Argentina - Safeguard Measures on Imports of Footwear
(Continued)
5.414 The European Communities contends that Argentina confirmed that it
believed that it was justified to claim "critical circumstances" on
the basis of an anticipated situation. The
European Communities asserts that Argentina noted that "imports would
have continued the growth trend […] if the specific import duties had
not been applied"
and that "without the specific duties regime, imports would grow
even beyond existing levels".
According to the European Communities, these statements by Argentina do
not seek to discard the European Communities' claim on legal grounds, but
instead confirm that what the European Communities has stated is correct, i.e.
that Argentina based itself on a hypothetical situation to demonstrate
"critical circumstances". The
European Communities submits that Article 6 of the Agreement on Safeguards does
not allow for such an interpretation, for which Argentina does not put forward
any evidence. The European
Communities therefore requests the Panel to rule that Argentina violated Article
6 by not demonstrating actual "critical circumstances".
5.415 The European Communities states that the Agreement on Safeguards does not
recognise that serious injury or threat of serious injury can be caused by a
factor other than increased imports. Since
in the present case imports from non-MERCOSUR countries decreased, the
imposition of provisional measures was in clear violation of Argentina's
obligations. Even if imports from
both MERCOSUR countries and non-MERCOSUR countries had been taken into
consideration, total imports had still decreasing continuously since 1993 and
did not justify the adoption of provisional safeguard measures.
5.416 The European Communities contends that according to Argentine figures
mentioned
in its notification under Article 12:1(a) of the Agreement on Safeguards, import
levels of footwear decreased from 21.78 (million pairs) in 1993, to 19.84 in
1994 and 15.11 in 1995. Since the
factors which should have been analysed by Argentina are those prevailing at the
time before a safeguard measure would be taken (i.e. a continuous decrease in
imports), it is surprising that Argentina decided to impose provisional
safeguard measures. Finally, if a
safeguard measure is only applied to non-MERCOSUR countries, imports of only
non-MERCOSUR countries should have been considered in the analysis.
5.417
5.418 In addition, according to the European Communities, the WTO notification
document presented by Argentina does not contain any evidence of a causal link
between increased imports and the condition of the domestic industry.
On the contrary, Argentina stated
5.419 The European Communities submits that compliance with the causality
requirement is extremely important, since the purpose of a safeguard measure is
to allow the domestic industry to adjust to an unforeseeable change in the terms
of trade in a particular product. If
the condition of the industry is caused by any other factor than imports, such
as the natural consolidation of the industry by increasing its productivity or a
general economic crisis (the "tequila" effect in 1995, for example),
then the serious injury, allegedly suffered by the domestic industry, can not be
regarded as being caused by increased imports, and consequently, no safeguard
measure can be imposed.
5.420 The European Communities states that Argentina does not appear to have
substantially addressed its claims that Argentina had not complied with the
other requirements set out in Article 6 Agreement on Safeguards, including the
condition that there is "clear evidence that increased
imports have caused or are
threatening to cause serious injury".
2. Argument of Argentina
5.421 Argentina argues that the CNCE concluded that the absolute and relative
increase in imports during the period under investigation was the cause of
serious injury to the industry, and that there could be a further increase in
imports and deepening of the injury already verified in the absence of safeguard
measures (Act No. 338, page 47).
5.422 Argentina observes that the European Communities argues that Argentina
based its safeguard measures and its conclusion of the existence of critical
circumstances on a "hypothetical" increase in imports.
Argentina states that the basis for the conclusion with respect to the
threat of serious injury and the existence of critical circumstances lies in the
fact that the imports would have continued the growth trend already verified
throughout the investigation period if the specific import duties had not been
applied. Argentina further states
that the European Communities is completely mistaken when it says that serious
injury cannot be found coexisting with restrictive measures.
