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Info Service on WTO and Trade Issues (Dec22/05) Geneva, 12 Dec (Kanaga Raja) — Four dispute panels at the World Trade Organization (WTO) have ruled that additional duties and related measures imposed by the United States on imports of steel and aluminium products under Section 232 of the US Trade Expansion Act of 1962 are inconsistent with its WTO obligations. The complaints against the US were brought by China, Norway, Switzerland, and Turkiye, and each of the four panels were comprised of the same three panelists. The complainants claimed that the US measures were safeguards and/or prohibited measures in violation of Article XIX of the GATT 1994 as well as the WTO Agreement on Safeguards. Furthermore, the complainants also claimed that the US measures were in violation of Articles II, I, and XI of the GATT 1994, respectively, concerning the duties, exemptions, and quotas imposed under these measures. In response, the US had invoked the “Security Exceptions” provision in Article XXI of the GATT 1994 in relation to the measures at issue. However, regarding Article XXI of the GATT 1994, the Panels did not find that the measures at issue were “taken in time of war or other emergency in international relations” within the meaning of Article XXI(b)(iii) of the GATT 1994. The Panels therefore found that the inconsistencies of the measures at issue with Articles I:1 and II:1 of the GATT 1994 are not justified under Article XXI(b)(iii) of the GATT 1994. In their rulings (DS544, DS552, DS556, and DS564), the Panels recommended that the United States bring its WTO-inconsistent measures into conformity with its obligations under the GATT 1994. BACKGROUND TO THE DISPUTE According to the Panel reports, the legislative and regulatory background of the measures at issue in the disputes are: a. Section 232 of the Trade Expansion Act of 1962, as amended (United States Code, Title 19, Section 1862) (Section 232) and its implementing regulation, United States Code of Federal Regulations, Title 15, Part 705; b. “The Effect of Imports of Steel on the National Security: An Investigation Conducted Under Section 232 of the Trade Expansion Act of 1962, As Amended”, United States Department of Commerce Report, 11 January 2018 (Steel Report); and c. “The Effects of Imports of Aluminum on the National Security: An Investigation Conducted Under Section 232 of the Trade Expansion Act of 1962, As Amended”, United States Department of Commerce Report, 17 January 2018 (Aluminium Report). The Panel reports said that in the Steel Report, the US Secretary of Commerce determined that the displacement of domestic steel by excessive imports and the consequent adverse impact of those quantities of steel imports on the economic welfare of the domestic steel industry, along with the circumstance of global excess capacity in steel, were “weakening our internal economy” and therefore “threaten to impair” US national security as defined in Section 232. According to the Steel Report, the continued rising levels of imports of foreign steel threaten to impair the national security by placing the US steel industry at substantial risk of displacing the basic oxygen furnace and other steelmaking capacity, and the related supply chain needed to produce steel for critical infrastructure and national defence. The Steel Report refers to global excess steel capacity as a circumstance that contributes to the “weakening of [the US] internal economy” that “threaten[s] to impair” US national security as defined in Section 232. The Panel reports said that in arriving at this general conclusion, the Steel Report relied on four main overarching findings, which in turn, comprise several intermediate findings: a. Steel is important to US national security because: (i) steel is needed for national defence requirements; (ii) steel is required for US critical infrastructure; (iii) domestic steel production is essential for national security; (iv) domestic steel production depends on a healthy and competitive US industry; and (v) steel is consumed in critical industries. b. Imports in such quantities as are presently found adversely impact the economic welfare of the US steel industry due to: (i) continued increase in imports of steel products; (ii) high import penetration; (iii) high import to export ratio; (iv) prevailing steel prices; (v) steel mill closures; (vi) declining employment trend since 1998; (vii) trade actions such as anti-dumping and countervailing duties; (viii) loss of domestic opportunities to bidders using imported steel; (ix) financial distress; and (x) limited capital expenditures arising from falling revenue and reduced profits. c. Displacement of domestic steel by excessive quantities of imports has the serious effect of weakening the US internal economy because: (i) domestic steel production capacity is stagnant and concentrated; (ii) production is well below demand; (iii) utilization rates are well below economically viable levels; and (iv) declining steel production facilities limits capacity available for a national emergency. d. Global excess steel capacity is a circumstance that contributes to the weakening of the domestic economy because: (i) free markets globally are adversely affected by substantial chronic global excess steel production led by China; and (ii) increasing global excess steel capacity will further weaken the internal economy as US steel producers will face increasing import competition. According to the Panel reports, in the Steel Report, the US Secretary of Commerce recommends, due to the threat of steel imports to US national security, that the US President take immediate action by adjusting the level of imports through quotas or tariffs