U.S. CHINA TRADE LITIGATION IN THE WTO

Timothy John Convy

Dmitry Chudinovskikh

Mary Della Vecchina

ITRN 603 00202/24/2015Professor Stuart Malawer

China – U.S. (Tires) (DS399)

United States - Measures Affecting Imports of Certain Passenger Vehicle and Light Truck

Tyres from China

Measure at Issue: US transitional product-specific safeguard measure applied under para. 16 of China’s Accession Protocol pursuant to Section 421 of the US Trade Act of 1974.

Background of Dispute• The USITC determined that there was a market

disruption as a result of rapidly increasing imports of tires from China that were a significant cause of material injury to the domestic market.

• The President imposed additional duties on subject tire imports for a 3 year period: 35% ad valorem in the first year, 30% in the second and 25% in the third.

• 3 Days later China requested Consultations with the United States over the tariffs.

Business & Political Context

Business & Political Context

• The value of Chinese tire shipments to the U.S. nearly tripled between 2004 and 2008 to $1.8 billion

• Domestic tire capacity declined to 186.4 million tires, from 226.8 million, from 2004 to 2008, while production dropped to 160.3 million, from 218.4 million.

• By going after China, the White House aimed to signal to unions and trade skeptics in Congress that it wouldn't be lax in enforcing the Korea pact, the administration's first Asian trade deal

• China rejected U.S criticism and countered with charges that U.S. monetary expansion is leading to potentially destabilizing pressure on the dollar

• Chinese ambassador to the WTO said that the tariffs would harm consumer interests in the U.S.

Consultations: The Dispute• According to China the higher tariffs are inconsistent

with Article I:1 of the GATT (Most-Favored-Nation) and have not been properly justified pursuant to Article XIX of the GATT, (Agreement on Safeguards).

• China argues that these tariffs are not justified as China-specific restrictions under paragraph 16 of its Protocol of Accession. Specifically: “China alleges that the US statues defines “significant cause” more narrowly than required by the ordinary meaning of that phrase as used in paragraph 16.4 of the Protocol of Accession.

China Allegations1) The U.S. failed to evaluate properly whether imports from China were in “such increased

quantities” and “increasing rapidly” as required by paragraph 16.1 & 16.4: Tire imports were not “rapidly increasing”.

2) The U.S. failed to evaluate properly whether imports from China were a “significant cause” of damage to the domestic market: Tire imports were not a “significant cause” of disruption to the domestic market.

3) The U.S. imposed a transitional safeguard measure that went beyond the ‘extent necessary”, thus it was inconsistent with paragraph 16.1 and 16.4 of the Protocol: The tariff imposed was too high.

4) The U.S. imposed a transitional safeguard measure for a 3 year period that went beyond “such period of time” that was “necessary” and thus inconsistent with paragraph 16.6 of the Protocol. The tariff was imposed for too long.

5) The transitional safeguard measure was inconsistent with Article I:1 of the GATT as the U.S did not accord the same treatment that it grants to passenger vehicle and light truck tires originating in other countries. The tariff violated the Most-Favored-National article of the GATT by being only imposed on China and not other tire importers.

The US position• The surge in imports has threatened

domestic manufacturing

• As a result domestic production has declined rapidly and thereby threaten American jobs

• The US has the right to protect its domestic economy form significant disruptions caused by increased Chinese imports

Panel Body Proceedings• On Jan 19, 2010 the DSB established a panel pursuant to

the request from China.

• Third Parties to the Dispute: European Union, Japan, Chinese Taipei, Turkey and Vietnam.

• China Position: China asked that the panel recommend that the United States promptly comply with its obligations and withdraw the tire measure

• United States Position: The U.S asked the panel to reject China’s claims in their entirety.

Panel Complaints & FindingsChina Complaints:

1. Tire imports are not “increasing rapidly”.

2. Tire imports are not a “significant cause” of market disruption.

3. The safeguard tariff was too severe as it was not limited to market disruption caused by the rapid imports and the three years duration exceeded the time necessary for the domestic market to adjust.

4. China argued the tariff violated the Most-Favored-Nation clause of the GATT.

Finding:

1. The panel disagreed and found that tire imports were increasing rapidly in according with the protocol.

2. The panel rejected this argument.

3. The panel found insufficient evidence to support this claim.

4. The panel found that China’s claims were dependent on its claims under paragraph 16 of the Protocol. They were, therefore similarly unsuccessful.

Panel’s Recommendations

The panel concluded that in imposing the transitional safeguards measure on September 26, 2009 in respect to imports of subject tires from China, the United States did not fail to comply with its obligations under paragraph 16 of the Protocol and Articles I:1 of the GATT. The panel also found that there was no “as such” violation in respect of the US statute implementing the causation standard of paragraph 16 of the Protocol.

Appellate Body & Conclusion• China appealed aspects of the Panel’s findings to the Appellate

Body.

• The Appellate Body upheld the Panel’s findings that the imports from China met the threshold for “increasing rapidly” and were a “significant cause” of domestic market disruption.

• Furthermore, the Appellate Body agreed that the safeguard tariff imposed by the U.S. was correct both in extent and length to remedy the market disruption.

• The Appellate Body did not find that the United States acted inconsistently with its WTO obligations in imposing a product-specific safeguard measure on tires from China. Hence, the Appellate Body made no recommendation under Article 19.1

Implementation outcome

• The implementation of the tariff did not help to reduce US imports of tires. Moreover it shifted production from China to other countries in the region

• U.S. imports of Chinese tires fell by 23.6 percent in 2010 and by a further 6 percent in the first half of 2011, while U.S. tire imports overall grew by 20.2 percent and 9 percent respectively

• The US government towed it as a political victory. In a statement US trade representative Ron Kirk Said: "The Obama Administration will continue to fight for U.S. jobs and businesses. We will use our trade laws to stand up for our workers and address harm to them."

Implementation outcome

Observations on dispute

• The safeguard was legal

• Politically motivated

• It didn’t do any good for the US economy

• It benefited the Administration

Questions?

Bibliography

• Chan, Sewell. "World Trade Organization Upholds American Tariffs on Tires From China." The New York Times. The New York Times, 13 Dec. 2010. Web. 20 Feb. 2015.

• Ikenson, Dan. "The U.S. Loses Despite Victory In Chinese Tire Dispute." Forbes. Forbes Magazine, 14 Dec. 2010. Web. 21 Feb. 2015.

• Miles, Tom, and Robert Evans. "China Loses WTO Appeal against U.S. Tire Tariffs." Reuters. Thomson Reuters, 05 Sept. 2011. Web. 23 Feb. 2015.

• "United States — Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres from China." World Trade Organization. DISPUTE DS399, 21 Oct. 2011. Web. 23 Feb. 2015.

• "U.S. Beats China in Tire Fight." WSJ. N.p., n.d. Web. 23 Feb. 2015.

• "US-China Trade Dispute about More than Tires." The Christian Science Monitor. The Christian Science Monitor, n.d. Web. 23 Feb. 2015.