Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



WTO Agrees to Establish Panel in the United States: Tyres Safeguard Case

On January 19, 2010, the World Trade Organization (WTO) agreed to establish a DSB panel to hear the dispute United States - Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres from China (DS399) filed by China. The decision to establish a DSB panel was a foregone conclusion as the United States had blocked the creation of a panel at the last meeting of the DSB on Dec. 21, 2009. Under WTO rules, the United States was not able to prevent the dispute from moving on to the next stage of the dispute proceedings after the second request.

The measures at issue are import tariffs on certain China-made tyres of 35 percent the first year (starting September 11, 2009), 30 percent the second year and 25 percent the third year.

On September 11, 2009, President Obama gave the final green light to the first ever China-only safeguard duties despite many inquiries around the world since China joined the WTO in December 2001. His decision followed a split determination by the United States International Trade Commission on June 29, 2009 (with two commissioners dissenting), which considered a complaint filed by the United Steelworkers Union pursuant to section 421 of the Trade Act. In that decision, the majority of the Commissioners found that imports of China-made tyres had surged and that the surge has caused material injury to the domestic industry of like products.

According to the summary of the WTO web-site, China makes the following claims of WTO inconsistencies:

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.

Additionally, China maintains that these measures are not properly justified as China-specific restrictions under its Accession Protocol because the US statute authorizing these China-specific restrictions is inconsistent on its face with Article 16 of the Accession Protocol. Specifically, China alleges that the US statute defines “significant cause����� more narrowly than required by the ordinary meaning of that phrase as used in Article 16.4 of the Accession Protocol.

China also alleges that these measures are also inconsistent, as applied, with the United States' obligations under China's Accession Protocol, specifically:

  • Article 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"
  • Article 16.3 because the restrictions are being imposed beyond the “extent necessary to prevent or remedy" any alleged market disruption; and
  • Article 16.6 because the restrictions are being imposed for a period of time longer than “necessary to prevent or remedy" any alleged market disruption.

This case is a very important one to watch as the political sensitivities on both sides will run very high. More importantly, the WTO panel will test the United States use of a discriminatory trade remedy contained in Article 16 of China's Protocol of Accession. The United States may find that bad cases make bad law as the underlying facts of this particular case are not strong for the United States and the WTO has consistently found WTO inconsistencies in cases involving global safeguard measures.

It is important to note that the Transitional Safeguard Mechanism in Article 16 of China's Protocol of Accession ends on December 10, 2013. As a matter of strategy, the United States may pursue this case before the WTO Dispute Settlement Body and the Appellate Body dragging the case on for three years. At the end of the three year period (coincides with the period of the duties), the opportunity will be gone to make another attempt at China-specific safeguard duties.

It is also noteworthy that China reluctantly agreed to the inclusion of the Article 16 Transitional safeguard Mechanism which is contained only in China's protocol of Accession and is blatantly discriminatory (but has been accepted by China in the Protocol of Accession). The Government of China has vigorously used diplomatic tools at its disposal to prevent the actual imposition of these special safeguards whenever a case has been filed and a decision issued by the relevant governmental authority. The U.S. Tyres case is an unsettling precedent on many levels.

Disclosure: Cyndee Todgham Cherniak acted for the Government of China in the only China-specific safeguard case filed in Canada that proceeded to an decision by the Canadian International Trade Tribunal.

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