July, 2016
Safeguards—a Lifeline and/or an Anchor
Mark K. Neville, Jr.
While the antidumping and countervailing duty laws jostle for pride of place among the trade remedy laws another statute remains largely in the shadows and uncalled upon. This perennial wallflower is the safeguards law,1 sometimes referred to as Article XIX in reference to its home in the General Agreement on Tariffs and Trade 1994 (GATT 1994). A recent proceeding at the World Trade Organization (WTO) Dispute Settlement Body (DSB) concerned safeguards actions taken by the Ukraine and we thought it was a good time to bring this statute out of the shadows. First, let’s define the statutory scheme.
For starters, there must have been a confluence of “unforeseen developments” and the effect of obligations imposed by the GATT 1994 (read “reduced tariff levels” generally) with the effect that an imported product is being imported into the customs territory in such increased quantities and under such conditions as to “cause or threaten serious injury” to domestic producers of “like or directly competitive products”. If those criteria have been met, then the country is free to suspend the obligation in whole or in part or to withdraw or modify the concession on such product and to the extent and for such time as may be necessary to prevent or remedy such injury. Beyond these features, para. 2 of Art. XIX requires prior notice and consultation by the country seeking to take action. Beyond the prescriptive rule of Art. XIX of the GATT 1994, specific rules for taking safeguards actions were the subject of a separate but related agreement, fittingly entitled The Agreement on Safeguards.4 Interestingly the preamble showed that there was a recognition of the need for structural adjustment but also noted at the same time the need to enhance rather than limit international competition. Of course this “squaring of the circle” is at the heart of the challenge to the trading system whenever a derogation is taken under the safeguards regime or otherwise.
The Safeguards Agreement (Art. 2.2) mandates that any action taken is to be applied against products on an across-the-board basis, regardless of origin. This means that if there has been an overwhelming surge in imports from one country, say China, the imports of the subject product from all other exporting countries, even if they have been maintained at historical levels or perhaps even reduced from prior levels will be tarred with the same brush. That principle having been stated, the Agreement proceeds to depart from its generally enforceable effect with Art. 5.2 (a) which provides for allocations of quantitative restrictions (quotas) among supplying countries. In addition, developing countries are given break out protections, such as no measures being levied against imports from developing countries which account for less than 3% of total imports, provided that all developing countries as a group account for less than 9% of total imports. Art. 9.1. Further, when a developing country institutes a safeguard measure, the duration can be for an extra 2 years in addition to the eight years provided for by Art. 7.3. Art. 3 requires that an investigation must be undertaken by competent authorities and at Art. 4.1 (a) sets forth a definition for “serious injury” which is defined as a significant overall impairment in the position of a domestic industry. Moreover, a “threat of serious injury” is defined at Art. 4.1 (b) as serious injury that is clearly imminent and, the Agreement then notes that a threat must be based upon facts and not merely upon allegation, conjecture or remote possibility. Importantly, when factors other than increased imports are causing injury to the domestic industry at the same time, such injury shall not be attributed to increased imports. Art. 4.2 (b).
The actual form of permissible safeguard measures is not established in the Safeguard Agreement, but we should recall here that Art. XIX of GATT 1994 refers to tariff concessions, so we may infer that tariffs may be re-introduced or increased. Further, quotas are specifically discussed in Art. 5. As noted, a country can allocate quota among supplying countries. Moreover, Art. 5.2 (b) allows for departure from the rule setting quotas at a level not lower than that which corresponds to the average level of imports of a recent three-year period.
The duration for the actions taken should be only so long as to prevent or remedy serious injury and to facilitate adjustment. Art. 5.1. This period is set at no more than four years (Art. 7.1) but this can be extended as a general matter to a period not longer than eight years. Art. 7.3.
Certain measures are prohibited by Art. 11.1 (b)—these are the voluntary Restraint Agreements or Orderly Marketing Arrangements which had proved popular in resolving US trade disputes with Japan in the 1970s and 1980s.
