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UNITED STATES - DEFINITIVE SAFEGUARD MEASURES (Continuation)
B. FIRST WRITTEN SUBMISSION OF THE UNITED STATES
4.50 The following is the United States' own executive summary of its first
written submission:
4.51 The ITC determined that line pipe was being imported into the United States
in such increased quantities as to be a substantial cause of serious injury or
the threat of serious injury. Three of the ITC's six Commissioners found that
the domestic industry was seriously injured, and two found that the domestic
industry was threatened with serious injury. The votes of these five
Commissioners constituted the determination of the ITC, which is the "competent
authority" of the United States for purposes of the WTO Agreement on Safeguards.
One Commissioner dissented from the determination. Under US law, that dissent
does not form part of the determination of the ITC or the explanation of the
basis of the determination.
4.52 Contrary to Korea's assertions, the ITC's determination is fully consistent
with Articles 3 and 4. Korea has presented no grounds for the Panel to conclude
that confidential information is necessary to its review of the ITC's findings
and conclusions. Furthermore, the fact that the ITC Commissioners were not
unanimous in their affirmative injury findings does not render that
determination inconsistent with Articles 3.1 or 4.2(c). Articles 3 and 4 impose
requirements on the "competent authorities of a Member." The Safeguards
Agreement does not address the question of how the "competent authorities of a
Member" reach their decisions. This is a matter left to the Member.
(a) Burdens of Proof
4.53 The United States complied with all its obligations under the Marrakesh
Agreement Establishing the World Trade Organization ("WTO Agreement") when it
applied the safeguard measure on line pipe. That measure is presumed to be
consistent with the WTO Agreement unless Korea, as the complainant, meets its
burden of proof to demonstrate otherwise. It has failed in this task, as its
claims are based primarily on unfounded assertions without supporting evidence
or legal grounding. Korea attempts to excuse these shortcomings by claiming that
it needs large volumes of "confidential information" to advance its claims.
However, most of the data underlying the ITC finding of serious injury appear in
the ITC Report.5 Therefore, the deletion of confidential information from the
published version of the report does not impair the Panel's ability to examine
Korea's claims. Since Korea has failed to present a prima facie case on any of
its claims, the Panel has no basis to request the United States to provide the
confidential information.
(b) The Proper Application of the Standard of Review: Objective Assessment of
Action by the Competent Authorities and Action by Members in Applying a
Safeguard Measure
4.54 The Understanding on Rules and Procedures Governing the Settlement of
Disputes ("DSU") and past interpretations of the DSU establish that a panel must
make an objective assessment of the facts of the case and of the applicability
and conformity with the relevant covered agreements. With regard to
fact-finding, "the applicable standard is neither de novo review as such, nor
'total deference.' "6 This inquiry may differ depending on the obligation under
examination.
4.55 With regard to the ITC's findings, which address US obligations under
Articles 2, 3, and 4 of the Safeguards Agreement, the Panel's review is limited
to an objective assessment
of whether the domestic authority has considered all relevant facts, including
an examination of each factor listed in Article 4.2(a), of whether the published
report on the investigation contains adequate explanation of how the facts
support the determination made, and consequently of whether the determination
made is consistent with ... the Safeguards Agreement.7
4.56 In contrast, a panel's analysis of the Member's application of a safeguard
measure is not confined to evidence gathered in the investigation or findings
made in the report of the competent authorities. The panel may also consider a
Member's ex post explanation of why the measure was permissible at the time of
application. As the Appellate Body recognized in Korea - Dairy Safeguard, the
recommendations or determinations in a safeguard proceeding need not justify the
type or extent of the safeguard measure applied by the Member, except in the
limited circumstance of a quantitative restriction that reduces the quantity of
imports below the average of imports in the last three representative years.8
(c) Korea Has Not Established Any Basis for the Panel to Conclude That the ITC's
Determination of Increased Imports Is Inconsistent With Article 2
4.57 Article 2.1 requires increased imports on either an absolute basis or
relative to domestic production. In this case there was a recent, sudden, sharp,
and significant increase in imports in the recent past, on both an absolute
basis and relative to domestic consumption.
4.58 In analyzing the import data, the ITC paid particular attention to the most
recent part of the period of investigation, the full year 1998 and interim 1999.
