What's New?
 - Sitemap - Calendar
Trade Agreements - FTAA Process - Trade Issues 

español - français - português
Search

WORLD TRADE
ORGANIZATION

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)


3. Procedural Legal Arguments

(a) The United States Violated the Obligation in Articles 8.1 and 12.3 to Consult Concerning the Measure Before the Measure Is Imposed

4.218 The Press Release relied on by the United States as "notice" preceded the actual imposition of the measure by only a few days. The United States cannot seriously maintain that the Press Release provided Korea with "adequate opportunity" for prior consultation, as stipulated in Article 12.3 and interpreted by the Appellate Body. In Korea's view, this is an absurd shifting of a US obligation.

4. Conclusion

4.219 The Appellate Body on 1 May 2001 in US - Lamb Meat reaffirmed the central tenet of Argentina - Footwear : "import restrictions that are imposed on products of exporting Members when a safeguard action is taken must be seen, as we have said, as extraordinary. And, when construing the prerequisites for taking such actions, their extraordinary nature must be taken into account." The United States has not satisfied that standard in this case for the reasons that have been fully developed in this Panel proceeding.

4.220 Moreover, given the breadth and scope of the errors in the ITC serious injury investigation (as well as the safeguard measure), Korea requests that the Panel "suggest[ ] ways in which the Member concerned could implement recommendations." Specifically, Korea requests that the Panel suggest that the United States comply with its WTO obligations by terminating its safeguard measure.

F. SECOND WRITTEN SUBMISSION OF THE UNITED STATES

4.221 The following is the United States' own executive summary of its second written submission:

1. Introduction

4.222 It is well established that the complainant has the burden of presenting a prima facie case of noncompliance with the terms of a covered agreement. Korea has not met this burden with respect to either the ITC's serious injury determination or the President of the United States' decision to apply the line pipe safeguard measure.

4.223 In challenging the ITC's serious injury determination, Korea and the third parties disregard the standard of review applicable to disputes concerning competent authorities' determinations under the Safeguards Agreement. In particular, they ignore the Appellate Body's repeated statements that review of competent authorities' determinations is not to be de novo and that panels are not to substitute an alternative view for that of the competent authorities.

2. The Increased Imports Requirements of Articles 2.1 and 4.2(a) Were Satisfied

4.224 Neither the SA nor the panel and Appellate Body decisions in Argentina-Footwear specify the precise period that should be examined to determine whether there have been imports "in such increased quantities" as to cause or threaten serious injury. In Argentina-Footwear the AB did not view the examination of data for two to three years before imposition of the safeguard measure to be inconsistent with its admonition that the investigation period be "the recent past."

4.225 The ITC's examination of the sharp and significant increase in imports (on both absolute and relative levels) during the last two full years of the period investigated is entirely consistent with the Safeguards Agreement and with Appellate Body Reports in Argentina - Footwear and United States - Lamb Meat. Nothing in Korea's arguments negates the fact that there was a recent, sudden, sharp, and significant increase in imports, both in absolute and relative terms. The only way that Korea can possibly claim a decline in imports is by manipulating the comparative time segments and then urging that the comparison most favorable to it is the only permissible approach. There is nothing in the Safeguards Agreement, however, that requires competent authorities to examine exclusively the comparative developments between the two halves of the last twelve months for which data were collected.

4.226 Korea's arguments that it was mandatory for the ITC to evaluate only developments in the June 1998-June 1999 period, to the exclusion of all other import data and time periods, is contradicted by, not consistent with, the Safeguards Agreement. The ITC followed its long-standing methodology of examining imports on a calendar year basis with additional data collected for interim periods (in this case the first six months of 1999 and, for comparison purposes, the first six months of 1998). By using the same neutral methodology it routinely uses in its investigations, the ITC ensured that its serious injury determination was based on an objective evaluation, as required by Article 4.2(a) of the Safeguards Agreement. Korea's argument that the ITC should have prejudged the data and manipulated its methodology to reach the result Korea prefers would require the United States to act inconsistently with the objectivity requirement of Article 4.2.