Take note all of these limitations imposed by Art. XIX and by the Safeguards Agreement because you will see that they are quite strictly interpreted and enforced. The US version of this general safeguards regime,5 Section 201 of the Trade Act if 1974, codified at 19 USC §§ 2251-2254, is intended to effect what is styled a “positive adjustment by industries injured by imports.” In the case of the US program, there is an emphasis on the remedial focus of the program: in the face of an International Trade Commission (ITC) determination that
But as noted at the outset, there have been recent developments in Geneva that illustrate that any action taken by a country which invokes Art. XIX will be strictly scrutinized.
At its meeting on 20 July 2015, the DSB adopted the panel report. Promptly thereafter, Ukraine informed the DSB that it intended to implement the DSB's recommendations and rulings in a manner that respects its WTO obligations, and that it would need a reasonable period of time to do so. On 6 October 2015, Ukraine informed the DSB that the Interdepartmental Commission on International Trade adopted Decision No. SP-335/2015/4442-06 of 10 September 2015 revoking the safeguard measures on imports of passenger cars. This Decision entered into force on 30 September 2015. A review of the Panel Report findings reveals the following close application of the strictures of Art. XIX and the Safeguards Agreement:
Any gaps in logic or a demonstrated sloppiness in observing the strict parameters of the WTO regime is sure to be challenged in Geneva. The likely outcome of a successful trading partner challenge at the DSB is that the safeguard will end up more of an anchor around the neck of the domestic producers and others. For that reason, it is important to anticipate the likelihood of such a challenge when conducting any safeguard investigation under the US statute and in fashioning any measures to be undertaken.
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Safeguards at the international and domestic US levels
The fundamental “rules of the road” which set the parameters for international trade in goods are set forth in the GATT 1994 as well as in accompanying agreements which govern specific topics, such as customs valuation,2 or the resort by Members to trade remedy legislation.3 Art. XIX of the GATT 1994 is entitled “Emergency Action on Imports of Particular Products,” and as you might infer from its very name its scope is strictly limited.For starters, there must have been a confluence of “unforeseen developments” and the effect of obligations imposed by the GATT 1994 (read “reduced tariff levels” generally) with the effect that an imported product is being imported into the customs territory in such increased quantities and under such conditions as to “cause or threaten serious injury” to domestic producers of “like or directly competitive products”. If those criteria have been met, then the country is free to suspend the obligation in whole or in part or to withdraw or modify the concession on such product and to the extent and for such time as may be necessary to prevent or remedy such injury. Beyond these features, para. 2 of Art. XIX requires prior notice and consultation by the country seeking to take action. Beyond the prescriptive rule of Art. XIX of the GATT 1994, specific rules for taking safeguards actions were the subject of a separate but related agreement, fittingly entitled The Agreement on Safeguards.4 Interestingly the preamble showed that there was a recognition of the need for structural adjustment but also noted at the same time the need to enhance rather than limit international competition. Of course this “squaring of the circle” is at the heart of the challenge to the trading system whenever a derogation is taken under the safeguards regime or otherwise.
The Safeguards Agreement (Art. 2.2) mandates that any action taken is to be applied against products on an across-the-board basis, regardless of origin. This means that if there has been an overwhelming surge in imports from one country, say China, the imports of the subject product from all other exporting countries, even if they have been maintained at historical levels or perhaps even reduced from prior levels will be tarred with the same brush. That principle having been stated, the Agreement proceeds to depart from its generally enforceable effect with Art. 5.2 (a) which provides for allocations of quantitative restrictions (quotas) among supplying countries. In addition, developing countries are given break out protections, such as no measures being levied against imports from developing countries which account for less than 3% of total imports, provided that all developing countries as a group account for less than 9% of total imports. Art. 9.1. Further, when a developing country institutes a safeguard measure, the duration can be for an extra 2 years in addition to the eight years provided for by Art. 7.3. Art. 3 requires that an investigation must be undertaken by competent authorities and at Art. 4.1 (a) sets forth a definition for “serious injury” which is defined as a significant overall impairment in the position of a domestic industry. Moreover, a “threat of serious injury” is defined at Art. 4.1 (b) as serious injury that is clearly imminent and, the Agreement then notes that a threat must be based upon facts and not merely upon allegation, conjecture or remote possibility. Importantly, when factors other than increased imports are causing injury to the domestic industry at the same time, such injury shall not be attributed to increased imports. Art. 4.2 (b).
