4.178 All of these facts demonstrate that the very significant level of import restriction should have been anticipated and that the President's measure exceeded what the ITC identified as "necessary."

4.179 If the United States has confidential data to demonstrate that the President's measure would not have reduced imports below the 151,124-ton level defined by the ITC as "necessary," the United States should provide it. Korea submits that in the absence of an affirmative demonstration by the United States of its "intended level," or a US denial accompanied by evidence that the restricted level was below that intended by the measure, the actual level of imports is the best evidence of the import target level of the measure.

(iii) Burden of proof on the issue of whether the measure was in conformity with the requirements of Article 5.1

4.180 First, Korea believes that it is the obligation of the United States, in accordance with Article 5.1 and read together with Articles 3.1 and 4.2(c), to demonstrate, in its published report, that the measure was necessary. The US obligation in this respect is freestanding and the US failure to meet it is a violation in itself.

4.181 Neither the Proclamation nor supporting memorandum provide any analysis or justification for the measure. Korea notes, however, that in its letter of 23 April, the United States has conceded that there are additional memoranda and documents of both a confidential and non-confidential nature, which accompanied the President's decision. However, according to the United States, those documents are either "redundant" or can, at the whim of the United States, be withheld on the grounds that they are inconsistent with the President's final decision.

4.182 Based on the inferential evidence discussed above, Korea believes that it has met its burden establishing a prima facie case that the President's measure was excessive and in violation of Article 5.1. The United States has not demonstrated (or even attempted to demonstrate) that the measure was necessary, or that the level of import restriction which resulted from the measure was the level intended.

(iv) Article 5.1 imposes a continuing obligation

4.183 The obligation only to apply safeguard measures to the extent necessary is an ongoing obligation. This is confirmed by the language of Article 5.1: "shall apply." In this case, actual import data confirm that the measure as imposed is "excessive" since it is far below the level of 151,124 short tons found to be "necessary" by the ITC Majority. Given that the measure as applied exceeds "the extent necessary," it must be withdrawn or liberalized in accordance with Article 7.4. The United States is currently conducting a "mid-term" review in this case under Section 204 of the 1974 Trade Act, which allows the President to "reduce, modify, or terminate" the measure. Korea urges the Panel to provide guidance and instruction to the United States regarding necessary modification or termination.

(v) The obligations of Article 5.1 have to be read together with the obligations imposed by Articles 3.1 and 4.2(c)

4.184 Article 3.1 imposes an independent obligation requiring that the investigation, findings, and conclusions of the competent authorities must demonstrate the legal and factual basis for the measure. Also, Article 5.1 is textually related to Article 4.2(c) since the "necessary" level must be to alleviate the serious injury contained in the "detailed analysis."

(vi) The United States violated Article 2 and provisions of Articles I, XIII:1 and XIX by exempting Canada and Mexico from the measure

(1) The proper interpretation of Footnote 1: The Appellate Body in Argentina - Footwear

4.185 Korea's position is that it is impossible to read the Appellate Body opinion as providing that the last sentence of Footnote 1 is separate from the rest of Footnote, as the United States appears to argue. Footnote 1 does not apply to actions by a single country, such as the United States, rather than a customs union.

4.186 Korea does not understand the US argument to be that Article XXIV, standing alone, provides the United States with a "defense" to the violation of Article 2.2. In any event, this position is not supportable because the "defense" would be "invoked" only on a case-by-case basis under the structure of NAFTA. Moreover, the United States would have to overcome the hurdles to such a defense presented by the General Interpretive Note to Annex 1A of the GATT 1994: that Article 2.2 prevails over Article XXIV to the extent of any conflict.

(b) The ITC Investigation of Increased Imports, Serious Injury, and Causation

(i) The US measure is inconsistent with Article XIX and Article 2 because imports did not increase suddenly, sharply and recently

4.187 The United States maintains that the two six-month periods (the last 12 months) analysis is "arbitrary," "crafted," and "contrived." Further, the United States argues that the ITC did not collect or assess data on a six-month basis in 1998. The US argument fails since the data was available for imports as well as for injury indicators and the legitimacy of such a "two-period" analysis has already been demonstrated by the ITC itself. The most recent data, by definition, are the most relevant data. The US position that "a one year period would hardly suffice" is incorrect and specifically contradicted by the Appellate Body admonition in Argentina - Footwear against the use of "any other period of several years." The "recent period" is the last one-year period of the investigation and a decline in the interim six-month period would constitute the most relevant evidence in the recent period.

