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UNITED STATES - DEFINITIVE SAFEGUARD MEASURES (Continuation)
(iii) Conclusion 7.163 To conclude, we find that the United States is entitled to rely on Article XXIV as a defence to Korea's claims under Articles I, XIII and XIX of GATT 1994, and Article 2.2 of the Safeguards Agreement, regarding the exclusion of imports from Canada and Mexico from the scope of the line pipe measure. 6. The exclusion of Canada and Mexico - Parallelism 7.164 Korea's Request for Establishment of a panel includes the following claim:
7.165 Since it did not appear to us that Korea had pursued Claim 7 in its written or oral submissions to the Panel, we asked Korea at the second substantive meeting to clarify the status of this claim. In particular, we asked "has Korea dropped this claim or does this claim stand"? Korea replied:
7.166 The Panel then asked Korea to specify where in its submission Korea had pursued Claim 7. Korea referred the Panel144 to paragraphs 172-173 of its first written submission, and paragraph 61 of its second written submission. We consider it useful to set these paragraphs out in full:
7.167 The United States argued at the second substantive meeting that "Korea has not prosecuted that claim, and has not raised any real arguments about it". The United States asserted in particular that Korea had failed to address note 168 on pages I-26/27 of the ITC determination during the course of these proceedings. 7.168 We have significant reservations as to whether the abovementioned extracts from Korea's submissions support Korea's claim that "[t]he United States also violated Articles 2 and 4 of the Agreement on Safeguards by including Mexico and Canada in the analysis of injurious imports but by excluding Mexico and Canada from the application of the safeguard measure."145 We consider that these arguments were more likely intended to support Korea's claim that "[t]he United States violated Article 2.2 of the Agreement on Safeguards and Articles I, XIII and XIX of GATT 1994, by not applying the safeguard measure on an MFN basis to all line pipes being imported, including Mexico and Canada".146 Nevertheless, it could be argued that there is probably sufficient detail in Claim 7 for us to understand it, and rule on it, even in the absence of additional argumentation by Korea during the course of these proceedings. 7.169 During the course of these proceedings, the United States referred the Panel to note 168, on pages I-26/27 of the ITC determination. This note provides:
7.170 Korea's only argument regarding note 168 is that it "has no legal significance".147 Korea did not explain why, in its view, note 168 has no legal significance. For our part, we fail to see why note 168 has no legal significance; it clearly forms part of the ITC's published determination, and contains findings by the ITC. In particular, note 168 contains a finding by the ITC that imports from non-NAFTA sources increased significantly over the period of investigation, in absolute terms and as a per centage of domestic production. Note 168 also contains the basis for a finding that non-NAFTA caused serious injury to the relevant domestic industry. 7.171 In United States - Wheat Gluten, the Appellate Body upheld the panel's finding that the United States had violated Articles 2.1 and 4.2 because it had excluded imports from Canada from its safeguard measure, without "establish[ing] explicitly that imports from these same sources, excluding Canada, satisfied the conditions for the application of a safeguard measure".148 Accordingly, we would only be in a position to uphold Korea's Claim 7 if it had established a prima facie case that the United States had excluded imports from Canada and Mexico from the line pipe measure, without establishing explicitly that imports from sources other than Canada and Mexico satisfied the conditions for the application of a safeguard measure. To do so, at a minimum Korea would have had to specifically address, and rebut, the contents of note 168. We recall that Korea has made no attempt to do this. Instead, Korea limited itself to arguing that note 168 has no legal significance, without making any attempt to substantiate that argument. On balance, therefore, and particularly in light of the contents of note 168, we are unable to find that Korea has established a prima facie case that the United States "also violated Articles 2 and 4 of the Agreement on Safeguards by including Mexico and Canada in the analysis of injurious imports but by excluding Mexico and Canada from the application of the safeguard measure." We therefore reject Korea's Claim 7.149 7. The exclusion of developing countries under Article 9 of the Safeguards Agreement 7.172 Korea claims that the United States violated Article 9.1 because it did not determine which developing countries were to be exempted from the measure. Rather, the United States treated developing countries, regardless of their prior import levels, as equal to all suppliers, and assigned them each the same 9,000 short tons quota applied for other suppliers. 