4.227 Examined on the objective basis routinely employed by the United States, imports increased, on an absolute basis, by 67 per cent from 1996 to1997, and by an additional 44 per cent from 1997 to 1998. Imports relative to US production showed the same sharp increase towards the end of the period of investigation, rising from more than 17.2 per cent in 1996, to more than 23.2 per cent in 1997, to more than 42 per cent in 1998. Relative import levels continued to rise over the interim periods, increasing from more than 36.1 per cent in interim 1998 to more than 43.5 per cent in interim 1999.

3. The ITC's Serious Injury Finding Fully Complies with Articles 3 and 4 of the Safeguards Agreement

4.228 Korea's argument that the ITC determination fails to comply with Articles 3 and 4 because of "fundamental inconsistencies and contradictions" among the Commissioners misconstrues the requirements of the SA and exaggerates the extent of any disagreement among the ITC Commissioners. The Safeguards Agreement does not require unanimity when the determination of a competent authority is made by members of a Commission or other body. The views of a Commissioner who is not part of the competent authority for purposes of the relevant determination carry no evidentiary weight and certainly cannot be considered to bolster whatever argument Korea may otherwise make based on record data.

4.229 Korea greatly exaggerates the extent of any disagreement between the three Commissioners who found serious injury and the two Commissioners who found a threat thereof. The views of a Commissioner who is not part of the competent authority for purposes of the relevant determination should be disregarded by the Panel not only because they are not part of that determination, but because they simply represent an alternative view of the evidence and, therefore, are not entitled to any evidentiary weight.

4.230 Korea has failed to make a prima facie case that the ITC's serious injury determination was in any way distorted by the inclusion of data relating to oil country tubular good ("OCTG") production. First, Korea's contention that the decline in OCTG shipments in 1998 was much more severe than the decline in line pipe shipments is simply not correct. The shipment declines for the two types of pipe in 1998 were almost identical. Second, Korea incorrectly assumes that the largest share of average unit costs consists of fixed costs. Third, the data in the ITC record contradict Korea's assertion that the line pipe industry's performance was affected by disproportionate declines in the production and sale of OCTG in early 1999. Sales of both line pipe and OCTG were in fact flat or rising in this period.

4.231 Korea has not demonstrated any inconsistency between the ITC's finding of serious injury and the Safeguard Agreement's definition of "serious injury" as a "significant overall impairment." Korea incorrectly states that the US line pipe industry experienced only a "one-year downturn." The evidence in the record before the ITC showed that the condition of the line pipe industry deteriorated greatly in 1998 and interim 1999. In addition, this "significant impairment" was widespread and comprehensive.

4.232 There is no merit to Korea's argument that the industry's performance was improving at the end of the period of investigation. The objective and quantifiable data in the ITC record showed a significant deterioration in the condition of the industry from1997 through June 1999 as well as in interim 1999 as compared with interim 1998. Notwithstanding this, Korea presented a collection of fragmentary statements, often taken out of context, designed to show that the industry was improving at the end of the period of investigation, or at later points. In comparison with the actual "hard data" showing a significant overall impairment in the industry, the collection of self-serving fragmentary statements advanced by Korea is unpersuasive.

4.233 In addition, Korea's characterization of the evidence upon which it relies to argue that the industry was improving at the end of the period is flawed. For example, Korea claimed that imports were falling at the end of the period investigated, whereas they were actually increasing in May and June of 1999.

4.234 The price increase announcements on which Korea relies also do not prove that the industry was no longer in a state of significant overall impairment, for several reasons. There is no evidence in the record that these anticipated price increases by a small number of firms in the industry were actually successful. Moreover, the ITC reasonably found that any such price increases were most likely attributable to an increase in raw material costs due to the imposition of antidumping measures on hot-rolled steel.

4. The ITC's Causation Finding Fully Complied with Article 4 of the Safeguards Agreement

4.235 Korea incorrectly asserts that there was no coincidence in trends of imports and domestic industry indicators. The SA does not require an exact and overlapping coincidence between imports trends and serious injury to the domestic industry. It is not necessary for increased imports and a deterioration in the industry's condition to occur simultaneously; in fact, some lag between cause and effect is to be expected.

4.236 Korea's effort to show that there was no coincidence in trends depends on its result-oriented approach of dividing 1998 into six-month increments. Nothing in the SA compels or provides for examining data on imports and injury in half-yearly, quarter-yearly or any other increment of time. Instead, Article 4.2 requires that the competent authority reach its determination based on an evaluation of objective evidence. The ITC approach, of adhering to its longstanding practice of making year-to-year comparisons and comparing interim data for the unfinished year to comparable interim data for the previous year, comports with these objectivity requirements. Korea's preferred approach, which would require the ITC to evaluate the evidence based on Korea's results-oriented comparison does not meet these objectivity requirements.

