team presentation - International Trade Relations

The Great Tire War
or “Measures Affecting Imports of Certain Passenger Vehicle and
Light Truck Tyres from China”
Shannon Rhoten, Richena Purnell-Sayle, Aimee Phelan
Explanation of U.S. Actions (that made
China mad)
1. Some related unions (not all) like United Steel, Paper and
Forestry, Rubber, Manufacturing, Energy, Allied Industrial
and Service Workers Union lobbied the U.S. Intl. Trade
Commission (ITC).
2. ITC investigated, wrote giant report explaining need for
safeguards, and sent it to the White House.
3. September 2009, Obama announces immediate tariffs on
Chinese tires:
35% year one; 30% year two; 25% year three
Sides of the Story
Today’s Story
China – No, the U.S. is just
breaking the rules and we are
telling the WTO.
The story you know
U.S. – “Standing up to China”;
protecting industry
Profile of China vs. U.S.
• Complainant: China
• Respondent: United States
• Third Parties: European Union; Japan; Chinese Taipei;
Turkey; Viet Nam
• Agreements cited: China’s Protocol of
Accession and GATT 1994
• Request for Consultations: Sept. 2009
• Appellate Body Report: Sept. 2011
Basic Principle of China’s Case:
China claimed that the U.S. applied safeguards
against Chinese tires imports unfairly (or at least not
in compliance with WTO agreements).
Definition of a “safeguard”: A safeguard is a
restraint a state can put on international trade;
typically tariffs.
The Two Principal WTO agreements and articles involved:
1) China’s Protocol of Accession
Article 16.1 - In cases where products of Chinese origin are being imported into the territory of any
WTO Member in such increased quantities or under such conditions as to cause or threaten to cause market
disruption to the domestic producers of like or directly competitive products, the WTO Member so affected
may request safeguards.
Article 16.3 - If consultations do not lead to an agreement within 60 days of the receipt of a request
for consultations, the WTO Member affected is free to withdraw concessions or otherwise to limit imports only to the
extent necessary to prevent or remedy such market disruption.
Article 16.4 - Market disruption exists whenever imports of a product or a very similar product that is
competitive to one produced by the domestic industry, are increasing rapidly enough to be a significant cause of
material injury, or threat of material injury to the domestic industry. Claims of disruption would need to be backed
up by 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.
Article 16.6 - A WTO Member shall apply a measure (like large tariffs) for such
period of time as may be necessary to prevent or remedy the market disruption.
Two years max for relative increases; three years max for absolute
I.E. Do not apply counter measures any longer than is necessary to fix the
Principles Continued
2) GATT 1994
Article I.1 – Most Favored Nation Treatment: must treat like goods from every country the
Article II – Schedules of Concessions: - All trade concessions made by Members must be
stated and incorporated into the legal agreement – ‘bound’ rates. No other Member may be treated less
favorably than any ‘bound’ rate. There are exemptions like anti-dumping duties.
Ie. all trade agreements and concessions should be on the record.
Article XIX – Emergency Action on Imports of Particular Products (Safeguards): If any
product is being imported into the territory of that contracting party in such increased quantities and
under such conditions as to cause or threaten serious injury to domestic producers in that
territory of like or directly competitive products, the contracting party shall be free, in respect of such
product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to
suspend the obligation in whole or in part or to withdraw or modify the concession. Also, should give
“contracting party”(the exporter) as much notice as
possible, unless you cannot… In that case,
start negotiating after you have acted.
Appellate Body
(Although GATT Articles were mentioned in the complaint, the
focused on the arguments related to the Protocol of Accession.)
China’s Arguments
In response to USITC report
I. US failed to evaluate properly whether Chinese imports were in “such
increased quantities” and “increasing rapidly,” as required by Art. 16.1 and 16.4
of the Protocol
USITC used “end-point-to-end-point analysis” and ignored trends
USITC did not explain why import trends were enough to qualify as “increasing
II. The US implementing statute’s causation standard is inconsistent as such with
Art. 16.1 and 16.4
In U.S. law, implementation of Art. 16.4 is weakened. Argues that “significant cause”
can be less important than any other cause.
