effect on March 20, 2002, for a period of three years. [9]
On June 3, 2002, a WTO dispute settlement panel was established at the request of the European Communities to examine the consistency of the US safeguard measures with WTO rules. Complaints on the same matter by Japan, Korea, China, Norway, Switzerland, New Zealand and Brazil were subsequently submitted to the same Panel. [10]
The Agreement on Safeguards and Article XIX of  GATT 1994 provide that a WTO member may apply safeguard measures only if, following an investigation by competent authorities, it determines that imports have increased, that the increase was a result of unforeseen developments and that the increased imports have caused, or threatened to cause, its domestic industry to suffer serious injury. The Agreement further provides that the competent authorities must issue a "report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law." [11]  
The Panel concluded that all ten US safeguard measures were inconsistent with the Agreement on Safeguards and the GATT 1994. [12]   Specifically, the Panel found that the US had failed to "provide a reasoned and adequate explanation of their conclusion"  (1) that imports had increased; (2) that a causal link existed between the increased imports and serious injury to the domestic industry;  and (3) that  the increased imports had resulted from "unforeseen developments." [13]   The Panel recommended that the Dispute Settlement Body request that the US bring all the safeguard measures into conformity with its WTO obligations. [14]
On August 14, 2003, the US appealed the Panel ruling. [15] [16]
The Appellate Body's ruling on November 10 largely [17] upheld the initial Panel's conclusions, specifically its focus on the inadequacy of the US explanation of how the facts supported the conclusion that each of the elements of a safeguard case had been met. It is noteworthy that the WTO violation resulted from the inadequacy of explanation and not from a fault in US law. The Appellate Body emphasized throughout its report that safeguard measures were considered extraordinary measures and that consequently WTO members had an obligation to clearly set forth the rationale for their determinations.
On the question of increased imports, the Appellate Body ruled that the USITC failed to provide a reasoned and adequate explanation of how the facts supported its determination that the increase in imports had been recent enough, sudden enough, sharp enough and significant enough to cause serious injury. [18]  
On the issue of "unforeseen developments," the Appellate Body similarly concluded that the USITC report was wanting in reasoning. [19] The USITC had found that the Asian and Russian financial crisis, together with the strong US dollar and economy, were the cause of the increased imports and that those economic developments were "unforeseen." The Appellate Body did not question the existence of those developments or the claim that they were unforeseen. Neither did it question that the developments might have caused the import surge. Rather, it ruled that USITC had failed to provide a logical explanation of how such causation actually occurred. [20]
The Appellate Body declined to rule on the general question of whether the USITC had failed to demonstrate a causal link between increased imports and serious injury, viewing such a decision as unnecessary in light of the other violations. [21]
The Appellate Body Report is set to be adopted by the Dispute Settlement Body in early December. If the US does not comply with the ruling by removing the safeguard tariffs, the EU and other complainants are expected to seek, and receive, DSB authorization to raise duties on imports from the US in amounts equal to the trade lost by their steel companies as a result of the illegal US safeguard measures. The combined retaliation will affect several billion dollars worth of US exports. [22]
The US is currently seeking a compromise solution that will enable it to continue some protection for the US steel industry while avoiding foreign retaliation. To date the EU has rejected compromise, arguing that the WTO ruling was clear and that the US must withdraw the illegal safeguard measures or face retaliation.
[1] WT/DS248/AB/R, WT/DS249/AB/R, WT/DS251/AB/R, WT/DS 252?ab?r, WT/DS253/AB/AB/R. WT/DS254/AB/R, WT/DS258/AB/R,WT/DS259/AB/R.
[2] The Agreement on Safeguards and the GATT 1994 are each part of the body of substantive rules that make up the WTO and are binding on all members. They are contained in Annex IA to the Agreement Establishing the WTO.
[3] AB Report para. 514.
[4]   The Understanding on Rules and Procedures Governing the Settlement of Disputes (Annex 2of the Agreement Establishing the WTO) establishes the Dispute Settlement Body to administer dispute settlement provisions. The DSB has authority to adopt panel and Appellate Body reports. Thus it is technically the DSB rather than the Panel or Appellate Body which would issue a request that a member come into compliance.  Article 19 of the DSU provides that when the AB concludes that a measure is inconsistent with a covered agreement, it shall recommend that the member concerned bring the measure into conformity with the agreement.
[5] 19 USC 2251 et seq.
[6] USITC inv. No. TA-201-73.
[7] Proc. 7529.
[8]  Safeguard measures were applied to imports of CCFRS, tin mill products, hot-rolled bar, cold-finished bar, rebar, welded pipe, FFTJ, stainless steel bar; stainless steel rod and stainless steel wire.