As the ITC found, after declining between 1994 and 1995, imports on an absolute
basis increased each year thereafter, and rose sharply in 1998, the most recent
calendar year of the period investigated. Imports rose from about 222,000 tons
in 1997 to about 331,000 tons in 1998. Although absolute import levels in
interim 1999 were slightly lower than those for interim 1998, they remained very
high. Imports in interim 1999 exceeded in just six months the levels of full
year 1995 and 1996 imports. Imports relative to domestic production rose each
year after 1995. The ratio of imports to domestic production nearly doubled in
1998, and reached its highest level in interim 1999.
4.59 Korea has failed to meet its burden of making a prima facie case that the
increase in imports required by Article 2.1 did not occur. Korea attempts to
refute the ITC's finding of increased imports by asking the Panel to focus
exclusively on a comparison of the last six months of 1998 and the first six
months of 1999, to the exclusion of all other data, including the most recent
full-year data for 1998. Even the import data for this 12-month period used by
Korea does not support its argument that imports declined steadily over this
period. Rather, monthly import data show that imports actually increased toward
the end of interim 1999.
4.60 The ITC customarily gathers and evaluates import data on a calendar year
basis with additional data on interim periods, and not on the basis of
arbitrarily defined snapshots of time. That the ITC followed its long-standing
approach in examining increased imports demonstrates neutrality and lack of bias
in its analysis. The use of interim-period-to-interim-period comparisons for
1998 and 1999 was consistent with its long-standing practice and, unlike Korea's
proposed alternative methodology, not chosen to achieve a particular result.
4.61 Nothing in the Safeguards Agreement compels the use of any particular
period, let alone the arbitrarily-defined period advocated by Korea. Under the
applicable standard of review pursuant to Article 11 DSU, the Panel should not
re-weigh the evidence before the ITC, and should not disturb the ITC's findings
so long as they are objective.
(d) The ITC's Determination of Serious Injury Caused by Increased Imports Is
Consistent With Article 4
4.62 In determining that the domestic industry was seriously injured, the ITC
evaluated all enumerated factors set out in Article 4.2(a) and "other" factors
that it found to be relevant, including capacity, shipments, inventories,
capital expenditures, research and development expenses, and prices. Virtually
all of the factors demonstrated a significant overall impairment in the domestic
industry's condition beginning in 1998 and continuing into interim 1999. Korea's
submission completely disregards this overwhelming evidence of serious injury.
4.63 The ITC's methods of collecting and evaluating the injury data were
reasonable. The ITC recognized that most of the producers of line pipe also made
other types of pipe, including oil country tubular goods ("OCTG"). The ITC
carefully evaluated company allocation methods in the course of tabulating
questionnaire and other data, and it verified the allocations of two of the
largest producers. Some allocation issues will always be present in a safeguards
investigation involving a product that is made in productive facilities also
used to produce other products. The fact that certain allocations are necessary
does not mean that a Member has failed to evaluate industry-specific factors "of
an objective and quantifiable nature," as required by Article 4.2(a).
4.64 For the large majority of the factors considered by the ITC in its injury
analysis, Korea has failed to provide any reason to believe that the production
of other pipe products in the US producers' facilities affected the data. The
only flaws that Korea alleges go to capacity utilization and profitability.
4.65 The ITC recognized that capacity utilization "may not be as certain a
measure of injury in this industry as compared to others, given the ability of
domestic producers to shift production among various pipe products." It
concluded nevertheless, that "the sharp decline in capacity utilization is
consistent with other indicators of poor domestic industry performance in 1998
and interim 1999 and supports an affirmative determination of serious injury."
4.66 The ITC adequately addressed Korea's arguments that declining OCTG sales
distorted the profitability data for the line pipe industry because fixed costs
were allocated by some domestic producers based on the relative levels of sales
of different pipe products. The ITC concluded that increases in such costs,
resulting from declines in the production of other pipe products such as OCTG,
were not mistakenly or disproportionately attributed to line pipe.
4.67 Korea's argument rests entirely on the faulty premise that OCTG shipments
declined much more severely than shipments of line pipe and other pipe products
made by the US firms. Based on an examination of the objective evidence in the
record, the ITC found that this was not the case. Line pipe shipments declined
precipitously, at the same time and virtually to the same degree as OCTG
shipments. There is no basis for Korea's argument that a disproportionate share
of fixed costs were allocated to line pipe, thereby distorting the financial
results of the line pipe industry.
4.68 Furthermore, Korea incorrectly assumes that the largest component of
average unit costs consisted of fixed costs. The majority of average unit costs
(raw material and direct labour) were, however, variable and therefore could not
be directly influenced by changes in production volumes of different pipe
products. Thus, even if there had been a disproportionately large decline in
OCTG sales - and Korea has produced no record evidence of this - the effect that
this could have had on average unit costs for line pipe was nominal.
