ITC Mid-Point Review Release

MEMORANDUM

October 29, 2003

This memorandum addresses the authority of the European Union and other countries to suspend tariff concessions in response to the U.S. steel safeguard measures, after having resorted to dispute settlement in the WTO. Several analyses of this authority have appeared in several papers in recent weeks. In this memorandum, we put forward the reasons why we believe the European Union and other countries contesting the steel safeguards are acting consistently with their rights under the relevant WTO agreements.

The impending sanctions against U.S. exports are therefore very real and the only certain way to avoid them is for the President to terminate the steel measures. Other countries than the EU have also indicated their intention to suspend trade concessions should the WTO Appellate Body confirm that the U.S. steel safeguard measures contravene WTO rules.

We have reviewed arguments made by attorneys for U.S. Steel in their paper of October 2 and in their October 20 rebuttal of our memorandum of October 14.¹ The arguments in the October 20 Wolff and Lighthizer rebuttal are, in our view, without merit and we stand by our October 14 conclusions. This memorandum deals with the authority of the European Union and other countries to suspend concessions in reaction to the WTO decision expected by November 10. A separate memorandum discusses the authority of the President to terminate the steel safeguards measures at the mid-point review based on the evidence available to him.

The Wolff and Lighthizer paper argues that WTO Members lack the authority under WTO agreements to suspend trade concessions against U.S. exports in response to a WTO decision that the U.S. steel measures are inconsistent with the WTO Safeguards Agreement.

In summary, we conclude after reviewing the Wolff and Lighthizer papers that the WTO jurisprudence appears to support the authority of our trading partners to suspend trade concessions under the WTO Safeguards Agreement.

1. Background
   
   The European Union and seven other WTO member countries have challenged the U.S. steel safeguard measures as inconsistent with the WTO Safeguards Agreement. In July of this year, a WTO Panel report sustained those complaints.
   
   Before the WTO decision, the European Union let it be known that it would enforce its rights to withdraw concessions in response to the U.S. safeguards measures. The Safeguards Agreement provides that WTO members may suspend concessions in response to safeguard measures that withdraw trade concessions. Under Article 8 of the Safeguards Agreement, no suspension of concessions may take place during the first three years of safeguard relief, provided that the measures are based on an absolute increase in imports and that the measures taken are consistent with WTO requirements. An adverse WTO Appellate Body decision would therefore remove the three-year exemption from suspension of concessions.²
   
   In 2002, the European Union published a retaliation list scheduled to go into effect five days after the WTO Dispute Settlement Body adopts an adverse WTO decision on the steel tariffs. Japan and other WTO Members are developing separate retaliation lists involving U.S. exports as well. Retaliation could occur as early as November 2003. Wolff and Lighthizer argue that the European Union and other WTO members have waived their right to suspend concessions because of their decision to resort to the dispute settlement process in the WTO. In our view, no such waiver of the right to suspend concessions has occurred as a result of the resort to dispute settlement.
   
   
2. Suspension of Concessions (Retaliation) under WTO Safeguards Agreement
   
   The European Union and other countries are asserting their authority to suspend trade concessions under the Safeguards Agreement, not to retaliate against the U.S. for failure to implement a dispute settlement determination. While retaliation for failure to implement a WTO decision would generally have to await an Article 21.5 ³ arbitration and the determination of a reasonable period for implementation, the authority to suspend concessions is contained in Article 8 of the Safeguards Agreement and is quite distinct.
   
   Wolf and Lighthizer argue that the right to suspend concessions under Article 8 of the Safeguards Agreement does not even arguable apply to the current situation. In this they are incorrect. Article 8 clearly does apply and by its terms the European Union and other WTO members have the right, upon the adoption by the Dispute Settlement Body of a decision adverse to the U.S. steel safeguards measures, to suspend trade concessions granted to the United States.
   
   Wolff and Lighthizer are unconvincing in their analysis of the WTO Safeguards Agreement and the Dispute Settlement Understanding. The crux of the matter is the meaning of Article 8 of the Safeguards Agreement. Wolff and Lighthizer misapprehend the meaning and the purpose of Article 8, which in our view is clearly intended to give WTO members the right to demand offsetting trade concessions when safeguard measures inhibit the trade they had a right to expect under the negotiated trade agreements. While Wolff and Lighthizer blithely assert that the rights under Article 8 do “not even arguably apply” to the current case, the fact is that Article 8 does apply.
   
