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UNITED STATES - DEFINITIVE SAFEGUARD MEASURES (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).
(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).
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