4.237 Korea's contention would mean that competent authorities can stray, after they have received and examined the relevant data, from their usual procedures and practices to perform prejudged comparisons of part-year data. If that were so, the ITC could just as easily have divided 1998 into quarterly time periods. A comparison by quarters again shows that there is a coincidence between increased imports and the deterioration of the industry. Imports during the third quarter of 1998 were higher than in any other quarter in the entire five-and-a-half year period for which the ITC collected data.

4.238 Korea is wrong in asserting that the Safeguards Agreement requires competent authorities to consider the impact of other causes in the aggregate. The Safeguards Agreement contains no such requirement, and the Appellate Body has recognized this. Korea's contention that the ITC should have considered all other causes of injury in the aggregate is tantamount to the Wheat Gluten panel's insistence that increased imports "alone" must be capable of causing serious injury. That is essentially the analysis of the panel that was rejected by the Appellate Body in its reports in both Wheat Gluten and Lamb Meat.

4.239 Korea and the EC have not shown that the impact of "other factors" severed the causal link between increased imports and serious injury, or that the effects of these "other factors" -- insofar as they produced any injurious effects at all -- were attributed to imports.

4.240 The ITC first found that imports were an important cause of serious injury. It did so by considering the size of the increase in imports (both in actual and relative terms), and the timing of this increase. It also considered the market share held by imports, and information on the pricing of imports and domestic line pipe. It identified imports as a cause of declining prices and concluded that the import-induced price declines resulted in a significant loss of sales, market share and revenues on the part of the domestic industry, as well as declines in other key indicators of industry health such as capacity utilization and employment. In sum, the ITC found that there was a direct, i.e., a "genuine and substantial," causal link between the significant increase in imports and the deterioration of the domestic industry's condition.

4.241 The ITC then analyzed each "other cause" of injury, both to assess its importance and to consider whether it detracted from the importance of increased imports as a cause of serious injury. By examining the "other causes" in this manner, the ITC ensured that it did not improperly attribute to imports injurious effects, if any, caused by the other causal factors. The ITC stated that it was not attributing injury caused by other factors to the imports.

4.242 The ITC distinguished the injurious effects caused by increased imports from the effects of declining demand from the oil and gas sectors in several ways. First, the ITC noted that the domestic industry had operated at lower levels of demand in the past without experiencing the severe financial losses the industry experienced in 1998/1999. Second, the ITC distinguished the injurious effects caused by increased imports from the effects of declining demand from the oil and gas sectors by recognizing the dramatic shift in market share from domestic suppliers to imports. The ITC further distinguished the effects of increased imports from those of the oil and gas crisis by noting the across-the-board price declines in 1998 and interim 1999, even in line pipe grades not sensitive to demand related to the oil and gas industries. Finally, the ITC pointed to a consensus among producers, importers and purchasers that imports played a major role in the decline in US line pipe prices in 1998 and interim 1999. By separately identifying injurious effects of increased imports that were wholly unrelated to the oil and gas market, the ITC ensured that it was not attributing to imports injury caused by the decline in oil and gas demand.

4.243 The ITC considered competition among domestic producers as another factor potentially causing injury, 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. The ITC also noted that two firms began production of line pipe in 1998. It acknowledged that industry capacity increased, but it found the increase in the 1994 -1998 period (less than 8 per cent) to have been considerably less than the growth in consumption (more than 22 per cent).

4.244 Korea's claim that there was a build up of "significant excess capacity" is both exaggerated and unconvincing. Korea focuses on the excess capacity in interim 1999, and claims that it was attributable to a build up in capacity. In fact, excess capacity in interim 1999 was largely due to a sharp drop in consumption, and not to any significant build up of new capacity. Thus, the ITC did not improperly attribute to increased imports injury caused by competition among domestic producers.

