A World Trade Organization’s dispute panel has recently ruled that the safeguard actions taken by the US to restrict imports of wheat gluten from the European Community to be contrary to its obligations under the safeguards agreement (SA). The ruling, as with other panel rulings recently, has once again raised some systemic issues about the agreements and the way the panel system operates

by Chakravarthi Raghavan

Geneva, 2 Aug 2000 -- A World Trade Organization’s dispute panel has handed down a ruling that the safeguard actions taken by the US to restrict imports of wheat gluten from the EC to be contrary to its obligations under the safeguards agreement (SA).

The US has said it would appeal, while the European Community has said that if the US does not withdraw the illegal measures, it will retaliate by withdrawing equivalent concessions from the US in respect of imports of corn gluten.

The three-member panel had Mr.Wieslaw Karsz as chairman and Ms. Usha Dwarka-Canabady and Mr.Alvaro Espinoza as members. After the hearings and meetings with the Parties to the dispute and third parties ended on 2 February 2000, the chair resigned on 11 April, and was replaced by Mr. Maamoun Abdel-Fattah (who has been a frequent member of panels).  And the panel met with the parties again on 18 May (probably because of the change of chairmanship), issued an interim report on 19 June and the final report on 31 July.

There is a 60-day limit for its automatic adoption by the Dispute Settlement Body (DSB), and if the parties appeal, the Appellate Body (AB) is to hear and hand in its ruling within 60 days, and the AB report is to be adopted within another 30 days.

The dispute and the ruling has raised, as other panel rulings, some systematic issues about the agreements and the way the panel system operates. Among these are the continuing systemic problems arising out of past rulings about the burden of proof, the view about the WTO agreements and obligations operating cumulatively and panels or the AB ‘interpreting’ them to remove possible conflicts, and the operation of the principle of ‘judicial economy’ in rulings that leave issues raised in a dispute open to be agitated in future. The active role of the secretariat (with some indications that there are internal discussions on individual disputes and how the servicing secretariat should guide the panels) and its implications in terms of the legitimacy and impartiality of the panel process also are involved.

The problems of safeguards, and the use and invoking of Art. XIX to take emergency actions on imports of particular products within the trading system pre-dated even the Tokyo Round. The failure to resolve the problem in the Tokyo Round, and the proliferation of ‘grey area’ measures became a particular complaint of leading developing countries and, at one stage, they tried to make the conclusion of a safeguards agreement as a pre-condition for the new round (ultimately resulting in the Uruguay Round) that the US and EC had sought.

The safeguards agreement itself was thus negotiated to be a comprehensive one. But the panel and AB interpretations (in the Korean and Argentine cases) made both compliance with the Agreement and Art.XIX of GATT 1994 cumulative - a view that the panel has now underlined. But having found some of the US actions violating the safeguards agreement, the panel has exercised ‘judicial economy’ in not pronouncing on the Art.XIX aspects.

The panel upheld the US contention that it had acted in accord with the WTO and its safeguards agreement in determining, by using imports from all sources, that the “increased quantities” of imports of wheat gluten had seriously injured the US domestic industry.

It however faulted the analysis applied by the US International Trade Commission (USITC) to determine whether the imports, and not other causes, were the “substantial cause” of injury, and for excluding imports from Canada for the application of safeguard measures after having included it in its determination of serious injury caused by imports, and a separate determination that imports from Canada accounted for a substantial share of total imports.

The report and ruling raises a more basic issue of asymmetry of the entire international system, involving the WTO, IMF and World Bank: the industrialized countries can and are able to protect their domestic industry from serious injury caused by imports through safeguard actions. But developing countries’ can’t exercise this right under the WTO, because the trade liberalization and reform programmes they have put in place under the IMF/World Bank programmes preclude them from taking safeguards action.

At a trade policy technical assistance seminar last year in Zambia, one of the southern African countries, the trade experts explained the various possibilities of defense open to countries. Business representatives present noted that as a result of the liberalisation programmes, domestic industries were being hit and enterprises were closing down and asked why the government was not taking recourse to safeguards and other defensive measures. The government trade officials then admitted that while they had the right, the structural reform programmes in place (as a condition for assistance by the IMF and the World Bank) calling for tariff reductions and removal of quantitative restrictions expressly precluded them from doing so.

One of the questions before the gluten panel related to the refusal of the US government and industry to disclose information sought by the panel on the issue relating to the serious injury by imports. The USITC, which conducted the investigation, removed some ‘confidential information’ from the public version of its report. And the US industry, and on its behalf the government, was willing to disclose the information to the panel, but not make it available to the EC as the complaining party. This was turned down as contrary to the rules.

With some expressing their views on the way the USITC investigated the complaints of serious injury warranting safeguard actions—the excising from the published report of some of the ‘business confidential’ information on effect of imports on the domestic industry—and how in the panel’s view some more information could have been disclosed, the panel nevertheless refused to draw any adverse inference, holding the view that overall, the US had assessed the weight of relevant information to reach its conclusions and gave enough reasons publicly to back its view.

The same question of one of the parties withholding ‘confidential’ information figured in the aircraft subsidy disputes between Brazil and Canada (with the latter declining to provide confidential business information relating to its aircraft industry and the factual issues of government support to it). The panel in that case held that it was for Brazil first to prove its charge of subsidy before any adverse inference could be drawn from Canada’s non-production of confidential business information.

