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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)


5. Unforeseen developments

7.293 Korea asserts that the US violated Article XIX by failing to demonstrate any unforeseen developments justifying the need for safeguard action. Korea asserts that there is no indication in the ITC determination that the ITC addressed the issue of unforeseen developments. Therefore, Korea claims that the ITC determination does not demonstrate unforeseen developments.

7.294 The United States asserts that Korea itself has identified the relevant unforeseen developments, by referring to the unexpected collapse in oil prices in late 1998 and early 1999. In its first written submission the United States also points to the East Asian financial crisis as another unforeseen development of importance.

7.295 We note that the requirement to demonstrate the existence of unforeseen developments in order to apply a safeguard measure under Article XIX is an issue that is well established in WTO law. The Appellate Body in their Korea - Dairy Safeguard report, when referring to the issue of unforeseen developments, found:

[W]e do believe that the first clause describes certain circumstances which must be demonstrated as a matter of fact in order for a safeguard measure to be applied consistently with the provisions of Article XIX of the GATT 1994.232

This finding has been subsequently confirmed by the Appellate Body in its reports on Argentina - Footwear Safeguard, US - Wheat Gluten and US - Lamb Meat. Moreover, we do not understand the United States to dispute the existence of the requirement to demonstrate the existence of unforeseen developments.

7.296 In evaluating the US compliance with the requirements of Article XIX we observe the Appellate Body's finding in US - Lamb Meat that:

as the existence of unforeseen developments is a prerequisite that must be demonstrated, as we have stated, "in order for a safeguard measure to be applied" consistently with Article XIX of the GATT 1994, it follows that this demonstration must be made before the safeguard measure is applied. Otherwise, the legal basis for the measure is flawed.233 (footnote omitted)

We also note that the Appellate Body has established that the demonstration of unforeseen developments is required not only before the measure is applied but also that such a demonstration must appear in the report of the investigating authorities:

In our view, the logical connection between the "conditions" identified in the second clause of Article XIX:1(a) and the "circumstances" outlined in the first clause of [Article 3.1 SA] dictates that the demonstration of the existence of these circumstances must also feature in the same report of the competent authorities. Any other approach would sever the "logical connection" between these two clauses, and would also leave vague and uncertain how compliance with the first clause of Article XIX:1(a) would be fulfilled.234

7.297 In view of the Appellate Body's findings, we turned to the ITC report in order to verify whether the United States had carried out the demonstration required by Article XIX. In this case, the ITC report does not contain any demonstration of the existence of unforeseen developments. While the US arguments in these proceedings point to the collapse in oil and gas prices and the East Asian financial crisis as being the unforeseen developments referred to in Article XIX, they were not considered or identified as such in the ITC report. Rather, the collapse in oil and gas prices was examined in the ITC report only as another factor causing injury to the domestic industry.235 Regarding the East Asian financial crisis, the US points to page II-66 of the ITC report where it is mentioned that:

A few producers felt that one reason for the increase in imports was a decrease in demand in Asia due to the financial crisis there.

This reference can hardly be considered a demonstration of the existence of unforeseen developments as required by Article XIX.

7.298 To obtain further clarification on this issue, we requested the United States to indicate to the Panel where it considered that it had fulfilled its obligation to demonstrate the existence of unforeseen developments.236 The United States did not directly answer our question and limited its reply to reiterate its argument that Korea had conceded the existence of unforeseen developments and that therefore it had failed to make a prima facie case of violation of Article XIX. Therefore, in the absence of anything in the ITC report or any other document leading up to the imposition of the measure that contains a demonstration of the existence of unforeseen developments, we find that the United States has failed to comply with its obligations under Article XIX in its application of a safeguard measure to imports of line pipe.

7.299 Now we turn to the US argument that Korea has failed to make a prima facie case of violation of Article XIX by conceding that certain conditions leading up to the increase in imports were unexpected. We note that the Appellate Body has made it very clear that the existence of unforeseen developments is a prerequisite that must be demonstrated before the safeguard measure is applied. Therefore it is for the competent authorities of a Member to ensure the demonstration of the existence of unforeseen developments at the time of the investigation. As we have found above the United States has failed to do so. The fact that, in its submission, Korea may have pointed to some circumstances which led to an increase in the imports, and that those circumstances may have not been foreseen, does not change the fact that before the measure was applied the ITC did not demonstrate the existence of unforeseen developments. Korea correctly argued before the Panel that there was no indication that the ITC addressed the issue of unforeseen developments in its determination. We do not see how else Korea could have complied with the burden to make a prima facie case of failure by the ITC to demonstrate the existence of unforeseen developments. Nor do we see how Korea could be understood to have conceded the existence of unforeseen developments. Therefore, we reject the US argument that Korea has failed to make a prima facie case that the United States is not in conformity with Article XIX by failing to demonstrate the existence of unforeseen developments leading to the injurious increased imports.