4.69 Data for the entire US line pipe industry showed that its financial
condition deteriorated sharply in 1998 and interim 1999, notwithstanding Korea's
arguments concerning events at two firms. Article 4.2(a) requires an examination
of the situation of the entire industry, and not of individual firms. Further,
with respect to one of the firms singled out by Korea, the evidence of alleged
problems presented by Korea rests on a distortion of the statements of the
dissenting ITC Commissioner. With respect to the second firm, there was ample
evidence in the record that the decline in its line pipe business played a major
role in the difficulties that it faced.
4.70 Korea's argument that the industry was not seriously injured because
capital expenditures increased is likewise unpersuasive. Virtually all other
factors bearing on the state of the industry pointed decisively to serious
injury. Also, there was evidence in the record that 1998 capital spending
reflected analyses and decisions that preceded the surge in imports in 1998, and
that some capital spending had been postponed or cancelled in 1998. Finally, the
ITC noted that capital investment projects in the steel industry generally
involve long lead times, suggesting that capital expenditure levels may not be a
timely and accurate measure of industry conditions.
4.71 Korea's arguments that the domestic industry was not suffering serious
injury because of an improvement at the end of the investigated period are also
unpersuasive. Contrary to Korea's assertion, imports had actually begun to
increase again at the very end of interim 1999. Moreover, Korea relies on
announcements of price increases that mostly occurred well after the ITC's
investigation was over.
4.72 In assessing causation, the ITC first ascertained the effects of the
increased imports to determine whether they were causing serious injury or
threat thereof. It separately identified and evaluated the effects of the other
factors which could be having an injurious effect. In determining the effects of
both increased imports on the one hand and other factors, the ITC properly
distinguished the effects of imports from the effects of other factors. The ITC
thereby ensured that the effects of other factors were not attributed to the
imports, and it established that there was a genuine and substantial
relationship of cause and effect between the increased imports and the serious
injury to the domestic industry. The ITC's application of the causation standard
was consistent with the requirements of the SA as explained by the Appellate
Body in United States - Wheat Gluten.9
4.73 The ITC found that increased imports of line pipe were "an important cause
of serious injury." Imports had increased substantially every year since 1996,
with the bulk of this increase occurring in 1997 and 1998. Imports' market share
rose significantly, especially during 1998 and interim 1999, at the same time
that the domestic industry's condition deteriorated. Based on its evaluation of
the import levels and industry indicators, the ITC found that the surge in
imports and consequent shift in market share from the domestic industry to
imports occurred at the same time that the domestic industry went from healthy
performance to a very poor performance.
4.74 The ITC properly evaluated "relevant factors having a bearing on the
situation of the domestic industry" and concluded that the sharp increase in
imports in 1998 and interim 1999 led to losses in all key industry indicators.
Through this analysis, the ITC found that increased imports were an important
cause of serious injury and properly established the existence of the causal
link between the increased imports and the serious injury, as required by
Article 4.2(b).
4.75 Contrary to Korea's assertion, there is a coincidence of trends between
imports and the performance of the domestic industry. The "negative correlation
between import trends and the difficulties of the industry," which is the basis
for so much of Korea's argument on causation, simply does not exist.
4.76 The ITC considered Korea's argument that import levels were overstated
because of dual stencilling of line pipe, but concluded that there was no
evidence to support Korea's claim that a substantial portion of Korean imports
were dual-stencilled but actually sold as standard pipe.
4.77 Korea's assertion that the ITC failed properly to consider whether
declining line pipe prices were caused by imports does not withstand scrutiny.
The ITC relied on three different types of evidence in analyzing whether imports
depressed domestic prices: average unit values of imports, pricing data that it
had collected, and questionnaire responses from a wide range of industry
participants. Declining average unit values of imports indicated price
depression by imports. The pricing data that the ITC collected showed that
underselling by imports was pervasive. Finally, most of the questionnaire
responses from industry participants identified import competition as an
important cause of price declines and injury to the domestic industry.
4.78 The ITC examined six factors other than increased imports as possible other
causes of serious injury. Korea focuses on two of these: a crisis in oil and gas
exploration and development in 1998 and 1999, and competition within the
domestic industry.