4.188 The need for such a precise legal standard was justified by the Appellate Body on the grounds that Article XIX is an extraordinary remedy dealing with fair trade: "when construing the prerequisites for taking such actions, their extraordinary nature must be taken into account." This is not to say that only one year of data should be collected. Rather, in analyzing the data received, the focus of the investigation for purposes of assessing whether imports of subject merchandise entered "in such increased quantities ... and under such conditions as to cause or threaten to cause serious injury," must be the most recent one-year period.

(1) Absolute increase

4.189 The United States can no longer dispute that absolute import trends showed a decline for 12 months beginning in the second half of 1998. The US 16 February Letter clearly demonstrates that the public data (which includes Arctic and alloy products) does not accurately represent the imports of subject merchandise in the first and second halves of 1998 and 1999.

(2) Relative increase

4.190 The United States repeatedly asserts - incorrectly - that imports relative to production were at their highest in the first half of 1999. Having said this, the United States has not directly disputed that imports relative to production declined in the first half of 1999 relative to the second half of 1998. Indeed, this is an incontrovertible fact.

(ii) The United States failed to demonstrate that the US line pipe industry was suffering serious injury as required by Article XIX and Articles 3.1, 4.1 and 4.2

(1) The United States did not satisfy the requirements of Articles 3.1 and 4.2(c)

4.191 The Appellate Body in Argentina - Footwear read Articles 3.1 and 4.2(c) to require that the authorities adequately explain how they came to the conclusions that they did and to specify the data relied on to reach those conclusions of fact and law. The Appellate Body in US - Lamb Meat confirmed this. Korea is not arguing that the decisions of the ITC must be unanimous, but rather that the data relied on and the conclusions reached were inconsistent and, therefore, had to be reconciled.

4.192 In Korea's view, the US position that the difference between "threat" and current injury is merely a question of "degree" and "timing" is surprising. The industry is either seriously injured and significantly impaired or it is not, as the Appellate Body recognized in US - Lamb Meat. The United States simply retorts that "the Commissioners did not reach contrary findings of fact." But the data relied on and the conclusions reached were inconsistent. As these contrary findings were not reconciled, the requirements of Articles 3.1, 4.1 and 4.2 are not met.

(2) The data is flawed since it includes data from other industries

(i) "The line pipe industry"

4.193 Articles 2.1 and 4.1(c) provide that the industry should be defined as the producers of the like or directly competitive products. The ITC's failure to ensure that the effects from the downturns in the OCTG market did not infect the data regarding line pipe made the relied on data unusable for purposes of Article 4.2(a) injury factors.

(ii) Geneva and Lone Star

4.194 In Korea's view, the US statement regarding Geneva is not responsive to the question posed by the Panel for the very reasons observed by Commissioner Crawford. Specifically:

(1) The reference used by the United States that "Geneva did not produce other products in the facilities where line pipe was made" is a reference to the Staff Report in which they are referring to production of other pipe products.

(2) The problem was that Geneva shut down one of its blast furnaces and attributed the shutdown to the line pipe market. That shutdown, however, was driven by circumstances in its principal markets: hot-rolled coil and plate.

4.195 The ITC improperly accepted mere assertions by the domestic industry witnesses regarding Geneva. In the case of dual-stencilled line pipe from Korea, however, the ITC insisted that the precise quantity had to be established. The ITC considered that the less exact data was unusable. Such a difference in standards on two similar issues cannot be justified.

4.196 Moreover, with respect to Lone Star, it turns out that Commissioner Crawford was correct: the result of Lone Star's allocation of SG&A was to "substantially reduce" the operating income of both Lone Star and the industry as a whole.

4.197 Finally, Korea notes that the United States essentially admits that the other Commissioners did not address Geneva or Lone Star issues.