7.300 The United States also argues that in absence of a prima facie case by Korea (that the United States failed to comply with the unforeseen developments requirement in Article XIX) the Panel is not permitted to construct a claim Korea has failed to make.237 The US argument is based on the premise that Korea fails to make a prima facie case of violation under Article XIX. Having found that Korea has made a prima facie case of violation of Article XIX, there is no basis for an argument that the Panel is constructing a claim not made by Korea.

6. Emergency action

(a) Arguments by Korea

7.301 Korea claims that the line pipe measure does not satisfy the requirements of emergency action of Article 11 (and the preamble) of the Safeguards Agreement or Article XIX. According to Korea, safeguard measures cannot be imposed unless an emergency situation exists which has been brought on by a sudden, significant increase in imports due to an unforeseen event. Such an emergency situation does not exist in this case, as safeguard measures were not meant to address temporary downturns, which are expected in a business cycle. Nor were safeguard measures intended to remedy temporary downturns caused by factors other than imports. As the Appellate Body recognized in Argentina - Footwear Safeguard (AB), safeguard measures were not intended to address "ordinary events in routine commerce." To the contrary, the Appellate Body explained, "safeguard measures were intended ... to be matters out of the ordinary, to be matters of urgency, to be, in short, 'emergency actions'" (emphasis added).238

(b) Arguments by the United States

7.302 The United States asserts that nothing in the Safeguards Agreement or Article XIX requires a showing that imports present an emergency situation. Rather, the Safeguards Agreement and Article XIX set forth the conditions under which a Member may take the "emergency action" provided under Article XIX.

(c) Evaluation by the Panel

7.303 Although Article XIX is entitled "Emergency Action on Imports of Particular Products", there is no further reference to the phrase "emergency action" in that Article. The plain language of that provision does not require Members to demonstrate the existence of an "emergency" before being able to take Article XIX safeguard action. Rather, the phrase "emergency action" describes the nature of the (safeguard) action to be taken, once the conditions set forth in Article XIX (and the Safeguards Agreement) have been fulfilled. While the reference to "emergency action" in the title of Article XIX may serve to infer meaning into the substantive obligations of Article XIX (and the Safeguards Agreement), it does not constitute a substantive obligation itself.

7.304 Article 11.1(a) of the Safeguards Agreement provides that:

A Member shall not take or seek any emergency action on imports of particular products as set forth in Article XIX of GATT 1994 unless such action conforms with the provisions of that Article applied in accordance with this Agreement.

7.305 Again, we consider that the reference to "emergency action" in this provision simply describes the type of (safeguard) action that may be taken by a Member once the conditions of Article XIX and the Safeguards Agreement are fulfilled. Article 11.1(a) does not impose any additional requirement on Members to demonstrate an "emergency" situation before being able to impose safeguard measures.

7.306 For these reasons, we reject Korea's claim that the line pipe measure does not satisfy the requirements of emergency action of Article 11 (and the preamble) of the Safeguards Agreement or Article XIX.

7. Procedural Issues

(a) Alleged violation of Article 12.3: failure to provide adequate opportunity for prior consultations

(i) Arguments by Korea

7.307 Korea claims that the US violated Article 12.3 by failing to provide adequate opportunity for prior consultations on the line pipe measure. Korea asserts that the United States did not disclose the proposed measure to Korea prior to or during the consultations held in Washington on 24 January 2000. Korea notes that it learned of the details of the President's proposed measure through a White House press release issued on 11 February 2000 (the "press release"). Korea argues that this press release did not provide it with an "adequate opportunity" for prior consultations. According to Korea, it therefore had no meaningful ability to discuss the actual remedy proposed before it was imposed.