In the present safeguards case, the agreement itself provides that upon cause being shown, confidential information provided to the domestic investigating authority “shall” be treated as such.

The panel had ‘protracted exchange of communication’ between the parties about the circumstances in which the panel should view the requested confidential information (the US industry would not agree to its being disclosed to the EC) and the procedure failed.

The panel says in this regard that this “demonstrates the existence of a serious systemic issue” as to the relationship between the confidentiality obligations of Art.3.2 of the Safeguards Agreement (SA) of a WTO member’s investigating authorities with respect to confidential information obtained in the course of the investigation and the duties of WTO members when faced with a panel request for such confidential information. The panel concedes that having access to the requested information (from the US) would have facilitated its task, and would have furnished a more extensive basis for its examination, but considered the record before nevertheless sufficient to conduct an objective assessment.

The panel acknowledges (para 8.25) the possibility of a Member misusing confidentiality provisions by withholding non-qualifying information, but cites the presumption of the “good faith” implementation by a member and sees no basis to conclude that the USITC systematically extended confidential treatment to information that did not merit such treatment.

The panel held that though the USITC had not disclosed certain confidential data, nor provided a non-confidential summary (viewing the requirement in the agreement as hortatory), the published report nevertheless gave “an adequate reasoned and reasonable explanation” of how the facts support the determination of “increased quantities” of imports into the US.

It similarly says (para 8.45) that it would have preferred (by the USITC) a more integrated examination of “productivity” in the industry that explicitly encompassed overall industry productivity (the USITC cited labour productivity), particularly since the industry is capital intensive and requires few workers. Nevertheless, it concludes that the data and statements about worker productivity, in conjunction with capital investments, to be sufficiently indicative of industry productivity (required under Art.4.2.a of the subsidies agreement).

It similarly deals with the issues of profits and losses of the three domestic producers (out of four) and the way internally each of the producers had allocated profitability of the wheat gluten operation from other by-products (wheat starch and ethanol production), to conclude that the USITC had provided an “adequate, reasoned and reasonable” explanation of the profits and losses in terms of serious injury and causation analysis.

The panel concludes that the USITC’s overall determination of serious injury was not inconsistent with Art.4.2(a) of the SA.

On the causal link between serious injury and imports required by Art.4.2.(b) of the SA, the panel holds that the USITC report indicates a general coincidence of trends (of imports and indicators of serious injury), the use of price indicators and found no violation of the SA.  The panel also found no inconsistency in the investigations and conclusions relating to the conditions of competition between imported and domestic product—required in Art.XIX:1(a) of GATT 1994 and Art.2.1 of SA or Art.4.2 of the SA.

However, the panel found that the USITC examination as to whether increased imports were a cause that was important and not less than any other cause of serious injury, and then concluding from this that increased imports were a cause of serious injury and greater than any other cause was not consistent with Art.4.2(b) in that it did not ensure the non-attribution to imports of injury caused by other factors.

The panel also held that the US action in excluding imports from Canada (a NAFTA partner), the third largest supplier (after EC and Australia) to the US market, from the US safeguards measures, after having included the Canadian imports in its initial global investigation of increased imports from all sources causing serious injury, was contrary to Art.2.1 and 4.2 of the SA.

The panel said that the obligations of Art XIX of GATT 1994 and the SA were cumulative, and any safeguard measures after the WTO entry into force must comply with both. And while Art. XXIV of the GATT 1994 (relating to customs unions and free trade areas) may provide a defence against a claim of violation of GATT 1994, the US has conceded it provided neither an exception nor a derogation to the SA.  The panel hence concluded that the US had acted inconsistently with Art.2.1 and 4.2 of the SA by excluding imports from Canada from the application of the safeguards measure—after a subsequent and separate inquiry whether imports from Canada accounted for a substantial share of total imports and contributed importantly to serious injury caused by total imports—but having included imports from Canada in its investigation of increased imports from all sources and its effects on domestic industry. The US was not thus justified in excluding Canada from application of safeguard measures.

But the panel exercised its discretion and the concept of judicial economy, and did not go into the question whether the US action also violated Art. 5 of the SA (about application of quota measures among suppliers) or Art.I of GATT (MFN, non-discrimination) clause.

The panel also found that the US had violated the requirements about ‘timely notifications’ under Art. 12 of the SA. Its notification, after a delay of 16 days of the initiation of investigations and, after a delay of 26 days, its finding serious injury were not ‘immediate’ as required; and notification of its final safeguard measures, three days after implementation, was not timely either.

And by not providing a timely notification, the US also failed to provide adequate opportunity for prior consultations, and thus violated its obligation under Art.8.1 of the SA to maintain a substantially equivalent level of concessions and other obligations between the US and the exporting member affected by the safeguard measure.

The panel decided, on grounds of judicial economy, not to go into the question whether the increased imports causing serious injury were the result of “unforeseen developments” envisaged by Art.XIX of GATT 1994, Art. 5 of the SA and Art. I of the GATT 1994. And though, the EC had also made a claim of violation by the US of Art. 4.2 of the Agreement on Agriculture, it did not develop this claim in its written or oral submissions and the panel hence held that the EC had abandoned this claim.

The panel recommended that the Dispute Settlement Body ask the US to bring its safeguards measures into conformity with the SA. -SUNS4722

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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