4.245 The ITC found that, while there was some evidence of domestic producers shifting away from OCTG production to other types of pipe, it did not appear that they switched into line pipe production. Citing to the Appellate Body's decision in Wheat Gluten , the EC argues in its third party submission that the ITC should have investigated this factor further, and that it could not have avoided attribution of the effects of this factor without quantifying its exact impact. The EC misconstrues the Appellate Body's analysis in Wheat Gluten . While the AB ruled that competent authorities may not limit their examination of "'other factors' to those clearly raised before them as relevant by interested parties," it also rejected "the European Communities' argument [in that case] that the competent authorities have an open-ended and unlimited duty to investigate all available facts that might possibly be relevant."

4.246 All of the record evidence before the ITC indicated that there was no substantial switch from OCTG to line pipe production. The petitioners stated at the ITC injury hearing that any diversion of production would have been relatively small. They noted that line pipe production declined at the same time as OCTG production. There was no contrary evidence in the record. The ITC Report shows that production of line pipe declined substantially in 1998 and in interim 1999 (as compared with interim 1998), making it implausible that serious injury was caused by overproduction of line pipe resulting from any shift from OCTG production. Under these circumstances, the ITC properly evaluated this factor, and explained its reasonable conclusion that declines in OCTG production were not substantially responsible for the serious injury experienced by the line pipe industry.

4.247 The ITC also considered allegations that declines in the domestic industry's exports were a more important cause of serious injury than increased imports. It found that although this decline worsened the serious injury caused by the increased imports, the increase in imports was far larger than the decline in exports. Thus, although the modest declines in exports may have affected the producers' bottom line, those effects were not attributed to imports because the impact of the increased imports dwarfed the decline in exports.

4.248 Contrary to the EC's assertions, the ITC did not "mis-attribute" injurious effects to imports of specialty products. During the ITC's injury investigation, a German line pipe producer argued that there was no domestic production of high frequency induction ("HFI") line pipe over 6 inches in diameter, or any domestically-produced substitute for use of this product in deepwater applications, and asked that HFI line pipe be excluded from the scope of the investigation. The ITC recognized that there was some evidence of customers preferring HFI line pipe, but it was not persuaded that the HFI line pipe was sufficiently different from the domestic product to warrant its exclusion from the domestic like product.

4.249 Once the ITC properly determined that HFI pipe was part of the domestic like product, imports of HFI pipe were reasonably included in the subject imports considered by the ITC in its analysis of the impact of increased imports on the condition of the domestic industry. Moreover, it should be noted that even if the ITC had excluded HFI imports from its analysis, the ultimate conclusion regarding the impact of increased imports on the US industry would have been no different. Imports from Germany did not represent a significant proportion of total imports, and there is no suggestion that all, or even most, German imports consisted of HFI line pipe.

5. The United States Applied the Safeguard Measure on Terms Consistent with Articles 5 and 9 of the Safeguards Agreement and Articles I, XIII, and XIX

(a) A TRQ is Not A Quantitative Restriction or Quota Within the Meaning of Article 5 of the Safeguards Agreement or Articles XI and XIII

4.250 Every relevant authority supports the conclusion that tariff rate quotas ("TRQs") are not quantitative restrictions or quotas. The text of Article XI necessitates this conclusion. If TRQs were quantitative restrictions or quotas, they would be prohibited. They plainly are not. Many Members - including Korea - apply TRQs. The implementation of TRQs was for many Members the basis for complying with the commitment under Article 4.2 of the WTO Agreement on Agriculture to convert quantitative restrictions into "ordinary customs duties." In addition, Article XIII:5, which specifies that the Article XIII disciplines on quantitative restrictions and quotas apply to TRQs, would not make sense if TRQs were, by their nature, quantitative restrictions or quotas.

4.251 The same conclusion holds true with regard to Article 5. Nothing in that provision gives its terms a meaning different than they have elsewhere in the WTO Agreement. Indeed, Article 5.2(a) duplicates the text of Article XIII:2(d), which indicates that the terms have the same meaning as used in both articles.

(b) The Line Pipe Safeguard Complied With All of the Requirements of Article 5

4.252 Under Article 5.1, a Member may apply a safeguard measure only to the extent necessary to prevent or remedy serious injury and facilitate adjustment. The Appellate Body has interpreted this text to require that a safeguard measure be "commensurate" with the goals of Article 5.1. Both of these goals relate to the condition of the domestic industry, since the nature and magnitude of serious injury will determine both the need for adjustment and the extent to which it is necessary to apply a safeguard measure. In short, the condition of the domestic industry sets the benchmark for application of any safeguard measure.