(iii) The cost allocations artificially lowered the profitability of the line pipe industry

4.198 The data for Lone Star confirms Korea's position that the data, if properly analyzed for line pipe alone, reveals significantly different financial results for the industry. This issue was not sufficiently investigated and resolved as required by Article 3.1 and 4.2.

4.199 With respect to the question of whether shipments of OCTG fell disproportionately to shipments of line pipe in the period from late-1998 to late-1999, Exhibit 48C presented by Korea at the First Substantive Meeting demonstrates that the US statement is incorrect. With respect to the US position that fixed costs, such as overhead and SG&A, are relatively insignificant, one adjustment by one producer alone - Lone Star - increases industry profitability by as much as 33 per cent according to the United States. The potential impact of "over"-allocated SG&A and fixed overhead for every producer which produced OCTG and line pipe can safely be assumed to be significant.

(c) The Downturn in the Industry's Condition Was Temporary and Improving at the End of the Period

4.200 The United States insists that injury occurred in 1998 and interim 1999. However, Korea notes that the ITC Majority Opinion and Separate Views on Injury relied on the second half of 1998 and the first half of 1999 as the period of injury. Korea believes that the Panel should clarify this point with the United States. In addition, the United States has not responded to Korea's point about the significance of the fact that two new producers entered the line pipe industry. Korea believes that this evidence, together with the evidence on overall industry capital expenditures, confirms that the US industry also understood that the "downturn" was isolated and temporary.

4.201 The United States maintains that the improvement of the industry at the end of the period, does not prevent a finding of serious injury. Korea recalls the decision of the Panel in US - Wheat Gluten to the effect that the most relevant period is the end of the period because Article 2.1 requires that the industry must be suffering serious injury when the measure is imposed. The United States maintains that the evidence concerning the upturn in the industry is "only anecdotal." The United States ignores the fact that evidence of this upturn was specifically cited by the ITC Commissioners and formed the basis for the remedy recommendation of both the Majority Opinion and Separate Views on Injury.

4.202 The United States also argues that the price increase data is "extra-record" information. Korea has demonstrated in its written submission in response to the US request to exclude certain data that this information was on the ITC record at the injury stage. The United States is also contradicted by record information with respect to the $25-$30 price increase. The price increase was not due to rising raw material prices. Finally, as noted in Korea's First Written Submission, announced price increases totaled $80/ton by the time of the ITC decision (as noted by Respondents and Commissioner Crawford). This evidence indicates that the industry was no longer suffering injury as required by Articles 2.1 and 4.1(b).

(d) The United States Failed to Demonstrate a Causal Relationship Between Increased Imports and Serious Injury in Violation of Article XIX and Article 4

(i) There was no coincidence of trends between imports and the performance of the domestic industry

4.203 The United States argues that a coincidence of trends is not required for a finding of causation. Yet, the Panel and the Appellate Body in Argentina - Footwear were quite clear on this point.

4.204 The United States now argues to the Panel that the facts explain why the trends did not coincide, but they get the facts wrong:

(1) The information on lag-times contradicts the US position. In fact, most of the merchandise is sold before the merchandise enters the United States.

(2) The United States is incorrect that the ITC did not compare first half and second half 1998 data.

(3) The difference in trends between imports and the condition of the domestic industry is not minor.

(ii) Conditions of competition did not demonstrate that there was a causal relationship between increased imports and the performance of the industry

(1) Dual-stencilled line pipe

4.205 The ITC did not properly consider the market effect of dual-stencilled line pipe: that such pipe was actually sold as standard pipe and thus did not compete with line pipe. The fact that there had been several years of litigation over the proper classification of such pipe strongly supported the conclusion that the effect might be very significant.

(2) Imports did not lead down prices

4.206 The United States did not address Korea's argument that the data confirms that declines in the line pipe industry's profitability were caused principally by the increase in unit costs rather than a decline in prices for line pipe.

4.207 The United States defence of the ITC's finding relies on three levels of proof to demonstrate that imports drove down prices and thereby profitability:

(1) Statements in questionnaire responses. However, reliance on such statements cannot take the place of an analysis of the actual pricing data.