Argentina cites a safeguard investigation on footwear conducted by the
European Communities in 1988, in which the European Communities reached the same
conclusion regarding
injury, despite the effects of a quota applied during the
review period. "However, the
growth of imports from Taiwan has been restrained by the national quota applied
during this period to some of the types of footwear which were the subject of
the inquiry." This situation
is comparable to the circumstance in which an examination of injury is conducted
during a period in which an anti-dumping measure or other restriction on imports
is being applied.
5.423 Argentina asserts that the Argentine authorities analysed the evidence
gathered during the preliminary determination and confirmed the existence of
serious injury reflected in the evolution of production and sales, the state of
indebtedness and the financing capacity of the enterprises, concluding that
these facts constituted "critical circumstances" because they affected
the continuity and subsistence of the footwear manufacturers.
In the immediate term, these companies faced the risk of new closures of
factories and increased unemployment. According
to Argentina, the confidential information contained in the file made it
possible to confirm the impossibility of refinancing debts contracted by the
large enterprises and the difficulty in renewing short-term lines of credit for
the small and medium-sized enterprises. In
the first half of 1997, there was a high probability that the companies would
cease to operate, with consequences difficult to repair.
5.424 The Panel asked Argentina to identify the
"critical circumstances", in addition to the absence of minimum
specific duties after their repeal on 14 February 1997, justified the imposition
of provisional safeguard measures. Argentina
responded that in making its determination prior to
the opening of the investigation, the CNCE found that at that stage, the
vulnerability of the industry due to imports was verified and that the industry
was therefore already suffering a serious injury.
In its final determination, the CNCE confirmed the existence of this
serious injury. Thus,
since the final determination confirmed the validity of the preliminary
determination, the provisional measure was, in Argentina's view, correctly
introduced. The investigation
revealed that at the moment the provisional measure was issued, there was clear
evidence in the petition and in the preliminary investigation that without the
specific duties regime, imports would grow even beyond existing levels which
were already causing injury.
VI.
Arguments of Third Parties
6.1 In order to comply with the Panel's request that the intervention by
third parties be as short as possible, the delegations of Brazil, Paraguay and
Uruguay decided to present a joint statement conveying their views on certain
aspects of the case that is before the Panel.
6.2 Brazil, Paraguay and Uruguay state that it will come as no surprise to
the Panel that the issues that they wish to address concern certain aspects of
the interpretation given by the European Communities to Article 2.1 and 4 of the
Agreement on Safeguards. They want
to make sure that their rights under those provisions, as well as their rights
under the Agreement on Safeguards and other WTO Agreements are not altered.
6.3 The first element of the European Communities' interpretation on which
Brazil, Paraguay and Uruguay wish to comment relates to the issue of whether
imports from Members of a customs union, or of a free-trade area, can be
included in the determination of serious injury and excluded from the
application of the safeguard measure. Brazil,
Paraguay and Uruguay maintain that it is clear that the European Communities is
not questioning the right, and in their view obligation, of a Member of MERCOSUR
to exclude other Members of the customs union from the application of the
measure.
6.5 Brazil, Paraguay and Uruguay assert that Argentina makes an important
point that exceptions and specific situations are explicitly provided for in the
text of the Agreement. There is no
reason, therefore, for the European Communities, or for this Panel, to create an
exceptional provision concerning the conduct of investigations by Members of
customs unions that does not exist in the clear terms of the Agreement.
Furthermore, Brazil, Paraguay and Uruguay are of the view that Argentina
has correctly shown that the European Communities gave little attention to
footnote 1 to Article 2.1.
6.6 Brazil, Paraguay and Uruguay note that, as the Panel is aware, Argentina
has stated that MERCOSUR does not yet have in place the complete legislation and
institutions that would permit it to apply safeguard measures "as a single
unit". MERCOSUR is advancing
in the matter but, as of today measures still have to be applied on behalf of
member States, in accordance with their national legislation.
6.7 Brazil, Paraguay and Uruguay state that the footnote provides that
"all the requirements for the determination of serious injury or threat
thereof shall be based on the conditions existing in that member State and the
measure shall be limited to that member State".
There are no specific qualifications to the word "conditions".
As Argentina pointed out, all conditions that seem relevant to the
investigating authorities have to be taken in to account.