4.253 This standard applies regardless of whether the competent authorities characterize the domestic industry as subject to serious injury or the threat of serious injury. The factors listed in Article 4.2(a), which the competent authorities consider in evaluating the condition of the domestic industry, are the same for both serious injury and threat of serious injury. Since these factors delineate the condition of the domestic industry, which in turn forms the benchmark for application of a safeguard measure, the application of the safeguard measure will not depend on whether serious injury is current or threatened.

4.254 Therefore, to ensure that a safeguard measure meets the requirements of Article 5.1, a Member will consider the competent authorities' determination regarding serious injury, the industry's plans and efforts to adjust to import competition, and other factors that it considers relevant.13

4.255 The Safeguards Agreement contains no requirement that a Member explain or "justify" the application of a safeguard measure at the time of application, except in the case of a quantitative restriction described in the second sentence of Article 5.1.14 Since the US safeguard measure did not take such a form, the United States was under no obligation to justify the measure. Instead, the burden is on Korea to demonstrate that the US safeguard measure was not applied "only to the extent necessary to remedy or prevent serious injury and to facilitate adjustment." It has in no sense met this burden.

4.256 However, if the Panel were to consider whether the line pipe safeguard complied with the requirements of Article 5, the considerations outlined above suggest a multiple step inquiry along the following lines:

(1) a review of the evidence of serious injury or threat of serious injury identified by the competent authorities;

(2) an examination of the nature of the safeguard measure, including its product coverage, form, duration, and level;

(3) an analysis of how the application of the measure addresses the serious injury or threat of serious injury identified by the competent authorities; and

(4) in light of the first three steps, an assessment of whether application of the measure, in its totality, goes beyond the extent necessary to prevent or remedy serious injury and to facilitate adjustment.

4.257 The US analysis showed that the 19 per cent tariff would result, at most, in an increase of $62-64 per short ton in the average unit value of imported line pipe. If domestic producers increased their prices by the same amount, their operating profit margin would increase to $15 to 17 per short ton on average, for an operating income ratio of 3 to 4 per cent.15 That would represent between 3 and 4 per cent of total revenues, a level closer, but not equal to, the industry's profitable years before the import surge.16 However, this scenario would likely leave domestic producers' market share - an important aspect of serious injury - unchanged. Moreover, it is questionable whether the US producers could increase their prices by such an amount. Thus, it cannot be said that the United States applied the line pipe safeguard beyond the extent necessary as the measure alone would not be likely to reverse the volume and price effects of increased imports.

(c) Article XIII Obligations Regarding Quantitative Restrictions Do Not Apply to TRQs Imposed as Safeguard Measures

4.258 In previous submissions, the United States demonstrated that, under customary rules for the interpretation of treaties, Article XIII cannot be interpreted as applicable to safeguard measures taken pursuant to the Safeguards Agreement and Article XIX. Korea has argued that this interpretation deprives Article XIII of its "full force and effect." However, it fails to recognize that it is the customary rules of treaty interpretation, which support the US interpretation, that determine the "full force and effect" of any treaty. As the United States has explained, it is precisely those rules that compel the conclusion that safeguard measures taken pursuant to the Safeguards Agreement and Article XIX need not satisfy the requirements of Article XIII.

4.259 Finally, Korea claims that if Article XIII does not apply to safeguard measures, "tariff-rate quotas have escaped multilateral control." This is plainly untrue. The prerequisite that the competent authorities first make a determination of serious injury or threat of serious injury places a significant limitation on the availability of a safeguard TRQ. In addition, the first and last sentences of Article 5.1 apply to safeguard TRQs, as do Articles 7, 8, 9, 11, and 12.

(d) Nothing in the Safeguards Agreement Disturbs FTA Parties' Authority Under Article XXIV to Exclude Each Other From the Application of Safeguard Measures

4.260 Article XXIV allows FTA parties to decide whether to exclude each other from safeguard measures all of the time, some of the time, or not at all. Under Article XXIV:8, an FTA must eliminate restrictive regulations of commerce - like safeguard measures - on substantially all trade among the parties. Thus, the package of trade liberalizing measures that accompanies formation of an FTA need not eliminate all duties and restrictive regulations of trade. If FTA parties, while retaining some duties and restrictive regulations of commerce, can still achieve the Article XXIV:8 threshold (covering "substantially all trade"), they may retain those regulations. If the elimination of other restrictive regulations covers substantially all trade, the parties may also eliminate safeguard measures.

