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WT/DS202/R
29 October 2001
(01-5229)
 
  Original: English

UNITED STATES - DEFINITIVE SAFEGUARD MEASURES
 ON IMPORTS OF CIRCULAR WELDED CARBON QUALITY
 LINE PIPE FROM KOREA


Report of the Panel
 

(Continuation)


(i) Arguments by Korea

7.256 Korea claims that the ITC's serious injury finding is inconsistent with Article XIX and Articles 3.1 and 4 because the ITC's conclusions are not adequately explained and justified. According to Korea, Articles 3 and 4.2(c), as interpreted by the panel and Appellate Body in Argentina - Footwear Safeguard, and by the Appellate Body in Wheat Gluten and Lamb, require that the reasoning and explanation of the ITC's determination be contained in its published report. Korea argues that the United States violated this requirement because the published ITC determination does not contain certain confidential record data which forms the basis for the Commissioners' conclusions, and because the ITC Commissioners reached contrary conclusions on the record data, without providing sufficient explanation for, or reconciling, their different views. In particular, Korea notes that three Commissioners found serious injury, two found a threat of serious injury, and one found neither serious injury nor threat of serious injury. According to Korea, "[t]he first question is, did the ITC Majority and/or the Separate Views on Injury, consider the[] facts or issues sufficiently, or at all? The second question is, if they did, why weren't the[] facts and issues reconciled with the decision reached?"

(ii) Arguments by the United States

7.257 The United States rejects Korea's argument that the fact that the Commissioners of the USITC were not unanimous in their injury findings renders the ITC's determination inconsistent with Articles 3.1 or 4.2(c). Articles 3 and 4 of the Safeguards Agreement impose requirements concerning the publication of the decisions of the "competent authorities of a Member". The Safeguards Agreement does not address the question of how the "competent authorities of a Member" make their decisions. This is a matter left to the Member. Under US law the competent authority for making serious injury determinations is the USITC. US law does not require that decisions of the USITC be unanimous. The decisions of the five Commissioners who made affirmative findings in this case constitute the only determination of the USITC. The views of the one Commissioner who made a negative decision do not constitute, and are not a part of, the USITC determination.

7.258 The United States notes that Article 3.1 provides that the "competent authorities shall publish a report setting forth their findings and reasoned conclusions . . . ." Since the views of the Commissioner who found in the negative do not constitute a determination of the USITC, and thus of the competent authorities, the United States is not required by Article 3.1 to publish the views of the dissenting Commissioner. The fact that the United States has disclosed more than is required of it by the Safeguards Agreement does not increase the burdens imposed on it by the Safeguards Agreement. Thus, the fact that a Commissioner whose views do not form part of the determination did not agree with that determination does not undermine the decision of the five Commissioners who made affirmative findings, which collectively constitutes the determination of the USITC, and thus of the United States.

7.259 Nor does the fact that two Commissioners found increased imports to be a substantial cause of threat of serious injury undermine the finding of the three Commissioners who found such imports to be a substantial cause of present serious injury. The difference between a finding of serious injury and one of threat is a matter of degree and timing; it does not involve Commissioners coming to opposite conclusions. The Commissioners did not reach contrary findings of fact. After evaluating and weighing the many factors involved in the injury analysis, the Commissioners making affirmative injury findings merely came to somewhat different conclusions as to the timing of when serious injury had occurred or would occur.

7.260 The United States contends that Korea's argument also fails because the Safeguards Agreement does not require the competent authorities of a Member to choose between serious injury or the threat thereof. Article 2 permits a Member to impose a safeguard measure if that Member has determined that a product is being imported in such quantities and under such conditions "as to cause or threaten to cause serious injury to the domestic industry." The Safeguards Agreement does not require to choose between serious injury or threat thereof. According to the US, the five Commissioners making affirmative findings in the Line Pipe investigation might each have found "serious injury or the threat thereof" (without specifying which), and their collective determination would still have been consistent with the requirements of Article 2 of the Safeguards Agreement.