7.173 The United States argues that the 9000 short ton exemption from the supplemental duty satisfied the requirements of Article 9.1 to exclude developing country Members from application of safeguard measures. It also asserts that the 9000 short ton exemption from the supplemental duty would have represented 2.7 per cent of total imports in 1998, before application of the line pipe safeguard. As the United States expected the measure to result in a decrease in the total volume of imports, any country reaching the 9000 ton limit of the exemption would account for more than three per cent of total imports. Thus, a developing country would only become subject to the 19 per cent tariff in conditions under which it was permissible under Article 9.1 for the United States to impose such relief. 7.174 As a starting-point of our analysis we note that the text of Article 9.1 provides:
2 A Member shall immediately notify an action taken under paragraph 1 of Article 9 to the Committee on Safeguards. 7.175 Article 9.1 is clear in its mandate that a safeguard measure "shall not be applied" to imports of developing countries accounting for not more than 3 per cent of total imports. Thus the first question for us to resolve is whether the line pipe measure "applies" to developing countries within the factual circumstances described in Article 9.1. In our view, if a measure is not to apply to certain countries, it is reasonable to expect an express exclusion of those countries from the measure.150 7.176 In order to determine whether the line pipe measure contains an express exclusion of developing countries which comply with the conditions of Article 9.1, the Panel has carefully examined the documents whereby the measure was imposed and notified to the WTO. The first document examined was Presidential Proclamation 7274 of 18 February 2000.151 In this document, there is no specific mention of compliance with the provisions of Article 9.1 concerning developing countries. Neither could we find a list of developing countries to be excluded from application of the measure for reason of their imports not exceeding 3 per cent of total imports of the subject product. This lack of a specific exclusion from the measure of certain developing countries under Article 9.1 contrasts with the exclusion of line pipe imports from Mexico and Canada: "Such imported line pipe that is the product of Mexico or Canada shall not be subject to the increase in the duty�".152 7.177 Two other documents pertaining to the application of the measure also seem to indicate that it applies to all developing countries regardless of whether they fulfil the conditions of Article 9.1. The President's Memorandum to the Secretary of the Treasury and the United States Trade Representative of 18 February 2000153 instructs the Secretary of the Treasury "to publish or otherwise make available, on a weekly basis, import statistics that will enable importers to identify when imports from each supplying country approach and then exceed the 9,000 short ton threshold".154 There is no distinction made in those instructions between those developing countries to which the measure would not apply by virtue of Article 9.1 and those which exceed the Article 9.1 threshold. The Treasury Memo makes it clear that in implementing the measure all supplying countries155 will receive the same treatment regardless of whether the supplier is a developed country, a developing country or a developing country which fulfils the conditions of Article 9.1. 7.178 The Memorandum from the Customs Service Director of Trade Programs to all Port Directors also156 supports the view that no allowance was made in the application of the measure for countries under the conditions outlined in Article 9.1. In the Customs Memo the Director of Trade Programs notifies all Port Directors of the adoption of a safeguard measure on imports of line pipe and instructs that "the following tariff rate quota limits � will apply to certain line pipe from the following countries". The Customs Memo then proceeds to list all supplier countries of line pipe to the United States, among them several WTO developing country Members.157 Again, the Customs Memo would indicate that the line pipe measure applies to all countries including those which, by virtue of fulfilling the conditions of Article 9.1, should be excluded from the measure. 7.179 Turning to the US notification pursuant to Article 9, footnote 2,158 we observe that it too does not "specify" the developing countries to which the measure is not applied. 7.180 After a careful analysis of the Presidential Proclamation, the Treasury Memo, the Customs Memo and the WTO notification, we find that these documents do not contain any express exclusion of developing countries below the 3 per cent of imports individual or 9 per cent cumulative threshold for application of a measure to developing countries prescribed in Article 9.1. In the absence of any other relevant documentation, we therefore conclude that the line pipe measure also applies to those developing countries. Given the specific language used in Article 9.1, which mandates that a measure "shall not be applied" to developing countries that fulfil the conditions of that provision, we find that the United States has not complied with its obligations under Article 9.1. 