The actual form of permissible safeguard measures is not established in the Safeguard Agreement, but we should recall here that Art. XIX of GATT 1994 refers to tariff concessions, so we may infer that tariffs may be re-introduced or increased. Further, quotas are specifically discussed in Art. 5. As noted, a country can allocate quota among supplying countries. Moreover, Art. 5.2 (b) allows for departure from the rule setting quotas at a level not lower than that which corresponds to the average level of imports of a recent three-year period.
The duration for the actions taken should be only so long as to prevent or remedy serious injury and to facilitate adjustment. Art. 5.1. This period is set at no more than four years (Art. 7.1) but this can be extended as a general matter to a period not longer than eight years. Art. 7.3.
Certain measures are prohibited by Art. 11.1 (b)—these are the voluntary Restraint Agreements or Orderly Marketing Arrangements which had proved popular in resolving US trade disputes with Japan in the 1970s and 1980s.
Take note all of these limitations imposed by Art. XIX and by the Safeguards Agreement because you will see that they are quite strictly interpreted and enforced. The US version of this general safeguards regime,5 Section 201 of the Trade Act if 1974, codified at 19 USC §§ 2251-2254, is intended to effect what is styled a “positive adjustment by industries injured by imports.” In the case of the US program, there is an emphasis on the remedial focus of the program: in the face of an International Trade Commission (ITC) determination that
- an article is being imported into the US
- in such quantities
- as to be a substantial cause of serious injury or threat thereof
- to the domestic industry producing a like or directly competitive article the President
- shall take all appropriate and feasible action which the President determines
- will facilitate efforts by the domestic industry to make a positive adjustment to the import competition and
- will provide greater economic and social benefits than costs.
- The significant idling of productive facilities in the domestic industry
- The inability of a significant number of firms to carry out domestic production operations at a reasonable level of profit
- Significant unemployment or underemployment.8
But as noted at the outset, there have been recent developments in Geneva that illustrate that any action taken by a country which invokes Art. XIX will be strictly scrutinized.
Ukrainian Restrictions on Passenger Cars
In 2013 Japan alleged before the DSB that Ukraine had instituted safeguard measures in the form of special additional tariffs imposed for a 3-year period on new passenger cars exported from Japan to Ukraine and that Ukraine was not justified in imposing these restrictions. Various countries reserved their third party rights—European Union; India; Korea, Republic of; Russian Federation; Turkey; Australia and the United States. Bilateral consultations were unavailing and a Panel was requested in 2014. In the Panel Report, Definitive Safeguard Measures on Certain Passenger Cars, WT/DS468/R (June 26, 2015),10 which was delayed by approximately three months but was ultimately published in June 2015, the Panel found for Japan on almost all counts.11At its meeting on 20 July 2015, the DSB adopted the panel report. Promptly thereafter, Ukraine informed the DSB that it intended to implement the DSB's recommendations and rulings in a manner that respects its WTO obligations, and that it would need a reasonable period of time to do so. On 6 October 2015, Ukraine informed the DSB that the Interdepartmental Commission on International Trade adopted Decision No. SP-335/2015/4442-06 of 10 September 2015 revoking the safeguard measures on imports of passenger cars. This Decision entered into force on 30 September 2015. A review of the Panel Report findings reveals the following close application of the strictures of Art. XIX and the Safeguards Agreement:
- Regarding unforeseen developments and the effect of GATT 1994 obligations (Article XIX:1(a)): Ukraine acted inconsistently with this provision because the Ukrainian competent authorities did not provide in their published report a demonstration of the circumstances — unforeseen developments and the effect of GATT obligations — that must be satisfied before a safeguard measure can be imposed.
- Regarding increased imports (Article 2.1): Ukraine acted inconsistently with this provision because it did not adequately analyze and explain the intervening trends and failed to demonstrate that the increase in imports was recent, sudden, sharp and significant enough.
- Regarding the threat of serious injury (Article 4.2(a)): Ukraine failed to evaluate all relevant factors affecting the domestic industry, in particular because it did not properly assess the likely development of the injury factors in the very near future and their likely effects on the situation of the domestic industry. Ukraine therefore failed to make a proper determination regarding threat of serious injury to the domestic industry under Article 4.2(a).