4.79 The ITC distinguished any injurious effects caused by increased imports
from the effects of declining demand due to the oil and gas crisis by finding
that the decline in demand for line pipe could not explain: (i) the level of
financial losses experienced by the domestic industry; (ii) the domestic
producers' loss of market share; or (iii) the across-the-board price declines
affecting line pipe products not used in oil and gas gathering applications. The
ITC also noted the consensus among industry participants that imports had played
a major role in the decline of line pipe prices in 1998 and interim 1999.
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 serious injury was undisturbed by any
contribution to injury resulting from reduced oil and gas drilling and
production activities.
4.80 Korea's argument with respect to the effects of reduced activity in the oil
and gas industry rests in large part on its assertion that there was a
coincidence in trends between declining demand due to the oil and gas crisis and
the deteriorating condition of the domestic industry, and that there was no
coincidence in trends between imports and the condition of the domestic
industry. Korea is incorrect. Increased imports did coincide with the
deteriorating condition of the domestic industry. Moreover, the ITC's analysis
of the conditions of competition confirmed the causal link between imports and
the injured condition of the domestic industry. The fact that the oil and gas
crisis also coincided with the worsening condition of the domestic industry does
not prove that the ITC attributed the effects of the oil and gas crisis to
imports. The ITC clearly and extensively distinguished the effects of increased
imports from those of the oil and gas crisis.
4.81 The ITC also considered competition among domestic producers but found
that, since competition among domestic producers had always been a factor in the
market, such competition did not explain the sudden and sharp declines in
domestic prices and shipments in 1998 and interim 1999. The ITC found the modest
increase in domestic capacity over the period investigated (which was indicative
of intra-industry competition) was considerably less than the growth in line
pipe consumption. Thus, contrary to Korea's assertion, the ITC did not
improperly attribute to increased imports injury caused by competition among
domestic producers.
4.82 In sum, the ITC properly distinguished the effects of other factors under
Article 4.2(b), and properly established the causal link between increased
imports and serious injury to the domestic industry, without attributing to
imports injury caused by other factors.
(e) Korea Has Not Provided Any Basis for the Panel to Conclude That Chairman
Bragg and Commissioners Askey's Findings Are Inconsistent With Articles 2 and 4
4.83 Contrary to Korea's assertion, the two ITC Commissioners who determined
that increased imports threatened serious injury found both an increase in
imports that had already occurred, and that subject imports were likely to
increase in the future. Both of these findings are supported by the evidence
before the ITC. These Commissioners supported their findings regarding likely
increased imports in the future with the evidence regarding available capacity
in foreign facilities. They also properly relied on objective evidence to find
that increased imports contributed to the decline in US producers' prices for
line pipe.
4.84 Noting the relatively high substitutability between imported line pipe and
the domestic product, as well as the importance of maximizing production in a
capital-intensive industry, these Commissioners concluded that domestic line
pipe producers were constrained to lower prices in response to the availability
of lower-priced imports. They found that domestic prices for line pipe had
declined to the point where the domestic industry was clearly threatened with
serious injury, and if the low pricing was sustained, would quickly result in
serious injury. The two Commissioners made appropriate findings regarding threat
of serious injury based on facts and not mere allegation, conjecture or remote
possibility.
(f) Korea Has Not Established Any Basis for the Panel to Conclude That the
Safeguard Measure Applied by the United States Was Inconsistent With the
Safeguards Agreement or GATT 1994
(i) Korea has not met its burden to establish that the line pipe safeguard was
applied beyond the extent necessary to prevent or remedy serious injury and to
facilitate adjustment
4.85 Article 5.1, first sentence, requires that a safeguard measure be
"commensurate" with the goals of remedying serious injury and facilitating
adjustment.10 Thus, the relevant inquiry involves a comparison of the safeguard
measure with the serious injury and the need for adjustment. Korea does not even
address this question. Instead, it compares the US safeguard measure, as
applied, with the ITC recommendation.
4.86 In addition to being irrelevant, this comparison does not support Korea's
claim that the ITC recommended measure would have restricted imports or assisted
the domestic producers less that the measure that the United States actually
applied. Korea simply ignores that the line pipe safeguard's three-year duration
is a full year less than the ITC recommended. It provides no basis for
contending that the 19 per cent duty under the line pipe safeguard would have "a
similar effect" to the 30 per cent over-quota duty under the ITC's recommended
tariff-rate quota ("TRQ"). But most importantly, Korea's analysis of the
separate elements of the safeguard measure fails again to address the relevant
question - whether the measure (and not its parts) is commensurate with the
goals of Article 5.1, first sentence.
