The September 5th World Trade Organization Appellate Body report in US – Tyres (China), WT/DS399,affirmed the right of the United States faced with market disruption from surging imports from China to make use of a special transitional safeguard China accepted as part of its accession protocol to the WTO in 2001. For the industries and their workers who have sought relief under the U.S. law implementing this right (Section 421 of the Trade Act of 1974, as amended (19 U.S.C. § 2451)), it was a vindication of the correctness of their cause. For the men and women working in the U.S. passenger car and light truck tire plants, and in particular for the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers Union (“USW”) and their members, the WTO AB decision extended the group of entities that had found their case meritorious and the relief granted by the President justified and consistent with U.S. rights and obligations. Most importantly, the decision leaves in place a remedy that has been of significant importance to the domestic tire industry and its workers.
The 2009 Safeguard Measure on Chinese Passenger Car and Light Truck Tire Imports
Almost two years ago today on September 11, 2009, President Obama became the first president to use the legal rights the U.S. had negotiated with China during its accession to the WTO, authorizing a transitional product-specific safeguard measure in response to imports of certain passenger vehicle and light truck tires from China that were causing “market disruption” within the meaning of 19 U.S.C. § 2451 (“Section 421”). Stewart and Stewart was proud to bring this case on behalf of the USW.
When China joined the WTO in 2001, WTO Members were concerned that the persistent distortions in China’s economy could lead to damaging import surges for which current WTO rules did not provide an adequate remedy. In recognition of the nature of China’s economy and the many additional changes to be WTO-compliant that China needed to make after accession, the United States and other WTO Members sought, and China accepted, as part of its Protocol of Accession that China’s WTO trading partners would have the right to invoke a transitional safeguard to address such surges for twelve years after China’s accession. Therefore, Paragraph 16 of China’s Protocol specifically allows WTO Members to withdraw concessions or otherwise limit imports to the extent necessary to prevent or remedy such market disruption. According to Paragraph 16.4 of the Protocol, “market disruption” must be based on evidence that “imports of an article, like or directly competitive with an article produced by the domestic industry, are increasing rapidly, either absolutely or relatively, so as to be a significant cause of material injury, or threat of material injury to the domestic industry”:
Market disruption shall exist whenever imports of an article, like or directly competitive with an article produced by the domestic industry, are increasing rapidly, either absolutely or relatively, so as to be a significant cause of material injury, or threat of material injury to the domestic industry. In determining if market disruption exists, the affected WTO Member shall consider objective factors, including the volume of imports, the effect of imports on prices for like or directly competitive articles, and the effect of such imports on the domestic industry producing like or directly competitive products.
Under Section 421 of the U.S. law, the U.S. International Trade Commission (“ITC”) is charged with investigating a petition, determining whether market disruption exists, and recommending a remedy. The final decision whether or not to impose such a remedy, however, is at the discretion of the president.
The WTO tires dispute originated with a Section 421 petition filed by the USW on April 20, 2009. The petition alleged that imports of consumer tires from China had surged and were causing market disruption, harming the domestic industry and its workers. In its investigation, the ITC relied on industry and trade data, information submitted by the union on behalf of its members who make consumer tires, the questionnaire responses of domestic and Chinese tire producers as well as tire importers and purchasers, and testimony presented by all sides at a public hearing.
During the period examined by the ITC, from 2004 through 2008, imports increased by 215 percent by volume and nearly 300 percent by value. These imports seized a large amount of market share directly from domestic tires, and resulted in four plants closing, more than 5,100 workers losing their jobs, and substantial harm to the companies and communities with facilities. Three more plants announced closings or termination of production of consumer tires in 2009 with the specter of 3,000 more men and women losing jobs in the industry by the end of 2009. The ITC unanimously found that the domestic industry was materially injured, and a majority found that imported tires from China were causing disruption to the U.S. market and recommended that import relief be provided under the statute. Stated differently, the ITC provided the first confirmation that the USW petition was meritorious and that substantial relief was needed to stop the market disruption.
An inter-agency review, including another public hearing and round of briefing, followed the ITC’s affirmative finding. Based on these deliberations, on September 11, 2009, the President announced the imposition of tariffs on imports of Chinese consumer tires for three years. The tariffs were set at 35% for the first year, 30% in the second, and 25% in the third year. While a handful of cases have been brought seeking relief under Section 421, some of which resulted in affirmative recommendations for relief from the ITC, none resulted in the imposition of import duties until President Obama’s decision to impose a safeguard measure in the form of additional duties on imports of certain passenger vehicle and light truck tires from China in 2009. The President’s action was the second confirmation that the USW’s cause was just and that the relief needed to stem the market disruption was substantial.
The WTO Decisions Upholding the ITC’s Affirmative Section 421 Determination
China launched formal WTO dispute settlement proceedings challenging the consistency of the U.S. safeguard measure on December 9, 2009, after consultations failed to resolve the dispute.
On December 13, 2010, a WTO panel rejected China’s claims that the safeguard measure was inconsistent with the terms of Paragraph 16 of the Protocol and GATT 1994 Articles I:1 and II:1. Thus, the WTO panel became the third confirmation that the transitional safeguard had been correctly used to address surging imports of passenger car and light truck tires from China.
Finally, on Monday of this week (September 5, 2011), the WTO Appellate Body upheld the panel report on appeal, a decision which effectively ends the WTO-challenge stage of the dispute. The Appellate Body’s decision is yet another confirmation of the propriety of the relief granted and the process followed to secure the relief.
Importance of Decisions by the ITC, President Obama, the WTO Dispute Panel, and the WTO Appellate Body
In an economy struggling to regain its footing after one of the most severe recessions in history and with the President, Congress, and the public all seeking ways to expand job growth and stimulate the economy, eliminating distortions in trade flows can be an important part of turning the economy around.
The ITC had predicted that with significant temporary relief, the collapse of the domestic manufacturing sector in tires could be stopped, imports from China would retrench significantly, both domestic producers and imports from third countries would grow (roughly evenly), and the relief would stem the losses being incurred by domestic producers as well as the contraction in employment. All of those predictions have come true. The domestic industry has stopped losing market share, its volume has grown significantly after the recession, the industry is performing better financially than it was before the relief was granted, the downward trend in employment has stopped, and jobs are being added as domestic facilities expand, companies bring back laid off workers, and/or new facilities are built. Imports from China have declined sharply, as predicted, while imports from third countries have increased and total imports have returned to levels similar to those before the recession but not at the expense of domestic producers.
While trade remedies are not a panacea, the failure of companies, their workers, and/or their communities to utilize the tools available to deal with trade distortions can exacerbate the decline of manufacturing (or agriculture) in particular industries and regions, hurting the local, state, and federal tax base and compounding the effects of economic contractions. In this case, entities with different mandates and different constituencies all came to the same conclusion – the facts presented merited investigation and the application of a significant remedy, a remedy that was consistent with U.S. international rights and obligations.
In a time when there is a lot of angst about growing the economy and increasing jobs, the private sector needs to recognize that there are self-help options in the trade arena which can change the perception and reality of manufacturing in America.
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