7.261 The United States denies that findings of serious injury and threat of serious injury are mutually exclusive. Since a Member may apply a safeguard measure only to the extent necessary to prevent or remedy serious injury and facilitate adjustment, the nature of a safeguard measure depends primarily on the condition of the industry and its need for adjustment. The competent authorities' finding of serious injury or threat of serious injury is a legal characterization of the condition of the industry. Thus, there is likely to be a relationship between the finding of the competent authorities and the safeguard measure applied by a Member. However, it is the underlying facts describing the condition of the industry, and not the choice to label that condition as serious injury or threat of serious injury, that provide the benchmark for the application of the measure. In contrast to the diversity of potential industry situations and safeguard measures, the competent authorities have only three options in rendering their determination - no serious injury, current serious injury, or threat of serious injury. Fitting an industry into one of these broad categories addresses primarily the timing of the onset of serious injury - not at all, now, or imminent - and does not indicate much about the precise state of the industry. Thus, the mere fact that the competent authorities found serious injury instead of threat of serious injury, or vice versa, in their investigation does not provide the information needed to determine the extent to which a Member may or should apply a safeguard measure. That is defined by the factors measuring the industry's performance and need for adjustment.

(iii) Evaluation by the Panel

7.262 We shall begin by examining Korea's claim under Article 3.1, which requires Members to set forth findings and reasoned conclusions on "all pertinent issues of fact and law" in their published report. In order to address Korea's claim under this provision, we must determine whether the ITC Report, which contained a finding of "serious injury or the threat of serious injury", satisfied this requirement.

7.263 The basic conditions for the application of safeguard measures are contained in Article 2.1. In our view, the fulfilment of these basic conditions is a "pertinent issue[] of … law" in respect of which "findings" or "reasoned conclusions" must be included in the published report. By virtue of Article 2.1, a safeguard measure may only be applied if a product "is being imported … in such increased quantities, … and under such conditions as to cause or threaten to cause serious injury to the domestic industry". As confirmed by Article 4.2(a), one of the conditions for the application of a safeguard measure is a determination that "increased imports have caused or are threatening to cause serious injury". Thus, Article 3.1 requires Members to include in their published reports findings or reasoned conclusions on whether "increased imports have caused or are threatening to cause serious injury".

7.264 Korea claims that this requirement cannot be met by a finding of "serious injury or the threat of serious injury". According to Korea, Article 3.1 requires either a discrete finding of serious injury, or a discrete finding of threat of serious injury. We agree, as a result of the definitions of "serious injury" and "threat of serious injury" contained in Article 4.1(a) and (b) respectively:

(a) "serious injury" shall be understood to mean a significant overall impairment in the position of a domestic industry;

(b) "threat of serious injury" shall be understood to mean serious injury that is clearly imminent …"

Since "threat of serious injury" is defined as "serious injury that is clearly imminent", necessarily "threat of serious injury" can only arise if serious injury is not present. If serious injury is present, it cannot at the same time be "clearly imminent". In other words, "serious injury" and "threat of serious injury" are mutually exclusive. Accordingly, the Article 3.1 requirement that Members include in their published reports findings or reasoned conclusions on whether "increased imports have caused or are threatening to cause serious injury" cannot be fulfilled by a finding of "serious injury or the threat of serious injury". Rather, Article 3.1 requires a finding either that increased imports have caused serious injury, or that increased imports are threatening to cause serious injury.

7.265 The United States asserts that although the competent authorities' finding of serious injury or threat of serious injury is a "legal characterization of the condition of the industry", "it is the underlying facts describing the condition of the industry, and not the choice to label that condition as serious injury or threat of serious injury, that provide the benchmark for the application of the measure." According to the United States, "the competent authorities have only three options in rendering their determination - no serious injury, current serious injury, or threat of serious injury. Fitting an industry into one of these broad categories addresses primarily the timing of the onset of serious injury - not at all, now, or imminent - and does not indicate much about the precise state of the industry. Thus, the mere fact that the competent authorities found serious injury instead of threat of serious injury, or vice versa, in their investigation does not provide the information needed to determine the extent to which a Member may or should apply a safeguard measure. That is defined by the factors measuring the industry's performance and need for adjustment."224