III. USITC failed to evaluate properly whether imports from
China were a “significant cause,” as required by Art. 16.1 and
USITC failed to acknowledge the importance of changing
demand patterns in U.S. market
China’s Arguments
Claims USITC determined a “close substitutability” between the tires, when there
was none
USITC failed to establish correlation between rapidly increasing imports and material
injury to the domestic industry
No correlations between price, production, net sales, market share, profits,
productivity, and capacity with imports
IV. The U.S. tariff remedies were beyond the “extent necessary” and thus are
inconsistent with Art. 16.3 of the Protocol
V. The U.S. tariff remedies have been imposed for a period of time longer than
permitted under Art. 16.3 and 16.6 of the Protocol
VI. The U.S. tariff remedies do not accord China the same treatment as other
countries, and are inconsistent with Art. I:1 of GATT 1994
U.S. Arguments
Supports and reaffirms USITC report
I. No special interpretive approach is required by the protocol
II. Paragraph 16 does not incorporate GATT 1994 Art. XIX or the Safeguards
III. The ITC concluded that imports from China were “increasing rapidly”
Increased on an absolute and relative level
China’s alternative analysis is flawed
IV. ITC’s causation analysis was in accordance with the requirements of the
Increasing imports from China are “a significant cause of material injury” and that
they “contribute to” injury
Other factors did not sever the causal link
V. The U.S. applied a remedy consistent with the Protocol requirements
China’s Data Tables
Average Annual Increase
over 2004-2007 Period
Annual Increase in 2007
Compared to 2006
Annual Increase in 2008
Compared to 2007
Quantity of Tires (million
9.0 M
14.5 M
4.5 M
Rate of Absolute Increase
Increase in Market Share
(% pts)
3.1% pt
4.7% pt
2.7% pt
Source: China’s
Second Written
Percent of
Change in
Share of
Production (%
Percent of
Change in
Share of
USITC Review of Data
Quantity of
subject imports
(1,000 tyres)
Increase in
subject imports
(% pts)
The U.S. found that during the period:
•The domestic industry’s market share fell in every year, declining by 13.7
percentage points over the period
•The domestic industry’s production declined in every other year of the period
(overall decline of 26.6 percent
• The domestic industry’s capacity declined every year (overall decline of
17.8 percent)
• Productivity fell by 11.5 percent over period
• Capacity utilization fell by 10.3 percentage points
• Operating margins fell by 4.8 percentage points
• Operating income fell from US$256.2 million to a loss of
Source: USITC Report
US$262.8 million
Panel Report: November 2010
Overwhelmingly in favor of the U.S./USITC position
U.S. Statute – “The WTO agreement does not prescribe any particular
manner in which a Member’s WTO obligations and commitments must be
transposed into domestic law.”
Causation Standard – “…allows an investigating authority to determine that
even a minimal cause…could still be considered “a significant cause.”
Conditions of competition and correlation – China’s accusations are
flawed; No definition of separate boundaries between tiers of tire quality
Increase in imports and injury factors – Sided with USITC data analysis;
USITC’s analysis supports “significant cause” as per Art. 16.4.
Other contributing factors – China’s analysis weak; USITC
could attribute plant closures to subject imports.
“Extent necessary” – China failed to establish that Tyres
measure exceeds necessary extent.
Appellate Body Decision: September 2011
USITC established that Chinese imports met “increasing
rapidly” threshold in Par. 16.4. of Protocol
Agreed with USITC’s methodology. There was casual
link by the term “increasing rapidly” and Chinese imports
to make an “important” or “notable” contribution to
disrupting the domestic industry (within meaning of Par. 16.4)
China failed to establish an increase in imports due to
other factors.
(i.e. changing US business strategy)
Appellate Body’s Recommendation
“We find that imposing the transitional safeguards measure
on 26 September 2009 in respect of imports subject tyres
from China, the U.S. did not fail to comply with its
obligations under Paragraph 16 of the Protocol, we
similarly do not accept China’s claims under Articles I:1
and II:1 of the GATT 1994.”
Therefore, no recommendation was made under Art. XIX.1
No further action required – Tariff remains in place.
Did the tariffs work?
•Did they protect American jobs?
-Yes. Approx. 1200-1500
manufacturing jobs. (Jobs likely lost
•Did they reduce tire imports?
-Not really. Imports just coming from
places other than China.
•Did they raise prices for U.S.
-Yes. Generally acknowledged that
prices increased 30-50%.
“Don’t poke China in the eye unless it really matters.. this time it
didn’t.”- Wall Street Journal video about outcome.
Interested Parties
Third parties from the Dispute Case: European Union, Japan,
Chinese Taipei, Turkey, Viet Nam.
Other countries producing tires: Canada, Mexico, Indonesia, etc.
Small Business Owner to large: Goodyear, Cooper Tire,
Labor Unions, Industry Lobbyist (Steelworkers Union)
Rubber Manufacturing, Auto Industry
…..Everyone who needs to buy a tire
Classic example of globalization - totally interconnected
market place.
Political Tool
2012 Campaign
Financial Crisis
Recession 2008
Globalization and increased volume of International Trade make similar
disputes of either “cornering a market” or protectionism a possibility.
Appellate body’s recommendation offers further clarity regarding:
“increasing rapidly”- “material disruption to the market”-“Significant
cause of material injury” - “End-to-End point Analysis”
Terminology discussed openly with acceding WTO countries or at
Trade summits for all members. (unofficial guidance).
Used as case study for trade policy making, ~Lessons Learned~
results are not always as intended.
Trade Diversion- Macro perspective, could this happen in other
“flooding market” cases?
“The best thing about the tire tariffs is that they expire in
September (2012).” - Peterson Institute for Intl. Economics
Works Cited
Chinese Tire Imports: Section 421 Safeguards and the World Trade Organization (WTO); Jeanne J.
Grimmett, July 12, 2011.
General Agreement on Tariffs and Trade (1994); WTO,
Protocol of Accession (for China);
U.S. International Trade Commission Report: Certain Passenger Vehicle and Light Truck Tires From
China, Investigation No. TA-421-7; July 2009.
US Tire Tariffs: Saving Few Jobs at High Cost ; Peterson Institute for International Economics, April
United States – Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres from
China: Report of the Panel. WT/DS399/R (10-6582). (2010).
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