Argentina - Safeguard Measures on Imports of Footwear
(Continued)
6.32 In response to questioning from the Panel
concerning the significance of the placement of footnote 1 to Article 2.1
immediately after the word "Member", and whether this could imply that
the footnote refers only to those customs unions that are themselves Members of
the WTO, the United States maintained that the placement of the footnote did not
reflect the intention that the footnote refer only to customs unions that are
WTO Members. The United States
submitted, therefore, that the Panel and the parties should refrain from reading
a purpose into the text that was never intended.
Reviewing the drafting history of the provision, the United States
submitted that the placement of the footnote after "contracting party"
in paragraph 2 of the text up through 1991 was necessary because the text only
applied to contracting parties and the European Communities was never a
contracting party to the GATT. In
1992, when the Legal Drafting Group substituted the word "Member" for
the phrase "contracting party", the group could not alter the
placement of footnote 1 because such a change would have been viewed as a
substantive change going beyond the explicitly limited mandate of the Legal
Drafting Group
(b)
Argentina’s
Safeguard Measure Violates Article 5 of the Agreement on Safeguards
6.34
6.35 In short, the United States argues, Argentina appears to concede that the
source of its injurious footwear imports is MERCOSUR.
In its final determination of serious injury, notified to the Committee
on Safeguards on August 21, 1997 (G/SG/N/8/ARG/1), the CNCE acknowledged that
the MERCOSUR countries, Brazil in particular, were the principal suppliers of
subject footwear products, and that MERCOSUR
imports had, in large part, supplanted global footwear imports.
Specifically, the CNCE concluded that:
The
MERCOSUR countries and in particular Brazil, not being affected by the DIEM,
were the sources to benefit from an increase in Argentine purchases by diversion
of trade. Brazil’s share of total
imports rose from 7.7 per cent in c.i.f. value terms in 1993 ($9.9 million) to
31 per cent ($36.1 million) in 1996, which made it the principal foreign
footwear supplier.
The
CNCE also concluded that:
Between
1994 and 1996 the value of imports from the rest of the world fell by more than
$45 million, whereas the increase in imports of MERCOSUR origin was $22 million,
so that total imports declined significantly after 1994.
6.36 The United States maintains
that despite identifying MERCOSUR as the source of the injurious imports,
however, Argentina proceeded to implement a safeguard measure that was not
designed to affect the imports that caused the injury, and thus could not remedy
the serious injury suffered by the domestic industry nor facilitate its
adjustment to import competition.
6.37 Again, the United States does not question the propriety of investigating
imports from all sources or excluding customs union partners from the
application of a safeguard measure. What
the United States finds troubling, however, is Argentina’s use of MERCOSUR
imports for its increased-imports analysis when there was no
possibility that those imports could be included in any safeguard action,
even where those imports are demonstrably the cause of the injury suffered by
the domestic industry. (As the
Panel is aware, under Article 98 of the MERCOSUR regulations, MERCOSUR members
exclude each other from the application of their safeguard measures).
6.38 In response to this dilemma, the United States submits, Argentina merely
posits that “it is reasonable to consider them [MERCOSUR and
third
6.39 In response to questioning from the Panel
concerning whether the introduction of any safeguard measure would be WTO-inconsistent
in a situation where imports showed a decreasing trend at the end of an
investigation period even where imports at the end were still higher than at the
beginning of the investigation period, the United
States asserted that the fact that imports showed a decreasing trend towards
the end of the investigative period does not preclude a Member from applying a
safeguard measure. The question is
whether the evidence demonstrates, as required by Article 2.1 of the Agreement
on Safeguards, that the product under investigation "is being imported …
in such increased quantities … as to cause or threaten to cause serious injury
to the domestic industry". Imports
may show a decreasing trend towards the end of the investigative period for a
number of reasons, including the timing of shipments, the seasonality of the
product, or importer concern about the investigation.
In deciding whether the requirements of Article 2.1 are
satisfied, a Member should carefully consider whether it is temporary or of
longer duration. A trend of several
months may simply reflect irregular shipments.
