TIRE FLOODD PICTURE!!! 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 Vs. Profile of China vs. U.S. DISPUTE DS399 • 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 increases. Ie. problem. 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 same. 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 rapidly” • 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 16.4 • 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 Agreement • 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 Protocol • 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 tires) 9.0 M 14.5 M 4.5 M Rate of Absolute Increase (%) 42.1% 53.7% 10.8% Increase in Market Share (% pts) 3.1% pt 4.7% pt 2.7% pt Source: China’s Second Written Submission Year Percent of Domestic Production (%) Change in Share of Production (% pts) Percent of Total Consumption (%) Change in Share of Consumption (%) 2004 6.7 -- 4.7 -- 2005 10.0 3.3 6.8 2.1 2006 14.6 4.6 9.3 2.5 2007 23.0 8.4 14.0 4.7 2008 28.7 5.7 16.7 2.7 USITC Review of Data Year 2004 2005 2006 2007 2008 Quantity of subject imports (1,000 tyres) 14,575 20,790 27,005 41,503 45,975 Increase in subject imports (% pts) -- 42.7 29.9 53.7 10.8 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 established • 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 U.S. WINS UPHELD PANEL’s FINDINGS: 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 elsewhere.) •Did they reduce tire imports? -Not really. Imports just coming from places other than China. •Did they raise prices for U.S. consumers? -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, Michelin Labor Unions, Industry Lobbyist (Steelworkers Union) Rubber Manufacturing, Auto Industry …..Everyone who needs to buy a tire 6 Observations Classic example of globalization - totally interconnected market place. Political Tool 2012 Campaign Financial Crisis Recession 2008 Recommendations 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 8 Works Cited Chinese Tire Imports: Section 421 Safeguards and the World Trade Organization (WTO); Jeanne J. Grimmett, July 12, 2011. https://www.fas.org/sgp/crs/misc/R40844.pdf General Agreement on Tariffs and Trade (1994); WTO, http://www.wto.org/english/docs_e/legal_e/gatt47_01_e.htm#art1_1 Protocol of Accession (for China); http://www.wto.org/english/thewto_e/acc_e/completeacc_e.htm U.S. International Trade Commission Report: Certain Passenger Vehicle and Light Truck Tires From China, Investigation No. TA-421-7; July 2009. http://www.usitc.gov/publications/safeguards/pub4085.pdf US Tire Tariffs: Saving Few Jobs at High Cost ; Peterson Institute for International Economics, April 2012. http://www.iie.com/publications/pb/pb12-9.pdf 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).