7.266 We agree with the United States that the condition of the domestic industry is the benchmark for application of a safeguard measure.225 However, we disagree that the terms "serious injury" and "threat of serious injury" are merely labels that do not themselves indicate the condition of the industry. On the contrary, the term "serious injury" signifies that the condition of the industry is one of "significant overall impairment", whereas the term "threat of serious injury" signifies that the condition of the industry is one where "significant overall impairment" is "clearly imminent". In other words, the terms "serious injury" and "threat of serious injury" do indicate the condition of the industry, as a result of the definitions of those terms contained in Article 4.1(a) and (b).

7.267 The US argument that the terms "serious injury" and "threat of serious injury" are merely labels is also contradicted by the first sentence of Article 5.1, whereby "[a] Member shall apply safeguard measures only to the extent necessary to prevent or remedy serious injury and to facilitate adjustment" (emphasis supplied). In our view, this provision establishes a clear link between the benchmark for the application of a safeguard measure (i.e., the condition of the industry), and the term "serious injury". If the term "serious injury" were not itself indicative of the condition of the industry, we fail to see why that term would have been included in the first sentence of Article 5.1. Article 5.1 allows a Member to apply a safeguard measure to "prevent … serious injury", which presupposes a finding of threat of serious injury, or to "remedy serious injury", which presupposes a finding of serious injury. Since Article 5.1 does not allow Members to apply safeguard measures to "prevent and/or remedy serious injury", we consider that Members must clearly determine in advance whether there is either a threat of serious injury to be prevented, or present serious injury to be remedied.

7.268 Furthermore, Article 5.2(b) precludes quota modulation "in the case of threat of serious injury". In other words, there are important substantive consequences resulting from whether a Member finds "serious injury" or "threat of serious injury". In our view, this further confirms that the terms "serious injury" and "threat of serious injury" are not mere labels.

7.269 Turning to Korea's claim under Article 4.2(c), this provision requires Members' competent authorities to

publish promptly, in accordance with the provisions of Article 3, a detailed analysis of the case under investigation as well as a demonstration of the relevance of the factors examined.

7.270 Given the inclusion of the phrase "in accordance with the provisions of Article 3", we consider that Article 4.2(c) should be read in light of Article 3. In particular, given the similarities between the last sentence of Article 3.1 and Article 4.2(c), we consider that Article 4.2(c) should be read in light of the last sentence of Article 3.1. Accordingly, we are of the view that the "detailed analysis" to be published under Article 4.2(c) should include "findings and conclusions reached on all pertinent issues of fact and law", including a finding and conclusion on whether there is either serious injury, or threat of serious injury.

7.271 For the above reasons, we find that the United States violated Articles 3.1 and 4.2(c) by failing to include in its published report a finding or reasoned conclusion either (1) that increased imports have caused serious injury, or (2) that increased imports are threatening to cause serious injury.

7.272 In respect of Korea's claim that a failure to include relevant confidential information in a published determination constitutes a violation of Articles 3.1 and 4.2(c), we note that the panel in US - Wheat Gluten found that

the requirement in Article 4.2(c) to publish a "detailed analysis of the case under investigation" and "demonstration of the relevance of the factors examined" cannot entail the publication of "information which is by nature confidential or which is provided on a confidential basis" within the meaning of Article 3.2.

7.273 We see no reason not to be guided by the US - Wheat Gluten panel's finding in respect of Korea's Article 4.2(c) claim. Similarly, and given the express reference in Article 4.2(c) to Article 3, we fail to see how the Article 3.1 (last sentence) requirement to "publish a report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law" could entail the publication of "information which is by nature confidential or which is provided on a confidential basis" within the meaning of Article 3.2. Accordingly, we reject Korea's claim that failure to include relevant confidential information in a published determination is per se a violation of Articles 3.1 and 4.2(c).

