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T.7.1 Article 6 — Transitional safeguard
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T.7.1.1 US — Wool Shirts and Blouses, p. 16, DSR 1997:I, p. 323
at 337
(WT/DS33/AB/R, WT/DS33/AB/R/Corr.1)
We do not believe that these particular previous GATT 1947 panel
reports are relevant in this case. This case concerns Article 6 of the ATC.
The ATC is a transitional arrangement that, by its own terms,
will terminate when trade in textiles and clothing is fully integrated
into the multilateral trading system. Article 6 of the ATC is an
integral part of the transitional arrangement manifested in the ATC
and should be interpreted accordingly. As the Appellate Body observed in
United States — Restrictions on Imports of Cotton and Man-made Fibre
Underwear with respect to Article 6.10 of the ATC, we believe
Article 6 is “carefully negotiated language … which reflects an
equally carefully drawn balance of rights and obligations of Members.
…” That balance must be respected.
T.7.1.2 US — Cotton Yarn, para. 81
(WT/DS192/AB/R)
There is no need for the purpose of this appeal to express a view on
the question whether an importing Member would be under an obligation,
flowing from the “pervasive” general principle of good faith
that underlies all treaties, to withdraw a safeguard measure if
post-determination evidence relating to pre-determination facts were to
emerge revealing that a determination was based on such a critical
factual error that one of the conditions required by Article 6 turns out
never to have been met.
T.7.2 Article 6.2 — “determination” back to top
T.7.2.1 US — Cotton Yarn, para. 76
(WT/DS192/AB/R)
Unlike Article 3 of the Agreement on Safeguards, which
provides explicitly for an investigation by competent authorities of a
Member, Article 6 of the ATC does not specify either the organ or
the procedure through which a Member makes its “determination”. …
T.7.2.2 US — Cotton Yarn, para. 77
(WT/DS192/AB/R)
… The demonstration by a Member that a particular product is being
imported into its territory in such increased quantities as to cause
serious damage (or actual threat thereof) to the domestic industry can
be based only on facts and evidence which existed at the time the
determination was made. The urgent nature of such an investigation may
not permit the Member to delay its determination in order to take into
account evidence that might be available only at a future date. …
T.7.3 Article 6.2 — “domestic industry” back to top
T.7.3.1 US — Cotton Yarn, para. 86
(WT/DS192/AB/R)
A plain reading of the phrase “domestic industry producing like
and/or directly competitive products” shows clearly that the terms “like”
and “directly competitive” are characteristics attached to the
domestic products that are to be compared with the imported product. We
are, therefore, of the view that the definition of the domestic
industry must be product-oriented and not producer-oriented, and
that the definition must be based on the products produced by the domestic
industry which are to be compared with the imported product in terms
of their being like or directly competitive.
T.7.3.2 US — Cotton Yarn, para. 95
(WT/DS192/AB/R)
… Article 6.2 permits a safeguard action to be taken in order to
protect a domestic industry from serious damage (or actual threat
thereof) caused by a surge in imports, provided the domestic industry is
identified as the industry producing “like and/or directly competitive
products” in comparison with the imported product. The criteria of “like”
and “directly competitive” are characteristics attached to the
domestic product in order to ensure that the domestic industry is the
appropriate industry in relation to the imported product. The degree of
proximity between the imported and domestic products in their
competitive relationship is thus critical to underpin the reasonableness
of a safeguard action against an imported product.
T.7.4 Article 6.2
— “directly competitive products”. See
also Directly Competitive or Substitutable Products (D.1)
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T.7.4.1 US — Cotton Yarn, paras. 96-98
(WT/DS192/AB/R)
According to the ordinary meaning of the term “competitive”, two
products are in a competitive relationship if they are commercially
interchangeable, or if they offer alternative ways of satisfying the
same consumer demand in the marketplace. “Competitive” is a
characteristic attached to a product and denotes the capacity of
a product to compete both in a current or a future situation. The word
“competitive” must be distinguished from the words “competing”
or “being in actual competition”. It has a wider connotation than
“actually competing” and includes also the notion of a potential to
compete. It is not necessary that two products be competing, or that
they be in actual competition with each other, in the marketplace at a
given moment in order for those products to be regarded as competitive.