   Wolff and Lighthizer argue in essence that the Article 8 rights must be invoked and made effective within 90 days or be lost forever, without exception. However, the United States government acknowledges that such a requirement does not exist.⁴ Several countries specifically withheld the application of retaliatory measures last year at the request of the U.S. in exchange for a commitment that the U.S. would not argue that those countries had waived their rights by waiting until after the conclusion of dispute settlement proceedings. Moreover, reading the 90-day limit in Article 8.2 together with Article 8.3, Wolff and Lighthizer would render much of Article 8.3 meaningless.⁵ The better argument is that countries do not lose their right to suspend concessions while waiting for a dispute settlement decision, at least where, as here, they have asserted their rights to do so within 90 days.
   
   The Wolff and Lighthizer position is also impractical. If a WTO member has been wronged by the imposition of WTO-inconsistent safeguards, it is far more in keeping with a rules-based system to permit the adjudication of a dispute before forcing a decision to retaliate on a member that may believe that it has that right. The language of Article 8.2 and 8.3 taken together provides the opportunity for such an orderly resolution.
   
   The decision of the Appellate Body in the steel case is nearly at hand. The European Union, among others, has already issued a retaliation list which, in our view, is consistent with Article 8.2 and 8.3 of the Safeguards Agreement and was notified within 90 days to the United States and the WTO.⁶ Other WTO Members are likely to do so in the near future. The United States would not likely be successful in challenging such a decision; moreover, U.S. exporters of products on the EU retaliation list, and any other list that may be issued by one or more of seven other countries, would be harmed immediately (in fact, they may already be harmed by the uncertainty of their future exports). It would be cold comfort to them to read the Wolff and Lighthizer argument that the U.S. might have a theoretical cause of action (which, as Wolff and Lighthizer have pointed out on occasions when it suits them, are only prospective in effect).
   
   
3. Conclusion
   
   The EU and seven other countries challenging the steel safeguards in the WTO may suspend concessions in retaliation for U.S. measures that are found to be inconsistent with WTO obligations. The four countries (the EU, Japan, Switzerland and China) that notified the WTO within 90 days of the imposition of the steel safeguards have clearly secured this right. Other countries may have done so.
   
   Article 8.2 and 8.3 of the WTO Safeguards Agreement authorize suspension of concessions in response to the U.S. steel safeguards, and nothing in the Dispute Settlement Understanding or the Safeguards Agreement removes the risk of such retaliation. Only by ending the steel safeguard measures, therefore, can the United States assure that its exporters will not be harmed by this retaliation.
   

1/ The October 20 paper was summarized in a press release dated October 23, 2003.

2/ The other requirement of an absolute increase in imports is one of the issues subject to the dispute settlement case. In the Panel decision, it was ruled that imports did not increase during a recent representative period in absolute quantity. The three-year rule may thus be inapplicable for this reason as well. Article 8.3 does not expressly require that the measures be facially based on a relative increase in imports, as Wolff and Lighthizer contend, nor is there an obvious basis for such an assertion.

3/ WTO Dispute Settlement Understanding, Art. 21.5

4/ Within 90 days after the U.S. steel safeguards were effective, at least four countries (the European Union, Japan, China and Switzerland) that took the U.S. to dispute settlement notified the WTO of their intention to take action under Article 8. See, e.g., Immediate Notification under Article 12.5 of the Agreement on Safeguards to the Council for Trade in Goods of Proposed Suspension of Concessions and Other Obligations Referred to in Paragraph 2 of Article 8 of the Agreement on Safeguards, G/C/10/Suppl.1, G/SG/43/Suppl.1 (20 June 2002). In all cases these measures took effect within 90 days of the U.S. safeguards; however, the application of the suspension of concessions was postponed until five days after the adoption of a dispute settlement decision adverse to the U.S., or March 20, 2005, whichever comes earlier. The Safeguards Agreement is silent on whether countries may postpone the effectiveness of actions taken to rebalance concessions under the Safeguards Agreement. The argument made by the European Union that such a delay serves justice and the principles of the WTO system has the benefit of logic much more than the contrary position taken by Wolff and Lighthizer.

5/ Article 8.3 restricts suspension of concessions for the first three years of a measure, if the measure is based on an absolute increase in imports and if it is consistent with the obligations under the Safeguards Agreement. However, the provision clearly permits suspension of concessions after three years. Interpreting the 90-day rule as Wolff and Lighthizer assert would render much of Article 8.3 meaningless.

6/ Wolff and Lighthizer appear to argue that all suspensions of concessions must be formally implemented and fully effective within the 90-day deadline, a requirement not found in the Safeguards Agreement.