3. Threat of serious injury

(a) Arguments by Korea

7.274 Korea claims that the ITC finding of threat of serious injury did not comply with the Article 4.1(b) requirement that "[a] determination of the existence of a threat of serious injury shall be based on facts and not merely on allegation, conjecture or remote possibility". Korea claims that the two Commissioners who found threat of serious injury did so merely on the allegation, conjecture or remote possibility that imports would increase in the future, despite a decline in imports at the end of the period of investigation. Korea also claims that the ITC findings of threat of serious injury did not comply with the requirements of Article 2 regarding the conditions for a safeguard measure.

(b) Arguments by the United States

7.275 The United States asserts that, in making their threat of serious injury determination, Commissioners Askey and Bragg did not rely on a threat of increased imports, but on an actual surge in import levels between 1997 and 1998 that continued through interim 1999. These two Commissioners therefore made the finding of increased imports that Korea implies is a sufficient basis for a threat of serious injury. This is not changed by the fact that the two Commissioners also made a supplemental finding that subject imports were likely to increase in the foreseeable future, a finding which further supported their conclusions of a threat of serious injury. The United States also denies that the two Commissioners failed to identify a causal link between increased imports and threat of serious injury.

(c) Evaluation by the Panel

7.276 In our view, the facts do not support Korea's claim that Commissioners Askey and Bragg found a threat of serious injury merely on the allegation, conjecture or remote possibility that imports would increase in the future. In respect of increased imports, the two Commissioners found:

Although we find that the existing increase in imports is a cause no less than any other cause of the threat of serious injury to the domestic line pipe industry, we further find that, notwithstanding the decline in subject import volume evidenced between interim periods, subject imports are likely to increase in the foreseeable future.226 (emphasis supplied)

Accordingly, we consider that Commissioners Askey and Bragg based their determination primarily on actual increased imports, and merely made a supplemental finding ("we further find") regarding the threat of future increased imports.227 There is, therefore, no factual basis to Korea's Article 4.1(b) or 2 claims.

4. Causal link between increased imports and serious injury or threat of serious injury

(a) Arguments by Korea

7.277 Korea claims that the ITC violated Article 4.2(b) by failing to properly demonstrate that injury caused by other factors had not been attributed to increased imports. Korea relies on the Appellate Body's finding in US - Wheat Gluten that, in order to comply with the non-attribution requirement, investigating authorities must distinguish the injurious effects caused by increased imports from the injurious effects caused by other factors. Korea asserts that the ITC failed to make this distinction.

7.278 Korea asserts that the ITC did not properly distinguish the injurious effects caused by these other factors from the injurious effects of increased imports, with the result that the ITC was not able to assure that it did not attribute injury caused by other factors to increased imports. In particular, the US causation standard - substantial cause - requires the ITC to look at the injurious effects of other factors in isolation, relative to the injurious effects of increased imports (i.e., are the other factors individually a greater cause of injury than increased imports?). The substantial cause standard does not require the ITC to consider the possibility that the combined injurious effects of these other factors taken together could have caused any serious injury suffered by the US line pipe industry.

7.279 Korea argues that the entire focus and the sequence of the US evaluation of "other factors" in this case is inconsistent with Article 4.2(b) and contains the same methodological flaws already identified by the Appellate Body in US - Lamb Meat. The ITC began with an analysis of the combined effects of other factors plus imports and determined whether, all together, they caused "injury." Based on that finding, the ITC then examined whether "the impact of increased imports was as great or greater than the effect of the downturn in demand," or any other individual factor. That examination of the "relative" impact of imports, in and of itself, was the only basis, for deciding that imports were a substantial cause of the serious injury. The ITC did not independently evaluate whether increased imports bore a "substantial and genuine" relationship to serious injury. The fact that imports may be a greater cause of injury than a single other factor cannot establish that increased imports caused serious injury.

(b) Arguments by the United States

7.280 The United States asserts that the ITC properly distinguished the effects of other factors from the effects of increased imports. In particular, the ITC examined six factors other than increased imports as possible other causes of serious injury. While the ITC found that one other causal factor, declining demand in the oil and gas sector, contributed to the serious injury experienced by the domestic industry, it also found that the impact of increased imports was as great or greater than the effect of the downturn in oil and gas sector demand.