Indeed, products which are competitive may not be actually competing
with each other in the marketplace at a given moment for a variety of
reasons, such as regulatory restrictions or producers’ decisions.
Thus, a static view is incorrect, for it leads to the same products
being regarded as competitive at one moment in time, and not so the
next, depending upon whether or not they are in the marketplace.
It is significant that the word “competitive” is qualified by the
word “directly”, which emphasizes the degree of proximity that must
obtain in the competitive relationship between the products under
comparison. As noted earlier, a safeguard action under the ATC is
permitted in order to protect the domestic industry against competition
from an imported product. To ensure that such protection is reasonable,
it is expressly provided that the domestic industry must be producing
“like” and/or “directly competitive products”. …
When … the product produced by the domestic industry is not a “like
product” as compared with the imported product, the question arises
how close should be the competitive relationship between the imported
product and the “unlike” domestic product. It is common knowledge
that unlike or dissimilar products compete or can compete in the
marketplace to varying degrees, ranging from direct or close competition
to remote or indirect competition. The more unlike or dissimilar two
products are, the more remote or indirect their competitive relationship
will be in the marketplace. The term “competitive” has, therefore,
purposely been qualified and limited by the word “directly” to
signify the degree of proximity that must obtain in the competitive
relationship when the products in question are unlike. Under this
definition of “directly”, a safeguard action will not extend to
protecting a domestic industry that produces unlike products which have
only a remote or tenuous competitive relationship with the imported
product.
T.7.4.2 US — Cotton Yarn, para. 105
(WT/DS192/AB/R)
… we find that combed cotton yarn produced by vertically integrated
fabric producers for their internal consumption is “directly
competitive” with combed cotton yarn imported from Pakistan. …
T.7.5 Article 6.2 — “like products” back to top
T.7.5.1 US — Cotton Yarn, para. 97
(WT/DS192/AB/R)
… Like products are, necessarily, in the highest degree of
competitive relationship in the marketplace. In permitting a safeguard
action, the first consideration is, therefore, whether the domestic
industry is producing a like product as compared with the imported
product in question. If this is so, there can be no doubt as to the
reasonableness of the safeguard action against the imported product.
T.7.6 Article 6.4
— Attribution of serious damage. See also
Principles and Concepts of General Public International Law,
Proportionality (P.3.6) back to top
T.7.6.1 US — Cotton Yarn, paras. 114-115
(WT/DS192/AB/R)
The first requirement is that the attribution be confined to only
those Members from whom imports have shown a sharp and substantial
increase. Such Members will be identified on an individual basis by
virtue of the wording in Article 6.4, second sentence, “on the basis
of a sharp and substantial increase in imports, actual or imminent, from
such a Member or Members individually”. (footnote omitted) The Panel
interpreted the term “sharp” to refer to the rate of the import
increase, and the term “substantial” to the amount of that increase.
These interpretations of the Panel have not been appealed and are,
therefore, not before us.
The second requirement of Article 6.4, second sentence, is a
comparative analysis, in the event that there is more than one Member
from whom imports have shown a sharp and substantial increase in its
imports. The conduct of the comparative analysis is governed by the
latter part of the second sentence of Article 6.4 …
T.7.6.2 US — Cotton Yarn, paras. 118-119
(WT/DS192/AB/R)
Article 6.4 provides, in relevant part, that “[t]he Member or
Members to whom serious damage … is attributed, shall be determined
on the basis of a sharp and substantial increase in imports
… from such a Member or Members”. (emphasis added) The clear
inference from this phrase is that the sharp and substantial increase of
imports from such a Member determines not only the basis, but
also the scope of attribution of serious damage to that Member.
In consequence, where imports from more than one Member contribute to
serious damage, it is only that part of the total damage which is
actually caused by imports from such a Member that can be attributed to
that Member under Article 6.4, second sentence. Damage that is actually
caused to the domestic industry by imports from one Member cannot, in
our view, be attributed to a different Member imports from whom were not
the cause of that part of the damage. This would amount to a “mis-attribution”
of damage and would be inconsistent with the interpretation in good
faith of the terms of Article 6.4. Therefore, the part of the total
serious damage attributed to an exporting Member must be proportionate
to the damage caused by the imports from that Member. Contrary to the
view of the United States, we believe that Article 6.4, second sentence,
does not permit the attribution of the totality of serious damage to one
Member, unless the imports from that Member alone have caused all the
serious damage.