They add that what happens after the investigation has been concluded is
a separate matter. Other rights and
obligations come into effect.
6.8 Brazil, Paraguay and Uruguay argue that Footnote 1 also contains an
additional element which recommends the caution to which they referred above.
It relates to the relationship between ArticleXIX and paragraph 8
of Article XXIV of GATT. If
"nothing prejudges the interpretation" of the above-mentioned GATT
provisions, any interpretation that goes beyond the clear terms of Article 2.1
the Safeguards Agreement, whether apparently "logical" or not, should
be undertaken with the utmost care.
6.10 As an example, which is also related to Article 2.1, Brazil, Paraguay and
Uruguay refer to the European Communities' continuing wish to translate the
expression "under such conditions" into a price analysis that
determines the existence of low priced imports.
While they understand that the European Communities would like to
transform the Agreement into a reflection of its own internal legislation, they
do not share its restrictive reading of the expression "under such
conditions". It will be up to
each Member, in a specific situation, to determine what are the
"conditions" that require the application of a safeguard measure.
6.11 According to Brazil, Paraguay and Uruguay, a second example refers to the
analysis of the evolution of investments. While
they believe that each Member is free to evaluate relevant factors other than
those referred to in Article 4, they do not believe that there is an obligation
to evaluate investments, nor that the evaluation is standardised and can only be
done in a specific way.
6.12 Brazil, Paraguay and Uruguay note that while they are fully aware that
the Panel acts in accordance with its terms of reference, they respectfully
submit that the consideration of certain aspects of this case – as normally
happens in panel proceedings – may have effects that go beyond the rights and
obligations of the parties to this dispute and should be considered in such a
light.
B. Indonesia
6.13 Indonesia states that it is a significant exporter of footwear to
Argentina. In 1996 and 1997,
Indonesia was the third largest supplier of footwear to Argentina, following
Brazil and China. (Exhibit IND-1) However, since 1993 Indonesia's export of
footwear to Argentina continues to encounter restrictions.
Starting in December 1993, specific duties were imposed on Indonesia's
imports of footwear in Argentina. Although
Argentina withdrew its high specific duties on footwear and reduced its 3 per
cent statistical tax after the United States challenged these measures in a WTO
dispute in October 1996, in July 1997 Argentina notified the WTO that it had
replaced its specific duties with equally restrictive specific duties in the
form of a "safeguard measure". Under
the current regime of minimum specific duties in the form of a "safeguard
measure", import of footwear from Indonesia, and from elsewhere, subject to
duties as high as US$12.00 per unit on imports with an average unit value
between US$11.00 and US$19.00, the ad
valorem equivalents of which exceed 70 per cent in some cases (Exhibit
IND-2). The data show that
Indonesia's footwear exports to Argentina declined in 1997, both in terms of
volume and in value, as compared to 1996 (Exhibit IND-3).
6.14 Indonesia asserts that on 25 July 1997, Argentina submitted to the WTO a
notification under Article 12.1(b) of the Safeguards Agreement of a Finding of
Serious Injury or Threat Thereof Caused by Increased Imports (G/SG/N/8/ARG/1,
dated 21 August 1997). The
notification includes the report of the National Foreign Trade Commission.
Indonesia is of the view that the decision of the Argentine National
Foreign Trade Commission to impose safeguard measures on imported footwear
reveals serious inconsistencies with the Government of Argentina's obligations
under the WTO Agreement on Safeguards and Article XIX of GATT.
6.17 Similarly, Indonesia continues, the Commission failed to demonstrate a
causal link between serious injury, or threat thereof, and an increase in
imports, as stipulated in Article 4.2(b) of the Agreement on Safeguards.
Here, again, consideration of the full evidentiary record demonstrates
that imports were declining into 1996, were losing market share, and did not
cause price suppression. If the
domestic footwear industry were injured, the injury was not caused by imports.
In addition, the Commission's conjecture that the industry would be
threatened with serious injury if WTO-inconsistent specific duties were removed
was unfounded and insufficient to meet the definition of "threat of serious
injury" set forth in the Agreement on Safeguards.