on steel imported into the United States, as well as direct additional actions to keep the US steel industry financially viable and able to meet US national security needs. The Steel Report states that the quota or tariff imposed should be sufficient, after accounting for any exclusions, to enable the US steel producers to be able to operate at about 80% or better of the industry’s capacity utilization rate based on available capacity in 2017. The Panel reports said that in the Aluminium Report, the US Secretary of Commerce determined that the present quantities and circumstance of aluminium imports were “weakening our internal economy” and “threaten to impair the national security as defined in Section 232”. According to the Aluminium Report, the continued rise in levels of imports of foreign aluminium threatens to impair US national security by placing the US aluminium industry at substantial risk of losing the capacity to produce aluminium and aluminium products needed to support critical infrastructure and national defence. The Aluminium Report refers to excess production and capacity in China as a major factor contributing to the decline in US domestic aluminium production and loss of domestic production capacity. According to the Panel reports, in arriving at this general conclusion, the Aluminium Report relies on findings including: a. Aluminium is essential to US national security because: (i) aluminium is required for US national defence; and (ii) aluminium is required for US critical infrastructure. b. Domestic production of aluminium is essential to national security. c. Domestic aluminium production capacity is declining because: (i) the United States is a relatively high-cost producer; and (ii) aluminium smelters are permanently shutting down. d. Domestic production is well below demand. e. US imports of aluminium are increasing in aggregate and in particular, imports of (i) unwrought aluminium; (ii) aluminium bars, rods and profiles; (iii) aluminium plate, sheet and strip; (iv) aluminium foil; (v) aluminium pipes and tubes; and (vi) aluminium castings and forgings. f. US aluminium exports are declining. g. The United States’ import to export ratio for the aluminium product categories subject to this investigation is high. h. Aluminium imports are impacting the welfare of the US aluminium industry because: (i) employment in the aluminium industry is declining as several smelters were either permanently shut down or temporarily idled; (ii) the financial status of the US aluminium industry is poor; (iii) research and development expenditures are falling; (iv) capital expenditures for the aluminium industry are increasing; and (v) aluminium prices have dropped sharply. According to the Panel reports, in the Aluminium Report, the US Secretary of Commerce recommends, due to the threat of aluminium imports to US national security, that the US President take immediate action by adjusting the level of these imports. The Aluminium Report states that the recommended quotas or tariffs would be designed, even after any exemptions (if granted), to enable US aluminium producers to utilize an average of 80% of their production capacity. The US Secretary of Commerce transmitted the Steel Report and the Aluminium Report to the US President on 11 January 2018 and 19 January 2018, respectively. The Panel reports said on 8 March 2018, the US President issued two proclamations adjusting imports into the United States: (a) Presidential Proclamation 9705 in relation to steel imports and (b) Presidential Proclamation 9704 in relation to aluminium imports. The US President concurred with the findings in the Steel and Aluminium Reports, and pursuant to the recommendations in these reports, imposed additional import duties of 25% and 10% respectively on certain steel and aluminium imports from all countries, with exemptions for imports from Canada and Mexico. The US President welcomed any country with which the United States has a security relationship to discuss alternative ways to address the threatened impairment of US national security caused by imports from that country. These proclamations also authorized the US Secretary of Commerce to provide relief from the additional duties for any steel or any aluminium article determined not to be produced in the United States in a sufficient and reasonably available amount or in a satisfactory quality, or based upon specific national security considerations. Following Presidential Proclamations 9704 and 9705, the US President issued additional proclamations adjusting steel and aluminium imports into the United States. The Panel reports said that these proclamations removed the exemptions granted to Canada and Mexico, granted various exemptions to certain WTO Members, introduced import quotas on steel and aluminium imports from certain countries, and increased the additional import duty applicable to steel imports from Turkiye to 50%. Subsequent proclamations also note the existence of agreements between the United States and countries exempted from the additional duties. FINDINGS AND CONCLUSIONS With regards to China’s claims, the Panel concluded as follows: a. Regarding China’s claims under Article II of the GATT 1994: i. the additional duties of 25% on steel products and 10% on aluminium products do not accord the treatment provided for in the United States’ Schedule, contrary to Article II:1(b) and Article II:1(a) of the GATT 1994; ii. the additional duty of 50% on steel products from Turkiye does not accord the treatment provided for in the United States’ Schedule, contrary to Article II:1(b) and Article II:1(a) of the GATT 1994; and iii. the additional duties of 25% on derivative steel products and 10% on derivative aluminium products