T.7.6.3 US — Cotton Yarn, para. 121
(WT/DS192/AB/R)
… most significantly, if the totality of serious damage could be
attributed to only one of those Members the imports from whom have
contributed to it, there would be no need to undertake a comparative
analysis of the effects of imports from that one Member, once the
imports from that Member have been found to have increased sharply and
substantially; such an interpretation would reduce a whole segment of
Article 6.4 to inutility.
T.7.6.4 US — Cotton Yarn, paras. 122-124
(WT/DS192/AB/R)
We now turn to the question of how to conduct the comparative
analysis required by Article 6.4. This analysis is to be seen in the
light of the principle of proportionality as the means of determining
the scope or assessing the part of the total serious damage that can be
attributed to an exporting Member. We recall that Article 6.4 enjoins
the importing Member to conduct this comparative analysis on a
multi-factor basis including “levels of imports”, “market share”
and “prices”, while specifying that none of these factors alone or
in combination with other factors can necessarily give decisive
guidance. The comparison is to take place between the effects of imports
from the Member in question, on the one hand, and those of imports from
other sources, on the other. The comparison must thus be based on a
variety of factors, each of which has a different significance and
weight, and is to be measured on a different scale.
It is of course possible to compare the level of imports of one
Member with the level of imports from other sources taken together.
Likewise, it is possible to establish the market share of one Member in
comparison with all other imports and the output of the domestic
industry. However, the full effects of the level of imports from, and
the market share of, one Member can only be assessed if this level and
this share are compared individually with the level of imports
from, and the market share of, the other Members from whom imports have
also increased sharply and substantially. This conclusion is even more
obvious for the comparison of import and domestic prices. The price of
imports from one Member can be compared with the average price of
imports from other sources and with domestic prices. However, prices of
imports from the other Members may vary widely from one another. A fair
assessment of the effects of the price of imports from one Member will
therefore require a comparison with the price of imports from other
Members taken individually. Moreover, these different factors interact
in different ways, producing different effects, under different
circumstances, not to mention the possible existence of other relevant
factors (and their effects) that must be taken into account in the
comparison according to the proviso at the end of Article 6.4, second
sentence.
An assessment of the share of total serious damage, which is
proportionate to the damage actually caused by imports from a particular
Member, requires, therefore, a comparison according to the factors
envisaged in Article 6.4 with all other Members (from whom imports have
also increased sharply and substantially) taken individually.
T.7.7 Article 6.10 — No backdating of safeguard
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T.7.7.1 US — Underwear, p. 14, DSR 1997:I, p. 11 at 22
(WT/DS24/AB/R)
It is essential to note that, under the express terms of Article 6.10, ATC, the restraint measure may be “applied” only “after
the expiry of the period of 60 days” for consultations, without
success, and only within the “window” of 30 days immediately
following the 60-day period. Accordingly, we believe that, in the
absence of an express authorization in Article 6.10, ATC, to
backdate the effectivity of a safeguard restraint measure, a presumption
arises from the very text of Article 6.10 that such a measure may be
applied only prospectively. …
T.7.7.2 US — Underwear, p. 19, DSR 1997:I, p. 11 at 28
(WT/DS24/AB/R)
The conclusion we have arrived at, in respect of the issue of
permissibility of backdating, is that the giving of retroactive effect
to a safeguard restraint measure is no longer permissible under the
regime of Article 6 of the ATC and is in fact prohibited under
Article 6.10 of that Agreement. The presumption of prospective
effect only, has not been overturned; it is a proposition not simply
presumptively correct but one requiring our assent. …
T.7.8 Article 6.11 — Provisional application of a safeguard
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T.7.8.1 US — Underwear, p. 20, DSR 1997:I, p. 11 at 28
(WT/DS24/AB/R)
… The importing Member is, however, not defenceless against a
speculative “flood of imports” where it is confronted with the
circumstances contemplated in Article 6.11. Its appropriate recourse is,
in other words, to action under Article 6.11 of the ATC,
complying in the process with the requirements of Article 6.10 and
Article 6.11.
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