6.18 Indonesia is very concerned over Argentina's application of the final
safeguard measure which, Indonesia argues, also violates Article 2.2 of the
Agreement on Safeguards. Argentina
improperly excluded from the final safeguard measures imports coming from its
MERCOSUR trading partners – the very imports that had the highest volume, the
greatest rate of increase, and the lowest average unit values.
6.19
C. United States
1. Introduction
6.20 The United States would like to touch briefly
on a number of issues arising out of the submissions of Argentina and the
European Communities in this matter. These
issues are significant not just for this dispute, but for the conduct of Members
in general in the area of safeguards. The
United States is addressing these issues here because it has a strong systemic
interest in the interpretation of Article XIX of the GATT and the Agreement on
Safeguards.
6.21 The United States submits that the safeguard
measure which has been applied by Argentina with respect to certain imports of
footwear contravenes the requirements of the Agreement on Safeguards.
The European Communities has raised a number of procedural and
substantive deficiencies in the application of the Argentine safeguard measure;
in this statement, the United States will address a number of points with
respect to the inconsistency of Argentina’s safeguard measure with Articles 2
and 5 of the Agreement on Safeguards. The
United States also brings to the Panel’s attention the recent modification by
Argentina of its safeguard measure introducing a “quantitative restriction”
on certain footwear imports. This
purported modification would appear to be inconsistent with Articles 7 and 12 of
the Agreement on Safeguards.
2. Standard of Review
6.22 The United States asserts that it is important that a panel reviewing
disputed safeguard measures apply a standard of review that provides for
meaningful surveillance to ensure that these measures were investigated and
applied in keeping with Members’ obligations under the WTO Agreement.
At the same time, however, a panel must recognise that Article 4 of the
Agreement on Safeguards specifically assigns responsibility for the
investigation and evaluation of relevant factors to the competent investigating
authorities. These national
competent authorities are in the best position to evaluate the relevant factual
evidence. Thus, the role of a panel
is not to engage in a de novo review,
but rather to ensure that the contested measure comports with the obligations of
the applying Member pursuant to Article XIX and the Agreement on Safeguards.
6.23 The United States recalls the panel in United
States - Restrictions on Imports of Cotton and Man‑Made Fibre Underwear arrived
at a similar determination regarding the standard of review applicable to the
Agreement on Textiles and Clothing (ATC). The
Underwear panel concluded that its
function was not to engage in a de
novo review, but rather to examine the consistency of a Member’s actions
with its international obligations. (Underwear,
at paras. 7.12‑7.13). In that
context, the panel decided to make an objective assessment of the written
decision of the US authorities embodying their determination and findings; this
objective assessment entailed an examination of whether those authorities had
examined all relevant facts before them, whether adequate explanation had been
provided of how the facts as a whole supported the determination made, and, consequently,
whether the determination made was consistent with the international
obligations of the United States. (Id.,
at para. 7.13).
6.24 Similarly, the United States continues, the panel on United
States ‑ Measure Affecting Imports of Woven Wool Shirts and Blouses from
India followed this standard of review in its assessment of another textile
safeguard action by the United States pursuant to the ATC.
The panel made a close examination of the written decision of
the US authorities; it commented on factors addressed in the written decision,
and dealt as well with the decision’s failure to address certain factors, and
with the issue of causation. Finally,
the panel made an overall assessment of the US determination.
However, at no time did the Wool
Shirtspanel engage in a de novoreview.
6.25 The United States observes that the findings of these two panels
concerning the issue of standard of review were adopted by the DSB without any
modification by the Appellate Body.
6.26 According to the United States, the standard
articulated above is also the appropriate standard of review for disputes
involving the application of the Agreement on Safeguards in the context of
safeguard determinations made by national authorities.
National authorities are in the best position to evaluate the facts and
determine the applicable weight to be accorded to various factors.