A trend of several years would normally imply a more permanent change in
direction of imports of a given product, and suggest that the product is not
being imported in increased quantities. In
the US view, in this instance, the CNCE's own data show that Argentina footwear
imports have trended downward in recent years.
The CNCE has failed to demonstrate how it concluded, in the face of such
data, that footwear "is being imported" into Argentina "in such
increased quantities" as to cause or threaten to cause serious injury to
the Argentina footwear industry. According
to the United States, assuming a Member has made an adequate injury
determination, the fact that imports show a decreasing trend towards the end of
the investigative period has no direct bearing on the standard that a Member
must apply in fashioning a safeguard measure.
The Agreement on Safeguards contains only one standard for
applying a safeguard measure, the standard set out in Article 5.1.
Article 5.1 states that a Member "shall apply a safeguard measure
only to the extent necessary to prevent or remedy serious injury and to
facilitate adjustment."
Thus, the measure applied will depend upon the facts of the
case, including the nature and extent of injury found to exist or threatened,
and circumstances relating thereto, and the adjustment to be facilitated.
(c) Argentina’s Purported Modification of its Safeguard Measure Violates
Article 7.4 of the Agreement on Safeguards
6.40 The United States wishes to bring to the Panel’s attention a recent and
troubling development in Argentina’s safeguard measure on certain footwear
imports. Argentina recently issued
Resolution1506, which purports to modify its current footwear safeguard by
establishing a “quantitative restriction” in
addition to the safeguard duty. The
Resolution is somewhat unclear, but it appears to impose either a quota or a
tariff-rate quota (TRQ) of 3.9 million pairs on imports of footwear
falling within certain Universal Nomenclature of MERCOSUR (NCM) numbers.
The established quota amount represents less than 50per cent of
footwear imports from third countries over the last 3 years.
Under the terms of the Resolution, Argentina’s safeguard measure
appears to function as follows: Footwear
imports that are below the quota limit are subject to a safeguard duty, as
detailed in the Resolution. Once
the quota limit is filled for each NCM number, imports above the limit will be
assessed a duty rate that is 100per cent of the current safeguard duty.
In addition, the Resolution postpones any liberalisation
of the safeguard until November 30, 1999, whereupon the quota will be increased
by 10per cent. Although not
clear from the terms of the Resolution, the United States can only assume that
MERCOSUR imports will not be counted towards the 3.9 million quota limit.
6.41 The United States asserts that this alleged modification of Argentina’s
safeguard measure presents issues of grave concern to the United States.
In the US view, Argentina seems to have crafted a
safeguard-upon-safeguard barrier that is unnecessary and may, at the very least,
violate Article 7.4 of the Agreement on Safeguards.
Article 7.4 specifically requires that certain safeguard measures be progressively
liberalised at regular intervals during the period of application.
Argentina’s modification fails on both counts.
The United States asserts that, first, rather than liberalising,
Argentina has clearly made its safeguard measure more stringent.
Potential exporters of footwear to Argentina must now contend with a
quota or TRQ in addition to a safeguard duty.
Second, Argentina has not liberalised the measure at regular intervals.
As previously notified to the Committee on Safeguards on September 15,
1997 (G/SG/N/10/ARG/1 and G/SG/N/11/ARG/1),
Argentina was to have liberalised the safeguard on 1 May 1998, 16
December 1998 and 1August1999.
Argentina has already postponed one scheduled liberalisation
period, and Resolution1506 would again delay liberalisation until
1999. According to the United
States, such actions violate both the letter and the spirit of the Agreement on
Safeguards.
6.42 Moreover, the United States submits, Argentina’s safeguard modification
highlights the original safeguard measure’s inconsistency with Article 5.1 of
the Agreement on Safeguards. In
failing to address the source of the injurious imports, Argentina’s safeguard
measure has not prevented or remedied the domestic industry’s alleged serious
injury nor has it facilitated adjustment. Adding
more restrictive elements to the safeguard measure merely aggravates the problem
and compounds the inconsistency of the measure with Argentina’s obligations
under the Agreement on Safeguards.
6.43 Finally, the United States questions whether
Argentina has notified Resolution 1506 to the Committee on Safeguards, as is
required by Article 12 of the Agreement on Safeguards.
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