Research on the Theory of WTO Safeguard Measures System and the Practice of Dispute Resolution

Author: Xiao Youxian
Publisher:
Publishing Date: 2004-12-01
Features: The author graduated from the Department of Economic Law, Central South University of Political Science and Law in 1993 and was admitted to the Master's program at China University of Political Science and Law the same year, studying under Professor Wu Huanning and Professor Wang Chuanli. In 1996, after graduation, the author was assigned to the Law School of Shenzhen University to engage in legal teaching and research work, mainly teaching courses such as International Economic Law and Maritime Law. After working for five years, the author returned to China University of Political Science and Law to pursue a Ph.D. in International Law, studying and conducting research under the guidance of Professor Wang Chuanli. In July 2004, the author obtained a Ph.D. in Law from China University of Political Science and Law. This book is based on the author's Ph.D. dissertation.
I. Research Approach and Its Theoretical and Practical Significance
During the three years of pursuing the Ph.D., in addition to coursework, the author participated in academic research activities organized by the supervisor, such as translating various documents related to the U.S. Steel Dispute Case, providing line-by-line explanations of WTO agreements, and compiling WTO glossary explanations, etc. Under the guidance of the supervisor, the author was exposed to a large amount of material on the WTO Safeguard Measures system, gaining a deeper understanding of the system. Therefore, the author decided to focus on the Safeguard Measures system as the research subject of the Ph.D. dissertation. Coincidentally, after China officially became a member of the WTO in 2001, one of the trade disputes submitted to the WTO Dispute Settlement Body (DSB) between China and the United States was related to steel safeguard measures, which further strengthened the author's determination to research the Safeguard Measures system. Currently, research on the Safeguard Measures system mostly remains at an introductory level, and the author hopes to conduct more comprehensive and in-depth research.
Although the historical trend of global economic integration and trade liberalization is irreversible, due to the slow progress of multilateral trade negotiations, especially the failure of the Cancun Conference, the future of the multilateral trade system is shrouded in shadows. More countries are adopting a wait-and-see attitude toward WTO negotiations while focusing more on bilateral and regional trade negotiations. In the middle of 2003, the United States has included several countries in its bilateral free trade alliance, forming a radial pattern centered around the United States. Other regions have also been actively engaging in negotiations to establish free trade zones. Currently, there are six major regional economic blocs in the world: the European Union (EU), the North American Free Trade Agreement (NAFTA), the Association of Southeast Asian Nations (ASEAN) Free Trade Area, the Southern Common Market, the China-Europe Free Trade Agreement, and the Andean Community. 45% to 60% of world trade is conducted within these regional organizations. China has also adopted a flexible and proactive policy, actively strengthening regional and bilateral free trade cooperation while conscientiously fulfilling its commitments under the WTO, reducing the overall level of import tariffs. In November 2002, China signed the China-ASEAN Framework Agreement on Comprehensive Economic Cooperation, reaching agreements on early harvest projects and tariff reduction schedules for different ASEAN members. In 2003, China also signed the Agreement on Closer Economic Partnership between the Mainland and Hong Kong and the Agreement on Closer Economic Partnership between the Mainland and Macao. On October 1, 2003, China and Thailand implemented zero tariffs on vegetables and fruits. Free trade and trade protectionism have always been two theories that go hand in hand. The trade policies of countries around the world have evolved through the alternation of free trade and trade protectionist policies. After the establishment of the WTO, various trade protectionist forces continue to play a significant role. New trade protectionist measures are more covert and effective, shifting from traditional tariff protection and quantitative restrictions to anti-dumping, anti-subsidy, safeguard measures, and technical barriers. In international economic cooperation, national interests are always supreme, especially for developing countries. Due to economic development imbalances, developing countries are often at a disadvantage in economic cooperation and competition with developed countries. The WTO agreements themselves are a system full of compromises and exceptions, as they need to balance the interests and requirements of countries with different levels of development. Trade liberalization is the ideal of the WTO, while various exception provisions are compromises with reality. In the WTO agreement system, anti-dumping, anti-subsidy, and safeguard measures are three prominent "legal" trade protectionist measures. They are exceptions to trade liberalization and shields for countries to protect domestic industries and promote trade protectionism. Safeguard measures are relief measures allowed by the WTO for member countries to protect domestic industries under certain conditions against imported products. Unlike anti-dumping and anti-subsidy, safeguard measures target fair trade and are fair relief measures, whereas anti-dumping and anti-subsidy target unfair trade practices. On the other hand, anti-dumping measures and anti-subsidy measures specifically target dumped and subsidized products, not other identical products that have not been dumped or subsidized. In contrast, safeguard measures target all imported products. Therefore, safeguard measures are more prone to abuse, and their distortionary effects on trade are more direct and effective. Under the WTO's general provisions to reduce tariffs and eliminate quantitative restrictions, safeguard measures may be increasingly used by member countries to protect their domestic industries.