(ii) Arguments by the United States

7.308 The United States argues that Korea received notice of the measure that the President proposed to apply on 11 February 2000, 17 days before the date the measure was scheduled to take effect. The US notes that Article 12.3 obliges a Member proposing to apply a safeguard measure to provide "adequate opportunity for prior consultations". The US refers to the Appellate Body finding in US - Wheat Gluten that this obligation:

[R]equires a Member proposing to apply a safeguard measure to provide exporting Members with sufficient information and time to allow for the possibility, through consultations, for a meaningful exchange on the issues identified. To us, it follows from the text of Article 12.3 itself that information on the proposed measure must be provided in advance of the consultations, so that the consultations can adequately address that measure.239

7.309 The United States argues that the Article 12.3 obligation must be interpreted in light of the object and purpose of the Safeguards Agreement and Article XIX, which allow "emergency actions". According to the United States, Article 12.3 requires the provision of an opportunity for prior consultations, rather than requiring consultations themselves. Thus, a Member satisfies the Article 12.3 obligation by providing a time or chance for consultations, by providing necessary information and by making itself available for consultations. Since the consultations cover "emergency" action, tight time-frames will obviously be necessary. The US argues that it announced in its supplemental Article 12.1(b) notification of 24 January 2000 that it was prepared to consult with any Member having a substantial interest as an exporter of line pipe, and did not foreclose the possibility of further consultations following the President's 11 February 2000 announcement of the proposed safeguard measure. Moreover, the press release provided the information a Member would need to conduct consultations under Article 12.3. In light of the emergency nature of the action, this schedule presented Korea with an adequate opportunity to request consultations (the US notes that its authorities met with EC officials during this period). That it failed to seize this opportunity is Korea's fault, and does not establish a failure by the United States to comply with its obligations under the WTO Agreement.

(iii) Evaluation by the Panel

7.310 On 8 November 1999, pursuant to Article 12.1(b), the United States notified to the Committee on Safeguards that the ITC had reached an affirmative finding of serious injury or threat thereof caused by increased imports.240 On 24 January 2000 the United States made a supplemental notification under Article 12.1(b).241 This supplemental notification in essence summarized the 22 December 1999 ITC report, and contained detailed information on the measure that had been proposed by the ITC majority to the US President (as well as an alternative recommendation by two ITC Commissioners). Also on 24 January 2000, the United States and Korea held consultations in Washington, D.C. On 11 February 2000, the US President issued a press release announcing his decision to apply a safeguard measure on imports of line pipe. The press release contained details of the measure decided upon by the President, and stated that the measure would take effect on 1 March 2000. On 22 February 2000, pursuant to Article 12.1(c), the United States notified the Committee on Safeguards of its decision to apply a safeguard measure on imports of line pipe.242

7.311 Before we proceed with our analysis, we note that Korea is not challenging the timeliness of the US notifications under Article 12.1, nor the content of those notifications under Article 12.2. Korea's challenge rests exclusively on an asserted violation of the consultation obligations under Article 12.3, which provides that:

A Member proposing to apply or extend a safeguard measure shall provide adequate opportunity for prior consultations with those Members having a substantial interest as exporters of the product concerned, with a view to, inter alia, reviewing the information provided under paragraph 2, exchanging views on the measure and reaching an understanding on ways to achieve the objective set out in paragraph 1 of Article 8.

7.312 According to Korea, the consultations held on 24 January 2000 did not fulfil the requirement of Article 12.3, because they did not provide a meaningful opportunity to discuss the actual remedy proposed before it was imposed. The United States responds that Korea was informed of the measure by the 11 February 2000 press release and therefore had the opportunity to request consultations before the actual imposition of the measure, but failed to do so.

7.313 The US position relies on the assumption that the press release was sufficient, both in form and content, to ensure Korea an "adequate opportunity for prior consultations" under Article 12.3.243 On this issue we note that Article 12.3 provides that the purpose of the consultations provided for therein is to "inter alia, review the information provided under paragraph 2, exchanging views on the measure and reaching an understanding on ways to achieve the objective set our in paragraph 1 of Article 8." The Appellate Body concluded that with regard to the adequacy of the opportunity for prior consultations under Article 12.3:

[A]n exporting Member will not have an "adequate opportunity" under Article 12.3 to negotiate overall equivalent concessions through consultations unless, prior to those consultations, it has obtained, inter alia, sufficiently detailed information on the form of the proposed measure, including the nature of the remedy.244

7.314 In order to have adequate opportunity for consultations, an exporting Member must have obtained sufficiently detailed information on the proposed measure. We consider that a press release does not ensure that exporting Members obtained the necessary detailed information on the proposed measure. A simple press release does not guarantee that exporting Members obtained the information contained therein, because, inter alia, a press release may not be accessible to all Members having a substantial interest. Indeed, Members may not even know of the existence of such a press release, or may be unable to obtain a copy of it. Therefore, we find that the 11 February 2000 press release, regardless of its content, cannot itself be considered to have provided Korea with an adequate opportunity for prior consultations. Accordingly, we are of the view that the United States has acted inconsistently with its obligations under Article 12.3 by failing to provide an adequate opportunity for prior consultations with Members having a substantial interest as exporters of line pipe.245

(b) Article 8.1 compensation

7.315 Korea claims that the United States violated Article 8.1 in the same way that it violated Article 12.3. According to Korea, Articles 8.1 and 12.3 are explicitly linked, and require that there be an opportunity for prior consultation with full knowledge of the proposed measure.