As the Appellate Body properly noted in EC
- Measures Concerning Meat and Meat Products (Hormones), panels “are
poorly suited to engage in such review.”
( Id., at para. 117).
Moreover, the Appellate Body also noted in Hormones
that the role of a panel is to make an objective assessment of the matter in
dispute, both as to the facts and the law, as mandated by Article 11 of the DSU.
(Id., at para. 118).
The United States submits that a panel would be assured of arriving at an
“objective assessment” of the matter in dispute if it applied a standard of
review, consistent with Underwear and Wool Shirts,
that examines whether (1) the domestic authority has examined all relevant facts
before it, including the factors listed in Article 4:2(a); (2) adequate
explanation has been provided of how the facts as a whole supported the
determination made; and (3) consequently, whether
the determination made is consistent with the international obligations of the
Member.
3. Legal Arguments
(a) Argentina’s Safeguard Measure Violates Article 2 of the Agreement on
Safeguards
6.27 The United States concurs with the European Communities that the CNCE did
not demonstrate that a product “is being imported ” into Argentina “in
such increased quantities, absolute or relative to domestic production,” as to
cause or threaten to cause serious injury, as required by Article 2.1.
As noted by the European Communities, the phrase “is being imported”
in Article 2.1 deals with current imports, as opposed to imports in years past.
In the light of Article 2.1's focus on current imports, the United States
submits that the CNCE erred in basing its increased imports finding on import
levels at the beginning and end of a 6-year period, without considering the
level of imports during the intervening years.
6.28
6.29 The United States must disagree, however, with the inference in the
European Communities’ submission that it was inappropriate for the CNCE to review
import data for a 5-6 year period in determining whether imports have increased.
Article 2.1 does not specify a time period to be examined, but only
requires that the Member find that the product “is being imported” in such
increased quantities. In the view
of the United States, a period of 5 years would not be inappropriate, since it
would allow the competent authority to examine imports over a period of time and
put current imports in perspective. A
5-year period also may allow the competent authority to examine fully the
factors other than imports that may affect the industry’s performance.
The US International Trade Commission, which makes the injury
determinations under the US safeguard law, typically examines imports over a
period of 5 years. According to the
United States, what the CNCE must show, and failed to show, is that, based on an
evaluation of the import data before it, a product “is being imported
. . . in such increased quantities” as to cause or threaten to cause
serious injury to the domestic industry.
6.30 Similarly, the United States disagrees with the
European Communities’ assertion that Argentina violated Article 2.1, inter
alia, because the CNCE failed to “demonstrate convincingly that imports
had gone up sharply over the most recent period . . . .”
(emphasis added)
Article 2.1 does not
specify an amount or degree by which imports must have increased.
However, the amount or degree of the increase in the level of imports
would be relevant to the question of causation.
6.31 In response to questioning from the Panel
concerning the relationship between the footnote to Article 2.1 of the Agreement
on Safeguards and the MFN obligation contained in Article 2.2, the United
States asserted that Article 2.2 of the Agreement on Safeguards contains a
general requirement that safeguard measures be applied to a product on an MFN
basis; as a general rule, safeguard
measures may not be applied in a manner that discriminates between or among WTO
Member countries. The footnote to
Article 2.1, on the other hand, references a specific instance where derogation
from the MFN principle is permissible – that is, where a customs union or
free-trade area is implicated. Furthermore,
the footnote to Article 2.1 maintains that "[n]othing in this Agreement
prejudges the interpretation of the relationship between Article XIX and
paragraph 8 of Article XXIV of GATT".
The relationship between the MFN requirement of Article 2.2 and the
footnote to Article 2.1 of the Agreement on Safeguards parallels the
relationship between the general requirement of MFN treatment under Article I of
the GATT, and the provisions of Article XXIV recognising the discriminatory
elements inherent in customs unions and free trade areas.
Accordingly, the footnote makes clear that nothing in the Agreement on
Safeguards prejudices the interpretation of the relationship between the MFN
obligation in Article 2.2 and the ability of Members to derogate from that
obligation as part of a customs union or free-trade area.
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