China, as a developing country with strong export-oriented economic characteristics, plays a pivotal role in the development of its economy through international trade. Since the reform and opening-up, China's foreign trade scale has been continuously expanding, maintaining a trade surplus. In 2003, China's total foreign trade volume reached 851.2 billion U.S. dollars, with both imports and exports exceeding 400 billion U.S. dollars, marking the highest growth rate in trade since 1980. [2] After joining the WTO, China can enjoy the rights stipulated in the WTO agreements, such as preferential and national treatment for products in other member countries. At the same time, China is also obligated to reduce tariffs and open its markets. After joining the WTO, China's average tariff for agricultural products decreased to 18.1% and further to 16.8% in 2003. The average tariff for industrial products decreased to 11.4% after joining and to 10.3% in 2003. In 2004, China further reduced tariffs, lowering the overall import tariff level from 11% to 10.4%. In the field of trade in services, China not only fulfilled its commitments made upon joining but also implemented a certain degree of advance opening in areas such as insurance and tourism services. In the two years since joining the WTO, China has continuously increased its market openness, leading to a significant increase in imports, providing substantial market access opportunities for global trade partners.
China is also a developing country and is one of the countries most vulnerable in the process of trade liberalization, especially because the WTO accession agreement and working group reports stipulate that other members can take transitional safeguard measures against Chinese products, making China's exports more susceptible to safeguard measures investigations by other members. Therefore, it is very necessary to study how to use the safeguard system to protect domestic industries and prevent and mitigate the impact of foreign safeguard measures on China's exports.
According to Section 406 and Section 421 of the U.S. Trade Act of 1974, the United States can impose special safeguard measures against products from communist countries (especially China) that cause market disruption, with conditions that are lower than those stipulated in the Agreement on Safeguards (SA). The investigation procedures are arbitrary, and even if Chinese products and products from other countries jointly disrupt the U.S. market, the United States can target only Chinese products with special safeguard measures, which is clearly discriminatory. Additionally, if other countries take safeguard measures against Chinese products, leading to a shift in trade from Chinese products to the U.S. market, the United States can also impose monitoring and restrictions on Chinese products. Therefore, after joining the WTO, Chinese products face many restrictions from foreign safeguard measures, and the prospects are not optimistic.
II. Research Methods
GATT 1994 Article 19 and the Safeguard Agreement (SA) reached in the Uruguay Round serve as the fundamental starting point for the research. Article 19 of GATT is the initial basis for the safeguard measures system, while the SA provides further refinement and strengthening of Article 19. These two provisions constitute the basic framework of the WTO safeguard measures system. Additionally, the interpretation of safeguard measures by WTO members and some understandings reached in WTO practice also contribute to the study of the development and evolution of the safeguard measures system. The United States is the originator of the safeguard measures system, so relevant U.S. legal systems, such as the Trade Act of 1974 (Section 201), the Uruguay Round Implementation Act, and the North American Free Trade Agreement (NAFTA) Implementation Act, become key areas of focus for the author's research.
During the research process, the author referred to a large amount of domestic and foreign literature, and the author expresses deep gratitude to the authors of these works. The study of legal theory cannot be separated from practice. The trade practices and dispute settlement practices among WTO members, especially a series of safeguard measures cases represented by the U.S. Steel Safeguard Measures Dispute Case, provided the author with vivid materials for research. The author made every effort to compare and analyze the legal reasoning and rulings of the panels and the Appellate Body in various cases, referring to relevant provisions of the WTO agreements to generalize and abstract general conclusions.