do not accord the treatment provided for in the United States’ Schedule, contrary to Article II:1(b) and Article II:1(a) of the GATT 1994. b. Regarding China’s claims under Article I of the GATT 1994: i. the country exemptions for steel and aluminium products confer an advantage to products from Australia, Argentina, Brazil, and the Republic of Korea that has not been accorded immediately and unconditionally to like products from all other Members, in a manner inconsistent with Article I:1 of the GATT 1994; and ii. the country exemptions for derivative steel and aluminium products confer an advantage to products from Australia, Argentina, Brazil, the Republic of Korea, Canada, and Mexico that has not been accorded immediately and unconditionally to like products from all other Members, in a manner inconsistent with Article I:1 of the GATT 1994. c. Regarding China’s claims under Article X of the GATT 1994, the Panel did not consider it necessary to make findings on China’s claims relating to the administration of the process for excluding products from duties that have already been found inconsistent with other obligations under the GATT 1994. The Panel therefore declined to make findings regarding the claims under Article X:3(a) of the GATT 1994. d. Regarding China’s claims under Article XIX of the GATT 1994 and the Agreement on Safeguards, the Panel found that the relevant measures at issue were sought, taken, or maintained pursuant to a provision of the GATT 1994 other than Article XIX, namely Article XXI of the GATT 1994, within the meaning of Article 11.1(c) of the Agreement on Safeguards. The Panel therefore found that the Agreement on Safeguards does not apply to the measures at issue. e. Regarding Article XXI of the GATT 1994, the Panel did not find that the measures at issue were “taken in time of war or other emergency in international relations” within the meaning of Article XXI(b)(iii) of the GATT 1994. The Panel therefore found that the inconsistencies of the measures at issue with Articles I:1 and II:1 of the GATT 1994 are not justified under Article XXI(b)(iii) of the GATT 1994. With regards to Norway’s claims, the Panel concluded as follows: a. Regarding Norway’s claims under Article II of the GATT 1994, the additional duties of 25% on steel products and 10% on aluminium products do not accord the treatment provided for in the United States’ Schedule, contrary to Article II:1(b) and Article II:1(a) of the GATT 1994. b. Regarding Norway’s claims under Article I of the GATT 1994, the country exemptions for steel and aluminium products confer an advantage to products from Australia, Argentina, Brazil, and the Republic of Korea that has not been accorded immediately and unconditionally to like products from all other Members, in a manner inconsistent with Article I:1 of the GATT 1994. c. Regarding Norway’s claims under Article XI:1 of the GATT 1994, by imposing import quotas on steel and aluminium products from Argentina, Brazil, and the Republic of Korea, the United States has instituted prohibitions or restrictions other than duties, taxes or other charges on the importation of those products of the territory of those Members, inconsistently with Article XI:1 of the GATT 1994. d. Regarding Norway’s claims under Article X of the GATT 1994, the Panel did not consider it necessary to make findings on Norway’s claims relating to the administration of the processes for excluding certain countries or products from measures that have already been found inconsistent with other obligations under the GATT 1994. The Panel therefore declined to make findings regarding the claims under Article X:3(a) of the GATT 1994. e. Regarding Norway’s claims under the Agreement on Safeguards, the Panel found that the relevant measures at issue were sought, taken, or maintained pursuant to a provision of the GATT 1994 other than Article XIX, namely Article XXI of the GATT 1994, within the meaning of Article 11.1(c) of the Agreement on Safeguards. The Panel therefore found that the Agreement on Safeguards does not apply to the measures at issue. f. Regarding Article XXI of the GATT 1994, the Panel did not find that the measures at issue were “taken in time of war or other emergency in international relations” within the meaning of Article XXI(b)(iii) of the GATT 1994. The Panel therefore found that the inconsistencies of the measures at issue with Articles I:1, II:1, and XI:1 of the GATT 1994 are not justified under Article XXI(b)(iii) of the GATT 1994. With regards to Switzerland’s claims, the Panel concluded as follows: a. Regarding Switzerland’s claims under Article II of the GATT 1994: i. the additional duties of 25% on steel products and 10% on aluminium products do not accord the treatment provided for in the United States’ Schedule, contrary to Article II:1(b) and Article II:1(a) of the GATT 1994; ii. the additional duty of 50% on steel products from Turkiye does not accord the treatment provided for in the United States’ Schedule, contrary to Article II:1(b) and Article II:1(a) of the GATT 1994; and iii. the additional duties of 25% on derivative steel products and 10% on derivative aluminium products do not accord the treatment provided for in the United States’ Schedule, contrary to Article II:1(b) and Article II:1(a) of the GATT 1994. b. Regarding Switzerland’s claims under Article I of the GATT 1994: i. the country exemptions for steel and aluminium products confer an advantage to products from Australia, Argentina, Brazil, and the Republic of Korea that has not been accorded immediately and unconditionally to like products from all other Members, in a manner inconsistent with Article I:1 of the GATT 1994; ii. the country exemptions for steel and aluminium products confer an