4.261 Article 802 of the North American Free Trade Agreement ("NAFTA") requires the parties to exempt each other from safeguard measures under certain circumstances. The Panel asked whether the formation of the NAFTA would have been prevented if the NAFTA parties had not been allowed to introduce this safeguards exemption. It linked this question to the decision of the Appellate Body in Turkey - Textiles that "Article XXIV can justify the adoption of a measure which is inconsistent with certain other GATT provisions ... only to the extent that the formation of the customs union would be prevented if the introduction of the measure were not allowed."17

4.262 However, the Turkey - Textiles reasoning applied to a measure affecting external trade with non-Members of the customs union. Thus, it does not apply to the safeguard exemption, which affects internal trade among the parties to the NAFTA, and formed part of the package of trade liberalization that created the FTA.

4.263 In any event, the Turkey - Textiles reasoning demonstrates that Article XXIV invalidates Korea's claims that the NAFTA safeguard exemption was inconsistent with Articles I, XIII, and XIX. Compliance with Article XXIV:8(b) is determined with reference to the entire package of the duties and restrictive regulations of commerce that are eliminated. The safeguard exemption formed part of that package for the formation of the NAFTA. If the GATT 1994 were interpreted to prohibit the NAFTA parties from accepting that obligation, it would prevent adoption of the liberalization package necessary to form an FTA. Thus, by operation of Article XXIV, the safeguard exemption is not inconsistent with Articles I, XIII, and XIX.

G. SECOND ORAL STATEMENT OF KOREA

4.264 The following is Korea's own executive summary of its second oral statement:

1. Introduction

(a) Appellate Body Precedents

4.265 The Appellate Body in US - Lamb Meat reaffirmed the overriding principle that safeguard measures are extraordinary actions and strict adherence to each and every requirement of the SA is essential. Specifically, the Appellate Body reaffirmed the very high standard of injury imposed by the SA. It also reaffirmed the importance of a full and complete analysis of all other factors, as well as the importance of a reasoned and adequate explanation, to ensure that the serious injury attributed to imports was actually caused by imports.

4.266 The US position on most of the issues raised by Korea in this proceeding is exactly the opposite of the body of jurisprudence established by the Appellate Body. The United States seeks to limit the review of the Panel and increase the discretion of the Members in applying safeguards. If the Panel does not address the issue of the measure, the US position will be sustained.

(b) General Objection to the US Failure to Address the Issue of Subject Imports in the US Second Written Submission

4.267 The United States continues to rely on public import data for many of its arguments despite the fact that such data (1) does not match the like-product in this case and, (2) during the period of investigation, the public data trends do not accurately track the confidential data trends. All arguments based on such data should be rejected by this Panel as unrepresentative of the like-product.

(c) Burden of Proof

4.268 The failure by the competent authorities to conduct a full investigation and publish a decision on all pertinent issues in violation of Articles 3.1 and 4.2(b) and 4.2(c) cannot become the basis for an objection by the Member in violation that the complaining party has insufficient record support for the claims and legal arguments made before the Panel. The Appellate Body appropriately gave no significance to these so-called "burden of proof" arguments by the United States in US - Lamb Meat.

2. The Safeguard Measure

(a) The Safeguard Measure Was Not Imposed Only to the "Extent Necessary"

(i) The US justification for the measure should have been contained in the findings and conclusions required by Article 3.1

4.269 While the United States appears to be offering its new "ex post" theory about why the US measure was imposed "only to the extent necessary," the Appellate Body in US - Lamb Meat confirmed that such an explanation should have been made prior to the imposition of the measure. Thus, in the case of a quantitative restriction adopted as a safeguard measure, which reduced imports below the level of the last 3 representative years, the authorities must justify the level of the measure as necessary in accordance with the requirements of Articles 5.1 and 3.1 inasmuch as this is a "pertinent issue" which must be addressed.