On June 28, 2001, the U.S. International Trade Commission (USITC) initiated a safeguard measures investigation on steel products at the request of the U.S. Trade Representative (USTR). Based on the affirmative ruling of the USITC, President George W. Bush issued Executive Order No. 7529 on March 5, 2002, imposing safeguard measures on 10 types of steel products, in the form of tariffs ranging from 8% to 30%. The duration of the safeguard measures was set to 3 years and 1 day, effective from March 20, 2002. This action drew strong reactions from WTO members such as the European Union, Japan, China, and others. After failed negotiations, the European Union, Japan, South Korea, China, Norway, Switzerland, New Zealand, and Brazil subsequently requested the WTO Dispute Settlement Body (DSB) to establish a panel to resolve the dispute. The panel report was circulated to all members on July 11, 2003, and the panel ruled that all 10 types of safeguard measures taken by the United States were inconsistent with the SA and GATT 1994. The United States appealed to the DSB Appellate Body, which, after reviewing the case, circulated the Appellate Body report on November 10, 2003, upholding most of the panel's rulings and reaffirming that the U.S. steel safeguard measures were inconsistent with the SA and GATT 1994. Under the retaliatory pressure from WTO members such as the European Union, Japan, and China, the United States announced on December 4, 2003, the cancellation of the aforementioned steel safeguard measures, marking the resolution of the dispute. The successful resolution of this case not only reaffirmed the role of the WTO dispute settlement mechanism in resolving trade disputes among members but also demonstrated that WTO members, especially developed members, are still willing to comply with WTO rules.
China also learned about the specific operation of WTO rules by participating in the resolution of this dispute. China can also use the safeguard measures system to impose restrictions on foreign imported products, thereby protecting domestic industries. Due to the steel safeguard measures taken by the United States, which led to a significant trade shift of steel products in the world market, at the request of domestic steel producers, the Ministry of Foreign Trade and Economic Cooperation (now reorganized as the Ministry of Commerce) decided on May 20, 2002, to initiate a safeguard measures investigation on certain imported steel products. The investigation agency made a final ruling on November 19, 2002, and the Ministry of Foreign Trade and Economic Cooperation issued a notice the same day, implementing final safeguard measures on five categories of imported steel products—hot-rolled general thin plates, cold-rolled general thin plates (coated), and color-coated plates—starting from November 20, 2002, in the form of tariff quotas, with a duration of three years (including the implementation period of the temporary safeguard measures).
After the WTO Appellate Body ruled that the U.S. steel safeguard measures violated the WTO agreements and the United States decided to withdraw them, in light of the development of the steel trade situation, the Ministry of Commerce of China decided to terminate the implementation of the aforementioned steel safeguard measures starting from December 26, 2003, and no longer impose additional tariffs on imported steel products covered by these measures.
This book is divided into seven chapters: Chapter 1 introduces the basic concepts, nature, and characteristics of the safeguard measures system. Chapters 2 and 3 explore the basic conditions for implementing safeguard measures, namely: (1) the existence of unforeseen developments; (2) a surge in imports; (3) serious damage or threat of serious damage to domestic relevant industries; (4) a causal relationship between import growth and serious damage or threat of serious damage. Chapter 4 discusses the specific implementation of safeguard measures, including the basic investigation procedures for safeguard measures, the forms of safeguard measures, notification and consultation obligations, the duration and review of safeguard measures, etc. Chapter 5 explores the principle of reciprocity in the implementation of safeguard measures. Chapter 6 examines preferential treatment for developing countries under the safeguard measures system. Chapter 7 discusses special safeguard measures, including special safeguard measures for agricultural products, transitional safeguard measures for textiles, and special safeguard measures targeting China.
In the appendix, the author selects several representative safeguard measures cases, briefly introducing the case summaries, key disputes, panel rulings, and Appellate Body rulings, which can serve as reference materials for further research.
It is hoped that this book can serve as a starting point to inspire more colleagues to study the WTO safeguard measures system and other systems, contributing to China's better fulfillment of its WTO obligations and utilizing WTO rules to promote and protect domestic industries.