7.181 We also note the US argument that "a developing country would only fall subject to the 19 per cent tariff in conditions under which it was permissible under Article 9.1 for the United States to impose such relief". In making this argument, the United States relies on its expectations that the measure will result in a decrease in the total volume of imports, and that any country reaching the 9000 ton limit of the exemption would account for more than three per cent of total imports. We note that the measure imposed does not set an overall limit on the quantity of imports of line pipe, and if importers are willing to pay the 19 per cent duty for over quota imports there is no restriction on the total volume of imports which may enter from any particular country. Moreover, given that Mexico and Canada are completely excluded from the measure there is no impediment for those countries' exports to continue their increase.159 Given these conditions it is possible to envisage a scenario where total imports grow to a level where imports from developing countries above the 9,000 short tons exemption constitute less that 3 per cent of the total imports. In this situation a portion of the imports from a developing country would be subject to the 19 per cent tariff surcharge, even though its share of total imports did not exceed 3 per cent. The United States argues that "historical import patterns demonstrate the unlikelihood that any developing country Member would export more than 9,000 short tons of line pipe to the United States in a single year and yet remain below a three per cent share of total exports". Although we agree with the United States that the situation described may be unlikely to materialize, the Appellate Body has repeatedly stated that a trade effects test is irrelevant if the measure has been found to violate the provisions of the WTO.160 We would also note that there is a clear difference between an obligation that a measure not affect imports from certain developing countries and an obligation that a measure not be applied to imports from certain developing countries. Article 9.1 contains an obligation not to apply a measure, and we find that the line pipe measure "applies" to all developing countries in principle, even though it may not have any impact in practice. Therefore, for the reasons described above we find that the United States has not complied with its obligations under Article 9.1 of the Agreement on Safeguards. C. CLAIMS RELATING TO THE INVESTIGATION 7.182 Korea makes a number of claims relating to the investigation leading up to the imposition of the line pipe measure. These claims question the ITC's determination of increased imports, serious injury, threat of serious injury and causation. Korea also claims that the United States failed to demonstrate the existence of unforeseen developments and the need for emergency action. In addition Korea makes two claims on procedural issues regarding the opportunity for adequate consultations and compensation. We shall begin our examination of Korea's claims relating to the investigation by addressing Korea's claim regarding the ITC's finding of increased imports. (a) Arguments by Korea 7.183 Korea claims that the ITC erred in finding any increase in imports within the meaning of Article XIX and/or Article 2, either in absolute terms, or relative to domestic production. 7.184 Korea asserts that the ITC found an increase in imports on the basis of the trend in imports from 1994 to 1999. Korea asserts that the ITC violated Article XIX:1(a) and Article 2.1 by failing to base its December 1999 determination on "the very recent past". In support, Korea cites the Appellate Body in Argentina - Footwear Safeguard. In that case, the Appellate Body disagreed with the panel's finding that, for the purpose of determining whether there was a requisite increase in imports, an investigating authority could reasonably examine the trend in imports over a five-year historical period. In particular, the Appellate Body concluded that:
In a footnote, the Appellate Body also disagreed with the panel's finding that, whatever the starting point of the investigation period, "it has to end no later than the recent past"162 (emphasis in original). According to the Appellate Body, "the relevant investigation period should not only end in the very recent past, the investigation period should be the very recent past". Korea also argues that a five-year period of investigation is in conflict with the decision of the Appellate Body in Argentina - Footwear Safeguard and does not meet the requirements of Article 2.1 or Article XIX:1(a) of GATT 1994.