(ii) Korea has not met its burden of showing that Article 5.1, Second Sentence,
Article 5.2(a), or Article XIII are applicable to the type of safeguard imposed
on line pipe
4.87 The United States and Korea differ over whether to characterize the line
pipe safeguard as a supplemental duty or a TRQ. This disagreement is, however,
of little consequence, since the measure complies with the relevant WTO
obligations in either case.
4.88 If the measure is labelled a supplemental duty, Korea's arguments become
irrelevant. The quota rules under Article 5 and Article XIII, which form the
basis for Korea's arguments, plainly do not apply to a duty increase.
4.89 If the measure is labelled a TRQ, the analysis takes longer, but leads to
the same result. First, Korea claims that the Article 5 prohibitions on the use
of quotas and quantitative restrictions apply to the line pipe safeguard because
a TRQ is a quota. It provides little support for this view other than to note
that the "Q" in "TRQ" stands for "quota." However, panel reports under both GATT
1947 and the WTO Agreement confirm that a TRQ is not a "quota" or "quantitative
restriction" for purposes of GATT 1947 and GATT 1994.11 The text supports this
view. Article XIII establishes rules on quotas and quantitative restrictions,
which it follows with a statement stating that the rules also apply to TRQs. The
addition of this clarification shows that the drafters did not understand TRQs
to be "quotas" by their nature. Therefore, Korea fails to present a prima facie
case that the line pipe safeguard was inconsistent with Article 5.
4.90 Second, Korea claims that Article XIII applies to the line pipe safeguard.
However, the object and purpose of the Safeguards Agreement is to "clarify and
reinforce the disciplines of GATT 1994, and specifically those of its Article
XIX" by creating "a comprehensive agreement, applicable to all Members and based
on the basic principles of GATT 1994."12 One vital aspect of this clarification
was the integration of Article XIII principles into the comprehensive framework
of the Safeguards Agreement. Some principles were strengthened, some remained
the same, and some were removed. The application to a safeguard measure of
Article XIII rules that the drafters of the Safeguards Agreement omitted would
do violence to their stated objective that the agreement be "comprehensive."
4.91 Moreover, it does not make sense to apply Article XIII rules to the line
pipe safeguard. For example, if Article XIII:2(d) applied to safeguard measures,
the identical language included in Article 5.2(a) would become superfluous, a
result inconsistent with basic rules of treaty interpretation. The notice
requirements under Article XIII:2(a) and XIII:3(b) are redundant of the
notification requirements under the Safeguards Agreement. In any event, the
Article XIII:2(a) requirement to establish an overall quota amount applies only
were "practicable." As Korea itself notes, with an indeterminate number of
parties subject to the 9000 ton exemption from the 19 per cent duty, it was not
practicable to set an overall quantity of eligible imports.
(iii) Articles I and XIII:1 and Article 2 do not prohibit a member from
excluding its free trade agreement partners from a safeguard measure
4.92 Article XXIV creates an exception to the MFN principle for Members of a
free trade agreement. Footnote 1 of the Safeguards Agreement establishes that no
provision of the Safeguards Agreement will nullify the effect of Article XXIV on
the interpretation of Article XIX. Therefore, Articles I and XIII:1 and Article
2 do not prohibit the United States from excluding Canada and Mexico, its
partners in the North American Free Trade Agreement ("NAFTA"), from a safeguard
measure. It is noteworthy that the list of measures that Article XXIV:8
specifically authorizes FTA parties to maintain against each other does not
include safeguards measures applied under Article XIX. By implication then,
safeguard measures either may or must be made part of the general elimination of
"restrictive regulations of commerce" under any FTA.
(g) Miscellaneous Arguments Raised by Korea
4.93 Korea's first written submission contains several short arguments. All are
invalid. (1) Korea's claims against the ITC's determination and the measure
itself are plainly not independent of each other, which leaves the Panel the
option of exercising judicial economy with respect to one if it finds the other
to be inconsistent with the WTO Agreement. (2) The record establishes the
existence of unforeseen developments, as required under Article XIX. (3) Article
11 does not impose a separate requirement to establish the existence of an
"emergency situation." (4) The United States complied with Article 12.3 by
giving Korea notice of the proposed safeguard measure and providing an adequate
opportunity to consult. 5 Circular Welded Carbon Quality Line Pipe, Inv. No.
TA-201-70, ITC Pub. 3261 (December 1999) p. I-3, ("ITC Report"). 6 European Communities - Measures Concerning Meat and
Meat Products, report of the Appellate Body, WT/DS26/AB/R, para. 117, adopted 13
February 1998 ("EC- Hormones (AB)").
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