Inside US Trade | Vol. 19, No. 20
The U.S. this week denounced the World Trade Organization Appellate Body for exceeding its mandate in a ruling against a U.S. safeguard on lamb meat imports that the U.S. said created new obligations for invoking section 201. The Appellate Body said that WTO members must prove that unforeseen developments necessitate the imposition of a safeguard.
The U.S. also told the May 16 Dispute Settlement Body, which adopted the lamb decision, that the Appellate Body's ruling bordered on allowing de novo review of the facts of dispute settlement cases. The U.S. said that the panel should look at whether the ITC followed WTO rules rather than have the panel make a completely new assessment of the validity of a safeguard.
However, the U.S. praised the Appellate Body's ruling on the ITC standard for determining whether imports, and not other factors, were the cause of serious injury. The U.S. said that the ruling did not impose a higher standard, or require new legal findings by the ITC. The Appellate Body nevertheless found that the ITC causation analysis in the lamb case did not meet the requirements of the Safeguards Agreement.
The U.S. statement did not specify how it intended to comply with the ruling. Australia and New Zealand, which brought the case against the 1999 safeguard quota, called on the U.S. to promptly withdraw the measure. They said that was the only way the U.S. could comply with the ruling because the Appellate Body's four findings identified fundamental and comprehensive problems that made the safeguard illegal.
The four findings regard the unforeseen developments, causation, proof of the threat of serious injury, and the definition of domestic industry.
Separately this week, Sen. Max Baucus (D-MT), ranking member of the Senate Finance Committee, urged the Administration to maintain the safeguard by allowing the ITC to revise its determination to comply with the Appellate Body ruling.
"As bad as the Appellate Body's decision is, I believe that it is clear that it does not require termination of the United States' import relief program for the lamb industry," Baucus said on the Senate floor May 14. "I am today calling on U.S. Trade Representative Robert Zoellick to reject Australia and New Zealand's demands and instead invoke the procedure prescribed by Section 129 of the Uruguay Round Agreements Act."
Baucus also criticized the Appellate Body for substituting its judgment for that of the ITC, saying it continued a trend of inadequate deference to countries' administrative bodies' decisions.
"This kind of decision risks eroding U.S. support for the WTO's dispute settlement procedures," Baucus said.
At the DSB, the U.S. also warned that unduly limiting countries' ability to impose safeguards could lead them to make fewer concessions in future trade agreements because countries rely on temporary safeguards to assist industries impacted by import surges.
On the issue of unforeseen developments, the U.S. accused the Appellate Body of imposing three new obligations that do not exist in Article 19 of the General Agreement on Tariffs and Trade. That article states that "if, as a result of unforeseen developments" and as a result of negotiated concessions, including tariff reductions, a surge in imports is causing or threatening to cause serious injury to domestic producers of like or directly competitive products, countries can then impose temporary safeguards to remedy or prevent such injury.
The Appellate Body rejected the U.S. argument that the existence of unforeseen developments -- a shift in product mix of the imports -- could be inferred from the ITC report and that the U.S. had demonstrated their existence before the panel.
The Appellate Body ruled that countries taking safeguard action must demonstrate as a matter of fact that unforeseen developments exist, that they need to do so before imposing the safeguard and that the ITC should have explained the unforeseen developments in its report.
The U.S. criticized that ruling saying that the Appellate Body relied on its earlier rulings in other safeguard cases and not on the text of the GATT. The lack of specificity in the text of Article 19 shows that WTO countries did not agree to be bound by any approach on the issue, the U.S. alleged. Article 19 makes no mention of a requirement to demonstrate unforeseen developments, when that demonstration must be made, or who must make it, the U.S. argued. The Appellate Body's effort to bring clarity to the language, caused it to exceed its mandate and issue a ruling that verged on interpretation of the agreement, a task expressly left to member countries, the U.S. said.
As a result, the Appellate Body finding in this regard has no legal effect, the U.S. said.
The U.S. also cautioned that the Appellate Body's statements on the standard of review that panels should adopt in reviewing ITC decisions held open the possibility for de novo reviews. Panel reviews of member country authorities' safeguard decisions should be limited to the facts presented to those authorities and to interpretations of those facts that had been presented to those authorities, the U.S. argued. Where two equally plausible interpretations are possible, a panel should affirm the decision of the authority imposing the safeguard, the U.S. said.
Specifically, the U.S. took issue with Appellate Body statements that panels must undertake a critical examination "in light of all the facts before the panel" and must evaluate the competent authority's analysis in light of alternative explanations. The Appellate Body based its standard of review on Article 11 of the Dispute Settlement Understanding. That article calls for panels to conduct "objective assessments of the facts."
The Appellate Body said the standard of review excluded de novo reviews but equally excluded simple acceptance of competent authorities' interpretations.
The issue was at the heart of the panel's review of whether the ITC took account of all relevant data, whether its analysis of price data was correct and whether these impacted on its determination that U.S. producers faced a threat of serious injury. The Appellate Body upheld the panel in finding that the ITC had not adequately demonstrated a threat of serious injury.
On causation, the U.S. said the Appellate Body had issued an unambiguous ruling that the Safeguards Agreement Article 4 does not require a demonstration that imports alone, in and of themselves, are causing a degree of injury that is serious.
That interpretation was contested by Japan, and Hong Kong, China who said the Appellate Body still needed to clarify what standard is needed show what the Appellate Body called a "genuine and substantial" relationship between increased imports and serious injury.
According to the U.S., the Appellate Body ruling requires only a "logical process" to ensure causation is properly attributed, but does not hold that the Safeguards Agreement requires a separate legal test. A U.S. industry source said this would allow the ITC to have its report reflect a more elaborated reasoning of why imports, and not other factors are the cause of serious injury. The ITC would not have to set a new higher threshold than the current statutory requirement to show that imports are "a more important cause" than other factors.
On the domestic industry ruling, the U.S. said the narrow construction by the Appellate Body -- it excluded growers and feeders of lambs as not producing "like products" -- put the safeguard remedy beyond the reach of producers who were being hurt by the increase in imports. Baucus in his floor statement made similar comments, but noted the Appellate Body left open the possibility that the ITC could find the lamb growers and feeders produced "directly competitive" products as the foreign producers of lamb meat. Producers of either "like" and "directly competitive" products meet the standard for the definition of affected domestic industry under the Safeguards agreement.
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