7.185 Korea notes that the ITC found that "[a]lthough imports declined from *** tons in interim (January-June) 1998 to *** tons in interim 1999, (footnote omitted) they remained at a very high level in interim 1999, exceeding in just 6 months the level of full year 1995 and 1996 imports" (emphasis in original). On the basis of the indexed import data submitted by the United States to the Panel on 16 February 2001, Korea asserts that there was actually a decline in the absolute volume of imports in the recent past (as at the time of the ITC determination). According to Korea, the indexed data demonstrates that there was a steady, sustained pattern of decline in the absolute volume of imports starting in the second half of 1998, and therefore in the four quarters preceding the ITC determination. Korea asserts that the ITC could not properly have found a sudden, sharp, and recent increase in the absolute volume of imports, as there was no increase at all.163 Korea asserts that the ITC failed to take proper note of the lengthy period over which imports had actually declined, because it only compared interim periods covering the first half of 1998 and 1999 respectively, without comparing the volume of imports in the second half of 1998 to the volume of imports in the first half of 1999. 7.186 Korea notes that the ITC also found that relative imports (the ratio of imports to domestic production) increased during the period of investigation:
7.187 Korea asserts that the ITC erroneously compared interim 1998 with interim 1999, without taking into account a decline in relative imports in the recent past, i.e., between the second half of 1998 and the first half of 1999. Korea's argument is based on the dissenting view of Commissioner Crawford, who stated that the ratio declined between the second half of 1998 and the first half of 1999. Korea points out that the ITC was inconsistent in its analysis of the increased imports as there were instances when analysing serious injury where the ITC compared the second half of 1998 with the first half of 1999. (b) Arguments by the United States 7.188 The United States asserts that there was a recent, sudden, sharp, and significant increase in imports, both in absolute and relative terms, so that the ITC's findings are consistent with the decisions of the panel and Appellate Body in Argentina - Footwear Safeguard. 7.189 The United States resists Korea's attempt to compare imports in interim 1999 with imports in the second half of 1998. The United States explains that the ITC, consistent with its longstanding practice in safeguards investigations (as well as antidumping and countervailing duty investigations), collected import and domestic industry data enabling it to make year-to-year comparisons. The ITC customarily gathers and evaluates import data on a calendar year basis with extra data on interim periods, and not on the basis of arbitrarily defined snapshots of time. That the ITC followed its long-standing approach in examining increased imports demonstrates neutrality and lack of bias in its analysis. The use of interim-period-to-interim-period comparisons for 1998 and 1999 was consistent with its long-standing practice and, unlike Korea's proposed alternative methodology, not chosen to achieve a particular result. Korea's method of breaking out annual import data in such a way as to capture a brief and slight decline in imports is as arbitrary and results-oriented as the end-point-to-end-point comparison that the Panel found lacking in Argentina-Footwear Safeguard. The United States argues that a comparison of "mismatched" interim periods could create distortions because of seasonal changes in market conditions. 7.190 With regard to the absolute increase in imports, the United States asserts that there was a "sudden and sharp increase" in the "recent past", i.e., in 1998. While the United States acknowledges a "modest" decline in absolute imports from interim 1998 to interim 1999, it argues that imports still remained at high levels (interim 1999 imports higher than full year 1995 or 1996), such that the decline between interim 1998 and interim 1999 did not negate the sudden and sharp increase that immediately preceded it. The United States also rejects Korea's argument that absolute imports declined continuously for the full 12 months prior to the ITC determination; monthly data show that imports actually increased toward the end of interim 1999 (in May, June and July). 7.191 In any event, the United States notes that a safeguard measure may be imposed on the basis of an increase in imports relative to domestic production, even if there is no increase in absolute terms. The United States asserts that relative imports nearly doubled in 1998, and continued to increase in interim 1999. (c) Evaluation by the Panel 7.192 Three main questions need to be addressed in resolving this matter. The first question pertains to whether the ITC used an appropriate methodology in making its finding of increased imports. More specifically the appropriateness of the methodology hinges on the question of whether the ITC was entitled to compare interim 1998 with interim 1999 in performing the analysis or whether it was, in addition, required to compare the second half of 1998 with interim 1999. The second question is whether the ITC could properly conclude that there was an increase in imports despite the fact that imports in absolute terms declined at the end of the investigation period. The third question is whether the ITC could properly conclude that there was a relative increase in imports.164 7.193 We shall conduct the examination described above in light of the provisions in Article 2.1 and Article XIX:1(a). In Argentina - Footwear Safeguard, the Appellate Body made the following findings regarding those provisions:
144 See Note to the Panel, attached to Korea's replies to questions from the Panel
at the second substantive meeting.
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