(ii) The newest ex post reasoning by the United States should be rejected

4.270 The latest ex post explanation for the measure by the United States that, if a 19 per cent tariff were fully translated into increases in the average unit price of line pipe, the impact on operating profits would be an increase that was close to but not equal to operating profit levels before the import surge has no more validity than its predecessors. This ex post justification ignores the combined improvements on the company's operating leverage of both price and volume increases and the improving demand situation. Also, the United States ignores the fact that virtually no (14,000 tons) imports entered at the 19 per cent tariff in the first year of the TRQ. In the absence of reasoned and adequate economic analysis, the United States can make no claims as to the estimated impact of the US measure or whether or not they are less than or greater than the extent necessary.

(b) The Safeguard Measure Was Not Confined to Addressing Only the Serious Injury Caused by Imports

4.271 The SA requires that a safeguard measure be confined to address the injurious effect of imports. In the ordinary interpretation of treaty language, "serious injury" in Article 4 and "serious injury" in Article 5 cannot mean two different things. The United States has offered no evidence that the measure was designed only to address the injurious effect of imports.

(c) Exemption of NAFTA Suppliers Was Improper

(i) Footnote 1 does not apply to the US safeguard action

4.272 Footnote 1 to Article 2.1 does not apply to the US safeguard measure because the United States is not acting as a customs union but simply in its capacity as a FTA Member State applying national safeguards. In the absence of Footnote 1, Article 2.2 requires MFN treatment, and Article XXIV does not provide a defence for a violation of the SA.

(ii) Article XXIV does not provide a defence to the US violation of Article 2.2

4.273 As the Appellate Body ruled in Turkey - Textiles , the Article XXIV defence is available only when the Member meets both the definition for an FTA and economic tests required under Article XXIV. Since NAFTA qualifies as an FTA even if safeguards were applied in some cases or even in all cases, the elimination of safeguard measures was not a prerequisite to the formation of NAFTA as an FTA. Moreover, the economic test in the instant case shows that the exemption of NAFTA members from the safeguard measure results in more restrictive regulations of commerce for non-members.

4.274 Finally, the attempt by the United States to escape Panel's review of its actions by subsuming the NAFTA exemption applied in this case within the overall obligations of the NAFTA should be rejected because the two conditions which must be met under Article XXIV should be examined with respect to the particular measure at issue, not the Agreement in its entirety. The Untied States has presented no evidence or even arguments that the NAFTA would have been prevented if the Untied States applied the measure on line pipe to Mexico and Canada.

3. The ITC Serious Injury Investigation

(a) The ITC's Investigation and Analysis Failed to Satisfy the Obligations of Articles 3.1 and 4.2

4.275 The ITC failed to satisfy the obligations of Articles 3.1 and 4.2 because it did not reconcile specific findings of the ITC which are in conflict among the ITC Commissioners, nor did it address the issues raised by parties in the ITC proceeding.

(b) No Increased Imports Were Demonstrated

(i) Imports declined

4.276 The requirement for increased imports is definitive and requires authorities to look at the last year of the period since the SA uses the present tense - "is being imported" - and the Appellate Body prohibited the use of any period of several years. Moreover, in terms of "context," import trends followed developments in the demand of the oil and gas sector and the drilling activities. Thus, imports commenced their decline at the same time as domestic industry factors and would continue to decline until drilling activity recovered.

(ii) The ITC did not adequately examine these significant import declines in its investigation and determination

4.277 The US failure to examine declining import trends for late 1998 and early 1999 violates the requirements of Articles 2.1 and 4.2(b). The internal practice of the United States cannot justify its failure to perform a treaty obligation.

(c) There Was No Serious Injury in the Line Pipe Industry

(i) Other Commissioners' opinions provide alternative plausible explanations of the data

4.278 Observations made in the dissenting views or separate views within the competent authorities are highly relevant and must be considered by the Panel because they call into question the "reasoned and adequate explanations" given by the authorities and present an alternative reading of the record data. The problems presented by the ITC Commissioners' disagreements over certain fundamental issues in their decisions are significant and cannot be remedied by mere observations which basically constitute a "checklist" of the relevant factors.

(ii) Some of the data the ITC majority and separate views relied on was fatally flawed

4.279 Contrary to the characterization made by the United States with respect to Exhibit KOR-48C as a manipulation, it correctly demonstrates that any allocation of costs based on relative sales value of line pipe to total domestic shipments will be distorted because OCTG declined more severely than line pipe in the months between 1998 and 1999. The ITC's reference to the "collective operating leverage" confirmed this conclusion.