7.281 According to the United States the ITC distinguished any injurious effects caused by increased imports from the effects of declining demand due to decreased oil and gas drilling and production by finding that the decline in demand for line pipe could not explain the level of financial losses experienced by the domestic industry, the domestic producers' loss of market share, or the across-the-board price declines affecting line pipe products not used in oil and gas gathering applications. Therefore, the ITC did not improperly attribute to imports injury caused by the decline in oil and gas demand, and its findings demonstrated that the causal link between the increased imports and the serious injury was undisturbed by any contribution to injury resulting from reduced oil and gas drilling and production activities. The ITC also considered competition among domestic producers, changes in the OCTG market, declines in the domestic industry's exports, increases in per-unit overhead and SG&A resulting from declines in overall production and declining raw material costs which had been the cause of declining line pipe prices, as other possible causes of injury to the domestic production. For each of the factors above the ITC found that they were not a more important cause to the serious injury than increased imports.

(c) Evaluation by the Panel

7.282 Korea's claim is based on the second sentence of Article 4.2(b), which provides:

When factors other than increased imports are causing injury to the domestic industry at the same time, such injury shall not be attributed to increased imports.

7.283 The ITC identified a number of factors (in addition to increased imports) which caused injury to the line pipe industry. These factors were a decline in line pipe demand resulting from reduced oil and natural gas drilling and production activities; competition among domestic producers; a decline in export markets in 1998 and interim 1999; a shift from OCTG production to line pipe production; and a decline in raw material costs.

7.284 The ITC analysed the relative causal importance of these factors by determining whether any factor is a more important cause of injury than increased imports.228 This type of analysis is very similar to that reviewed by the Appellate Body in US- Wheat Gluten and US -Lamb Meat. Therefore, the Appellate Body's analysis and findings in these cases will provide useful guidance for the Panel in this case.

7.285 In US - Lamb Meat the Appellate Body referred to the need to establish

"a genuine and substantial relationship of cause and effect" between increased imports and serious injury or threat thereof. As part of that determination, Article 4.2(b) states expressly that injury caused to the domestic industry by factors other than increased imports "shall not be attributed to increased imports." In a situation where several factors are causing injury "at the same time", a final determination about the injurious effects caused by increased imports can only be made if the injurious effects caused by all the different causal factors are distinguished and separated. Otherwise, any conclusion based exclusively on an assessment of only one of the causal factors - increased imports - rests on an uncertain foundation, because it assumes that the other causal factors are not causing the injury which has been ascribed to increased imports. The non-attribution language in Article 4.2(b) precludes such an assumption and, instead, requires that the competent authorities assess appropriately the injurious effects of the other factors, so that those effects may be disentangled from the injurious effects of the increased imports. In this way, the final determination rests, properly, on the genuine and substantial relationship of cause and effect between increased imports and serious injury.229

7.286 The Appellate Body emphasised that,

[t]o be certain that the injury caused by these other factors, whatever its magnitude, was not attributed to increased imports, the USITC should also have assessed, to some extent, the injurious effects of these other factors.230

7.287 Among the other factors causing injury that were analysed by the ITC, the ITC paid particular attention to the decline in line pipe demand resulting from reduced oil and natural gas drilling and production activities. In its evaluation of this other factor, the ITC:

"recognize[d] that apparent consumption of line pipe in 1999 was significantly lower than in 1998. We presume that this decline in demand largely resulted from reduced oil and natural gas drilling and production activity, as respondents argued. There is no question that such a substantial decline in demand contributed to the serious injury experienced by the domestic industry in 1998-99."