- Regarding the existence of a causal link (Article 4.2(b)): Ukraine acted inconsistently with this provision by failing to demonstrate the existence of a causal link and to conduct a proper non-attribution analysis.
- Regarding the level of concessions and other obligations (Article 8.1): Ukraine acted inconsistently with this provision by failing to endeavor to maintain a substantially equivalent level of concessions and other obligations between it and affected exporting Members.
- Regarding publication and notification requirements (Articles 4.2(c), 12.1, 12.2 and 12.3): Ukraine acted inconsistently with its obligations to: (i) publish promptly a detailed analysis of the case under investigation and a demonstration of the relevance of the factors examined (Article 4.2(c)); (ii) notify the WTO Committee on Safeguards immediately after initiating a safeguard investigation (Article 12.1(a)) and immediately after making a finding of serious injury or threat thereof caused by increased imports (Article 12.1(b)); (iii) provide, in its notification of 21 March 2013, “all pertinent information” (Article 12.2); and (iv) provide Japan with adequate opportunity for prior consultations with a view to reviewing all pertinent information (Article 12.3).
Any gaps in logic or a demonstrated sloppiness in observing the strict parameters of the WTO regime is sure to be challenged in Geneva. The likely outcome of a successful trading partner challenge at the DSB is that the safeguard will end up more of an anchor around the neck of the domestic producers and others. For that reason, it is important to anticipate the likelihood of such a challenge when conducting any safeguard investigation under the US statute and in fashioning any measures to be undertaken.
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1. An older informal name for this statutory scheme, somewhat outdated but which will be recognized by my contemporaries, is “escape clause, so named because the country taking action is justified in “escaping” from its GATT obligations.
2. Officially this is the “Agreement On Implementation of Article VII of the General Agreement on Tariffs and Trade 1994.”
3. See generally Neville, “The International Trading System: Fundamental Principles,” 22 JOIT 14 ( December 2012).
4. cite
5. In addition there are specific safeguards programs, such as are provided for in the various free trade agreements and in the context of “market disruptions” caused by Communist countries, 19 USC § 2436, and a China-specific “market disruption” statute, 19 USC § 2451. For more information on the US safeguards programs see Chapter 11 in “International Trade Laws of the United States: Statutes and Strategies,” (Thomson Reuters 2012).
6. 19 USC § 2252 (b) (1) (B).
7. 19 USC §§ 2252 (c) (6) (C) and (D).
8. Ruling no. H097639 (8/24/10).
9. A tariff-rate quota is one in which the tariff rate will be increased on any imports beyond a threshold level. Thus, it is essentially a two tier duty rate program.
10. The Panel Report is available at https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=132935,132936&CurrentCatalogueIdI
11. Information on this case is available on the WTO website, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds468_e.htm
2. Officially this is the “Agreement On Implementation of Article VII of the General Agreement on Tariffs and Trade 1994.”
3. See generally Neville, “The International Trading System: Fundamental Principles,” 22 JOIT 14 ( December 2012).
4. cite
5. In addition there are specific safeguards programs, such as are provided for in the various free trade agreements and in the context of “market disruptions” caused by Communist countries, 19 USC § 2436, and a China-specific “market disruption” statute, 19 USC § 2451. For more information on the US safeguards programs see Chapter 11 in “International Trade Laws of the United States: Statutes and Strategies,” (Thomson Reuters 2012).
6. 19 USC § 2252 (b) (1) (B).
7. 19 USC §§ 2252 (c) (6) (C) and (D).
8. Ruling no. H097639 (8/24/10).
9. A tariff-rate quota is one in which the tariff rate will be increased on any imports beyond a threshold level. Thus, it is essentially a two tier duty rate program.
10. The Panel Report is available at https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=132935,132936&CurrentCatalogueIdI
11. Information on this case is available on the WTO website, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds468_e.htm
Mark K. Neville, Jr., LL.M. (International Legal Studies), NYU, is a long-time member of the Board of Advisors. He is Principal of International Trade Counsellors and may be reached at mkneville@itctradelaw.com. He has served as an adjunct professor at The University of California, Berkeley’s Haas School of Business and NYU’s Stern School. He is The Journal’s Customs & Trade correspondent.