4.280 As the Appellate Body observed in US - Lamb Meat, it would be a violation if a safeguard measure could be imposed based on data from domestic producers of products that are not like and directly competitive products in relation to the increased imports. The ITC did not sufficiently isolated the effects of these OCTG declines as well as the financial data for Lone-Star and Geneva Steel from the data before it evaluated injury to the line pipe industry.

(iii) The Industry Had a One-Year Downturn and Was Already Rebounding

4.281 Both the ITC Majority "Findings" and the separate view of threat were premised on an analysis of the domestic industry's downturn beginning in the second half of 1998. In that context, a one-year decline and subsequent recovery are significant evidence that the industry was not seriously injured since the industry must be in a state of serious injury when the decision of the authorities is made in accordance with Articles 2 and 4.2(b). Also, the one-year downturn in the industry had to be viewed in the context of a peak in 1997. Moreover, this was an industry that was accustomed to these wide swings in profitability and understood that their recovery would come with the recovery in oil and gas prices. Actually, the condition of the domestic industry was improving due to the improvement in oil and gas prices since early 1999, as was recognized in the ITC report.

4.282 In addition, the US Industry continued to invest because it made economic sense to plan for the recovery of the market. However, the United States argues against the significance of increased capital expenditures on the ground that such decisions predated the industry's difficulties. Without the confidential data on the industry as a whole, the Panel cannot conclude that the ITC sufficiently evaluated the industry as a whole or that the experience of the two producers selected by the Petitioners was representative of the industry as a whole.

4.283 Furthermore, the announcements of price increases by prominent US producers indicated their assessment of the future market at the time the ITC took its decision. The United States arguments on the issues of the relevance of price increases are ex post reasoning which are not found in the ITC determinations. To conclude, the ITC's analysis of injury factors failed to provide a reasoned and adequate explanation of how the facts as a whole support ITC's serious injury determination.

(d) The US Causation Decision Neither Properly Analyzed the Effects of Imports nor Sufficiently Isolated the Effects of Other Factors

(i) There was no coincidence of trends

4.284 The US causation decision fails because it ignores very significant inconsistencies between the trends of imports and the health of the US industry when half year 1998 and 1999 data are evaluated.

(ii) The ITC did not properly analyse the effects of imports

4.285 The US assumptions about the effects of imports were incorrect: (1) the per centage increase in imports was not "significantly different" between 1997 and 1998 compared to 1996 and 1997; and (2) price declines were not caused by import.

(iii) The ITC's analysis of "other factors" of injury was inadequate

4.286 Instead of assessing the nature and extent of the injurious effects of all other factors, and separating such the injurious effects of these other factors in accordance with Article 4.2(b), the ITC simply compared the injurious effect of each individual factor and determined each was not more important than the increase in imports.

4.287 Also, the ITC did not adequately investigate the other factors of injury in violation of Articles 4.2(a) and (b). As the Appellate Body admonished in US - Wheat Gluten , competent authorities have an independent duty of investigation and they cannot "remain passive in the face of possible short-comings in the evidence submitted, and views expressed, by the interested parties." Although the issues such as the shift from domestic production of OCTG to line pipe, the effects of dual-stencilled line pipe, or increased competition among domestic producers had been brought to the ITC's attention from the beginning of the proceeding, the ITC did not investigate such factors.

4.288 Finally, the United States should have cumulatively analyzed all the other factors of injury to determine that each factor, alone counting for some injury, would not cumulatively account for all injury and thus, demonstrate that increased imports did not bear a substantial and genuine relationship to serious injury. The United States cannot now assert that it is unnecessary to evaluate "all other factors together," when they have already asserted to this Panel - incorrectly - that they had indeed performed just such an analysis.


13 Paragraph 10 of the US responses to questions from the Panel indicates the factors considered by the President.

14 Korea -Dairy Safeguard (AB), at para. 100.

15 ITC Report, p. II-28, Table 10.

16 ITC Report, p. II-27, Table 9.

17 Turkey - Restrictions on Imports of Textile and Clothing Products, WT/DS34/AB/R, paras. 46-47, adopted 22 October 1999 ("Turkey - Textiles (AB)").

 


Continuation: H. SECOND ORAL STATEMENT OF THE UNITED STATES Return to Index of WT/DS202/R