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