advantage to products from Canada and Mexico that has not been accorded immediately and unconditionally to like products from all other Members, in a manner inconsistent with Article I:1 of the GATT 1994; and iii. the country exemptions for derivative steel and aluminium products confer an advantage to products from Australia, Argentina, Brazil, the Republic of Korea, Canada, and Mexico that has not been accorded immediately and unconditionally to like products from all other Members, in a manner inconsistent with Article I:1 of the GATT 1994. c. Regarding Switzerland’s claims under Article XI:1 of the GATT 1994, by imposing import quotas on steel and aluminium products from Argentina, Brazil, and the Republic of Korea, the United States has instituted prohibitions or restrictions other than duties, taxes or other charges on the importation of those products of the territory of those Members, inconsistently with Article XI:1 of the GATT 1994. d. Regarding Switzerland’s claims under Article X of the GATT 1994, the Panel did not consider it necessary to make findings on Switzerland’s claims relating to the administration of the processes for excluding certain countries or products from measures that have already been found inconsistent with other obligations under the GATT 1994. The Panel therefore declined to make findings regarding the claims under Article X:3(a) of the GATT 1994. e. Regarding Switzerland’s claims under Article XIX of the GATT 1994 and the Agreement on Safeguards, the Panel found that the relevant measures at issue were sought, taken, or maintained pursuant to a provision of the GATT 1994 other than Article XIX, namely Article XXI of the GATT 1994, within the meaning of Article 11.1(c) of the Agreement on Safeguards. The Panel therefore found that the Agreement on Safeguards does not apply to the measures at issue. f. Regarding Article XXI of the GATT 1994, the Panel did not find that the measures at issue were “taken in time of war or other emergency in international relations” within the meaning of Article XXI(b)(iii) of the GATT 1994. The Panel therefore found that the inconsistencies of the measures at issue with Articles I:1, II:1, and XI:1 of the GATT 1994 are not justified under Article XXI(b)(iii) of the GATT 1994. With regards to Turkiye’s claims, the Panel concluded as follows: a. Regarding Turkiye’s claims under Article II of the GATT 1994: i. the additional duties of 25% on steel products and 10% on aluminium products do not accord the treatment provided for in the United States’ Schedule, contrary to Article II:1(b) and Article II:1(a) of the GATT 1994; ii. the additional duty of 50% on steel products from Turkiye does not accord the treatment provided for in the United States’ Schedule, contrary to Article II:1(b) and Article II:1(a) of the GATT 1994; and iii. the additional duties of 25% on derivative steel products and 10% on derivative aluminium products do not accord the treatment provided for in the United States’ Schedule, contrary to Article II:1(b) and Article II:1(a) of the GATT 1994. b. Regarding Turkiye’s claims under Article I of the GATT 1994: i. the country exemptions for steel and aluminium products confer an advantage to products from Australia, Argentina, Brazil, and the Republic of Korea that has not been accorded immediately and unconditionally to like products from all other Members, in a manner inconsistent with Article I:1 of the GATT 1994; ii. the country exemptions for steel and aluminium products confer an advantage to products from Canada and Mexico that has not been accorded immediately and unconditionally to like products from all other Members, in a manner inconsistent with Article I:1 of the GATT 1994; and iii. the additional duty of 50% on steel products from Turkiye confers an advantage to steel products from all other countries that has not been accorded immediately and unconditionally to like products from Turkiye, in a manner inconsistent with Article I:1 of the GATT 1994. c. Regarding Turkiye’s claims under Article XI:1 of the GATT 1994, by imposing import quotas on steel and aluminium products from Argentina, Brazil, and the Republic of Korea, the United States has instituted prohibitions or restrictions other than duties, taxes or other charges on the importation of those products of the territory of those Members, inconsistently with Article XI:1 of the GATT 1994. d. Regarding Turkiye’s claims under Article X of the GATT 1994, the Panel did not consider it necessary to make findings on Turkiye’s claims relating to the administration of the processes for excluding certain countries or products from measures that have already been found inconsistent with other obligations under the GATT 1994. The Panel therefore declined to make findings regarding the claims under Article X:3(a) of the GATT 1994. e. Regarding Turkiye’s claims under Article XIX of the GATT 1994 and the Agreement on Safeguards, the Panel found that the relevant measures at issue were sought, taken, or maintained pursuant to a provision of the GATT 1994 other than Article XIX, namely Article XXI of the GATT 1994, within the meaning of Article 11.1(c) of the Agreement on Safeguards. The Panel therefore found that the Agreement on Safeguards does not apply to the measures at issue. f. Regarding Article XXI of the GATT 1994, the Panel did not find that the measures at issue were “taken in time of war or other emergency in international relations” within the meaning of Article XXI(b)(iii) of the GATT 1994. The Panel therefore found that the inconsistencies of the measures at issue with Articles I:1, II:1, and XI:1 of the GATT 1994 are not justified under Article XXI(b)(iii) of the GATT 1994. +
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