7.316 The United States notes that Korea's Article 8.1 claim is explicitly linked to its Article 12.3 claim. Since the United States argues that it complied with Article 12.3, it considers that it also acted in conformity with Article 8.1.

7.317 Article 8.1 provides:

A Member proposing to apply a safeguard measure or seeking an extension of a safeguard measure shall endeavour to maintain a substantially equivalent level of concessions and other obligations to that existing under GATT 1994 between it and the exporting Members which would be affected by such a measure, in accordance with the provisions of paragraph 3 of Article 12. To achieve this objective, the Members concerned may agree on any adequate means of trade compensation for the adverse effects of the measure on their trade.

7.318 In our view, Korea's Article 8.1 claim is entirely dependent on its Article 12.3 claim. This view is supported by the Appellate Body's finding in US - Wheat Gluten:

In view of [the] explicit link between Articles 8.1 and 12.3 of the Agreement on Safeguards, a Member cannot, in our view, "endeavour to maintain" an adequate balance of concessions unless it has, as a first step, provided an adequate opportunity for prior consultations on a proposed measure.246

7.319 We concur fully with the Appellate Body's finding that if a Member has not provided adequate opportunity for consultations under Article 12.3, it cannot have complied with its obligation to endeavour to maintain a substantially equivalent level of concessions and other obligations. Therefore, we find that the United States, by failing to comply with its obligations under Article 12.3, has also acted inconsistently with its obligations under Article 8.1 to endeavour to maintain a substantially equivalent level of concessions and other obligations.

VIII. CONCLUSIONS AND RECOMMENDATION

8.1 In the light of our findings, we conclude that the US line pipe measure was imposed inconsistently with certain provisions of GATT 1994 and/or the Safeguards Agreement, in particular:

(1) the line pipe measure is not consistent with the general rule contained in the chapeau of Article XIII:2 because it has been applied without respecting traditional trade patterns;

(2) the line pipe measure is not consistent with Article XIII2:(a) because it has been applied without fixing the total amount of imports permitted at the lower tariff rate;

(3) the United States acted inconsistently with 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;

(4) the United States acted inconsistently with Article 4.2(b) by failing to establish a causal link between the increased imports and the serious injury, or threat thereof;

(5) the United States has not complied with its obligations under Article 9.1 by applying the measure to developing countries whose imports do not exceed the individual and collective thresholds in that provision;

(6) the United States acted inconsistently with its obligations under Article XIX by failing to demonstrate the existence of unforeseen developments prior to the application of the line pipe measure;

(7) the United States has acted inconsistently with its obligations under Article 12.3 by failing to provide an adequate opportunity for prior consultations with Members having a substantial interest as exporters of line pipe;

(8) the United States has acted inconsistently with its obligations under Article 8.1 to endeavour to maintain a substantially equivalent level of concessions and other obligations;

8.2 In light of our findings, we reject Korea's claims that:

(1) the line pipe measure is inconsistent with the provisions of Article 5;

(2) the line pipe measure violates Article XIX:I and Articles 5.1 and 7.1 because the measure was not limited to the extent and the time necessary to remedy the injury and allow adjustment;

(3) the United States' finding of increased imports was inconsistent with Article 2.1 and Article XIX;

(4) the United States violated Articles 4.1(c), and 4.2 (a), (b) and (c) because the data relied on by the ITC was flawed since it contained data from other industries;

(5) the ITC erred in finding serious injury because the downturn in the state of the domestic industry was merely temporary, and the condition of the industry was improving at the end of the period of investigation;

(6) the United States acted inconsistently with its obligations under Articles 2 and 4.1(b) by basing a finding of threat of serious injury on an allegation, conjecture or remote possibility;

(7) the United States' failure to include relevant confidential information in a published determination constitutes a violation of Articles 3.1 and 4.2(c);

(8) the line pipe measure does not satisfy the requirements of emergency action of Article 11 (and the preamble) of the Safeguards Agreement or Article XIX of GATT 1994;

(9) the United States violated Article 2 and 4 by exempting Mexico and Canada from the measure;

(10) the United States violated Articles I, XIII:1 and XIX by exempting Mexico and Canada from the measure.