(2) Declines in average unit value ("AUV") data. Average unit import price data is not reliable because it is based on public data, which includes products other than the "like product" under investigation.

(3) The ITC's pricing data. This data did not demonstrate that imports led down prices.

(iii) The pricing data submitted by the United States

4.208 As the United States explained at the First Substantive Meeting, the ITC Majority did not evaluate the trends in underselling. The pricing data submitted by the United States confirms that imports did not lead down prices:

(1) Underselling was generally a condition of competition.

(2) In no case did the margin of underselling expand in the period of July 1998 through June 1999 compared to the strongest period of industry health (January 1997 through June 1998).

(3) In the case of Product 5, the data confirms that imports oversold domestic prices, while in the case of Product 6, domestic prices declined even in the absence of import competition.

(e) Other Factors Were the Cause of Any Injury

(i) The US methodology conflicts with Article 4.2(b)

4.209 Korea's view is that the focus and sequence of the US evaluation of "other factors" in this case is inconsistent with Article 4.2(b). The ITC begins with an analysis of the combined effects of other factors plus imports and determines whether, all together, they cause "injury." The ITC does not independently evaluate whether increased imports bear 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.

4.210 The ITC Majority principally relied on a two-period analysis to evaluate causation. They compared the period of 1994-1996 with the period of 1998 and the first half 1999. However, imports did not demonstrate greater growth. Also, the ITC improperly assumed that the effects of the oil and gas crisis could be measured in their totality by reference to the level of apparent consumption in 1999. This analysis ignored the very significant fact that there was a 30 per cent decline in apparent consumption from the first half of 1998 to the first half of 1999. Furthermore, that decline coincided with a 25 per cent increase in domestic capacity (on an annualized basis) due to significant new capacity coming onstream.

4.211 Thus, the ITC failed to properly identify and isolate the effects of all other "differences" between those two periods, inter alia increased capacity, declining export markets, and decreasing domestic consumption.

(ii) The United States does not consider the cumulative effect of all other factors

4.212 Korea notes that the US defense of its causation decision proceeds from a faulty premise: "the ITC ensures that injury caused by any, or all other factors together is not sufficient to sever the causal link." The United States, in fact, does not do this because it is statutorily prevented from doing so. The only means to assure that injury from other factors (individually or cumulatively) is not attributed to imports in accordance with Article 4.2(a) is to "cumulatively" consider all other factors. In this case, the overwhelming effect of the oil and gas crisis which caused consumption to drop dramatically from its high in 1997, and the build up of significant "over" capacity by the domestic industry with the addition of two new producers, the elimination of export markets, and consequent ferocious domestic competition were all factors that combined to "so dilute the effects" of imports that imports were no longer a substantial cause of injury.

(iii) The ITC should have investigated the shift from OCTG to line pipe as an "other factor"

4.213 With respect to the shift from OCTG to line pipe, the United States has not properly investigated the issue in accordance with its obligations under Articles 3 and 4.2(a).

(iv) The safeguard measure was intended to remedy injury caused by other factors

4.214 When several causes result in injury, each factor is only responsible for the actual injury caused. Therefore, injury must be apportioned between each of the causes to assure that the injury from other factors is not improperly "attributed" to imports in violation of Article 4.2. The United States improperly attributed injury caused by other factors to increased imports in the remedy recommendation.

(f) The ITC's Threat of Injury Determination Violated Articles 2 and 4 and Article XIX

4.215 Korea reiterates its argument from its First Written Submission.

(g) The United States Failed to Demonstrate the Unforeseen Developments Which Lead to the Increased Imports Which Caused Serious Injury

4.216 There is no indication in the ITC's determination that the ITC addressed the issue of unforeseen developments. Therefore, the ITC determination does not demonstrate unforeseen developments.

(h) The US Decision Did Not Satisfy the Requirements of Emergency Action of Article 11 or Article XIX

4.217 The United States seeks to draw an impossible distinction between the legal basis for a remedy and the remedy itself. Obviously, emergency actions require emergency circumstances.
 

Continuation: 3. Procedural Legal Arguments

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