"For several reasons, however, we are not persuaded that the decline in oil and natural gas activities was a greater contributing factor to the industry's serious injury than the imports."231

7.288 From the above findings of the ITC, it can be established that the methodology used in its analysis of the injury caused by the oil and gas industry decline has the objective (consistent with applicable US law) of determining whether this factor is a more important cause of injury than the increased imports. We are not convinced that such a determination is enough to satisfy the requirements of Article 4.2(b), which mandates that injury caused by other factors not be attributed to the increased imports. Indeed, the ITC recognizes that the decline in the oil and gas industry was having injurious effects on the domestic line pipe industry. However, it is not apparent from this analysis how, if at all, the ITC separated the injurious effects of the decline in the oil and gas industry from the injurious effects of the increased imports. The ITC's analysis provides no insight into the nature and extent of the injury caused by the decline in the oil and gas industry. Instead, as in the US - Lamb Meat case, the United States effectively assumed that the decline in the oil and gas industry did not cause the injury attributed to increased imports. As found by the Appellate Body in US - Lamb Meat, such an assumption is inconsistent with Article 4.2(b). The same assumption was effectively made by the ITC in respect of the other causes of injury identified above, since its analysis of those factors was also confined to a determination of whether the injury caused by the relevant factor was not a more important cause of serious injury than increased imports.

7.289 We further note that the ITC immediately determines whether there is a link between the increased imports and the serious injury, without first attempting to separate out injury that is being caused by other factors. Then the ITC takes each of the other factors, one at a time, and examines its relative causal importance with respect to the serious injury that it has previously determined to exist (i.e., injury that has been caused by increased imports and all other factors). We note that the serious injury under examination remains "polluted" by the injurious effects, however, of the remaining other factors. Therefore, the United States is not assessing the relative causal importance of the injurious effects of the other factor at issue against the injurious effects of the increased imports. Rather, it assesses the injurious effects of the other factor at issue against the injurious effects of increased imports and the remaining other factors. We do not consider that such an analysis allows an investigating authority to determine whether there is "a genuine and substantial relationship of cause and effect" between the serious injury and the increased imports.

7.290 In light of the above, we find that the ITC in its report did not adequately explain how it ensured that injury caused to the domestic industry by factors other than increased imports was not attributed to increased imports. For this reason, we find that the United States acted inconsistently with Article 4.2(b) of the Safeguards Agreement.

7.291 Korea also claims that the United States failed to demonstrate a causal relationship between the increased imports and the serious injury for two other reasons. First, Korea argues that there was no coincidence of trends between the imports and the performance of the domestic industry. Second, Korea argues that conditions of competition, including the relationship between volumes and price declines and an overstatement of the imports, did not demonstrate that there was a causal relationship between the increased imports and the performance of the industry. Since we have already concluded that the US causation methodology as performed in this case is not in compliance with Articles 4.2(b) because it failed to ensure that injury caused by other factors was not attributed to the increased imports, we consider that it is not necessary to rule on these additional arguments.

7.292 We also note that Korea claims that, with respect to the threat of serious injury finding by two of the ITC Commissioners, there was a failure to demonstrate a causal relationship between the imports and the imminent serious injury. In essence the methodology applied by the ITC for a finding of a causal link between the serious injury and the increased imports and between the threat of serious injury and the increased imports is one and the same. To the extent that we have already found that the methodology used for a finding of causation in the case of serious injury does not comply with Article 4.2(b) and that such methodology is the same as the one used for a finding of causation in the case of threat of serious injury, it follows that the methodology used for a determination of existence of a causal link between the increased imports and a threat of serious injury is also in violation of Article 4.2(b).


 


224 US response to Question 1 from the Panel at the first substantive meeting (see Annex B-2).

225 The United States also made this argument in para. 4 of its additional statement at the second substantive meeting.

226 ITC Report, p. I-48.

227 The issue of whether or not the two Commissioners were correct to find actual increased imports has not been raised by Korea in this context.

228 In a safeguards investigation the standard applied by the ITC consists of determining whether the subject product is being imported in such increased quantities as to be a "substantial cause" of serious injury. The term "substantial cause" is defined in the statute as "a cause which is important and not less than any other cause" (Section 202 of the Trade Act of 1974, as amended; notified to the WTO and circulated as G/SG/N/1/USA/1)

229 US - Lamb Meat (AB) at para. 179.

230 US - Lamb Meat (AB) at para. 185.

231 ITC Report, p. I-28.
 


Continuation: 5. Unforeseen developments Return to Index of WT/DS202/R