[9] See ASIL Insight, The US Provides Section 201 Relief for the American Steel Industry, March 2002, by Eliza Patterson.
[10] The Panel issued 8 reports in the form of one document (hereinafter "Panel Reports"): WT/DS248/R, WT/DS249/R, WT/DS251/R, WT/DS252/R,WT/DS253/R, WT/DS254/R, WT/DS258/R, WT/DS259/R and Corr.1,11 July 2003. 
[11] Safeguard Agreement Art 3.1.
[12] Panel Reports , para 11.3.
[13] Panel Reports, para 11.2.
[14] Panel Reports,para 11.4.
[15] WT/DS248/17, WT/DS249/11, WT/DS251/12m QT/DS252/10, WT/DS/253/10, WT/DS254/10, WT/DS258/14, QT/DS259/13,14 August 2003.
[16]   Article 16 of the DSU provides for a right of appeal.
[17]   The Appellate Body reversed some findings regarding tin mill products and stainless steel wire, but this did not affect the overall result of the case -- that the US safeguard measures were WTO-inconsistent and must be removed.
[18] AB report para  345.
[19] 19*AB Report para 329.
[20]   AB report para 317.
[21] The Appellate Body did rule, however, on a more technical causation issue referred to as "parallelism." The Safeguards Agreement (Articles 2.1 and 4.2) basically requires that only injury caused by increases in the imports under investigation be considered when evaluating whether serious injury exists. Any injury attributable to other causes may not be considered. The Appellate Body found that the US failed to comply with this requirement because it excluded from the case imports from nations with which the US has Free Trade Agreements -- Canada, Mexico, Israel and Jordan -- but failed to exclude those imports when it made its causation determination.(AB report paras 450-454).
[22] Article 22 of the DSU provides that the amount of retaliation shall be equivalent to the amount of harm suffered as a result of the illegal action. While it is recommended that the retaliation be in the sector in which the violation occurred -- steel in this case -- if this is not "practicable or effective," other sectors may be hit. Retaliation rarely is confined to the sector involved in the dispute and will not be in this case.
About the Author: 
Eliza Patterson is an international lawyer. She currently is an adjunct professor at Columbia University's School of International and Public Affairs and Johns Hopkins University School of Advanced International Studies. She is also a senior consultant at Market Solutions, LLC where she specializes in international commercial issues. She graduated from Harvard Law School in 1975.
By Eliza Patterson
December 2003
President Bush's repeal on December 4, 2003, of the section 201 steel tariffs imposed in March 2002 is evidence of the effectiveness of the WTO in enforcing its rules and limiting protectionism. The dispute settlement system provided a means for the EU and other US trading partners to challenge the US tariffs, obtain a reasoned ruling, be granted the authority to impose painful sanctions in the event of non compliance, and obtain compliance by the US, all in just 21 months.
The president's decision to repeal the tariffs came just 6 days before the WTO was scheduled to formally adopt its ruling that the tariffs were in violation of the WTO and 11 days prior to the initiation of WTO- authorized retaliation by the EU on $2.2 billion in US exports. Applauding the decision, the EU said that WTO-authorized sanctions were meant to be "tools for compliance" and as such had been designed to put the maximum pressure on the Administration by targeting exports from key electoral states.  The freedom granted the EU to structure the sanctions so as to exact the maximum impact appears to be critical to their effectiveness.
The president and his advisors specifically denied any connection between the tariff repeal and the threatened retaliation, citing instead US legislation authorizing termination of safeguard action following receipt of a mid-point report by the US International Trade Commission (ITC) on the results of its monitoring of the domestic industry showing "changed economic circumstances." [1]
The formal proclamation did not specify which economic circumstances had changed. However, US Trade Representative Robert Zoellick cited the ITC report and noted two changes as the basis for the decision- a decline in imports and resulting price increases, and the adverse impact of the tariffs on consumers. On the latter point, he noted that while in the first 21 months of the safeguard the benefits to the industry outweighed the cost to consumers, this was no longer the case.  Many have questioned this rationale in light of the fact that the ITC report [2] was issued in September, 3 months ago.
The proclamation was not accompanied by any new measures to aid the steel industry. The Administration did however retain the program instituted in March 2002 to monitor steel imports and promised to use self-initiated safeguard and anti-dumping measures as warranted.
[1] The presidential proclamation was issued under Section 204(b)(1)(A) of the Trade Act of 1974, as amended (19 U.S.C. 2254(b)(1)(A) which authorizes the President to reduce, modify or terminate a safeguard action if, after taking into account reports by the ITC and advice from the Secretaries of Labor and Commerce, he determines that changed economic circumstances warrant such action.
[2]   TA-204-9.