8.3 Under Article 3.8 of the DSU, in cases where there is infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment of benefits under that agreement. Accordingly, we conclude that to the extent that the United States has acted inconsistently with the provisions of the Agreement on Safeguards and GATT 1994, as described in paragraph 8.1 supra, it has nullified or impaired the benefits accruing to Korea under the Agreement on Safeguards and GATT 1994.

8.4 We therefore recommend that the Dispute Settlement Body request the United States to bring its line pipe measure into conformity with its obligations under the WTO Agreement on Safeguards and the GATT of 1994.

8.5 We also note that in its first written submission Korea requests the Panel to "find that the US safeguard measure should be lifted immediately and the ITC safeguard investigation on line pipe terminated". We consider this to be a request by Korea for a specific suggestion on the implementation of the above recommendation under Article 19.1 of the DSU, which provides:

In addition to its recommendations, the panel or Appellate Body may suggest ways in which the Member concerned could implement the recommendations.

8.6 By virtue of Article 19.1 of the DSU the Panel has the authority to suggest ways in which a Member could implement the Panel's recommendation. That we have the authority under Article 19.1 of the DSU to make a specific suggestion does not mean that we must or should do so in a given case. As stated supra, we recommend that the United States bring its safeguard measure into conformity with its WTO obligations. Although the suggestion that is being requested by Korea could be one way that the United States could implement our recommendation, we consider that there may be various other ways in which the United States could implement the Panel recommendation. We do not consider that the suggestion requested by Korea is the only, or necessarily the most appropriate, way in which the United States could implement our recommendation. Accordingly, we decline Korea's request for a specific suggestion by the Panel on ways in which the United States may implement the recommendation made in this report.
 


232 Korea - Dairy Safeguard (AB) at para. 85.

233 US - Lamb Meat (AB) at para. 72.

234 Id.

235 ITC Report, p. I-27 to I-30.

236 During the second meeting of the Panel with the parties the following question was put to the United States:

10. In US - Lamb Meat (AB), the Appellate Body found that "as the existence of unforeseen developments is a prerequisite that must be demonstrated, as we have stated, 'in order for a safeguard measure to be applied' consistently with Article XIX of the GATT 1994, it follows that this demonstration must be made before the safeguard measure is applied." Please indicate where the United States made the required demonstration of unforeseen developments. Please provide any supporting documentation, and give specific references.

237 In support of their arguments the United States cites to the Appellate Body report on Japan - Measures Affecting Agricultural Products, WT/DS76/AB/R, para. 129, adopted 19 March 1999.

238 Argentina - Footwear Safeguard (AB) at para. 93.

239 US - Wheat Gluten (AB), para. 136.

240 Document G/SG/N/8/USA/7.

241 Document G/SG/N/8/USA/7/Suppl.1.

242 G/SG/N/10/USA/5/Rev.1.

243 The United States does not argue that either its revised Article 12.1(b) notification of 24 January 2001, or its Article 12.1(c) notification of 23 February 2000, provided Korea with an adequate opportunity for Article 12.3 consultations.

We recall that the measure decided upon by the President in this case differed substantially from that recommended by the ITC. Korea's argument rests on the premise that information about the measure actually to be imposed, in this case the measure decided upon by the US President, must be provided in order to afford an adequate basis for consultations under Article 12.3. The Appellate Body, in US - Wheat Gluten, did not specifically address the question whether the measure recommended by the ITC and notified under Article 12.1(b) was the "proposed measure" for which an adequate opportunity for prior consultations was required under Article 12.3 (US - Wheat Gluten (AB) at note 130). The United States does not contend, in this case, that its revised notification under Article 12.1(b), setting out the recommendations of the ITC, provided the necessary precise description of the proposed measure. We note, in passing, that the two measures recommended by the USITC, as described in the revised Article 12.1(b) notification, do not contain information on the allocation of the recommended quota measures, information which was considered important in assessing the adequacy of the description of the proposed measure by the Appellate Body in US- Wheat Gluten.

244 US - Wheat Gluten (AB) at para. 137.

245 We note the US argument that its 12.1(b) notification did not foreclose the possibility of further consultations following the announcement of the safeguard measure. Although this assertion may be correct, still this does not change our finding that the press release was not an adequate basis for consultations under Article 12.3. Thus, even though further consultations may not have been precluded, there was still no adequate basis on which meaningful consultations could take place.

246 US - Wheat Gluten (AB) at para. 146.


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