CAUSATION OF INJURY IN SAFEGUARDS CASES: WHY THE U.S. CAN'T WIN

Law and Policy in International Business, Spring 2003 by Ledet, Christy

ABSTRACT

This paper provides a textual analysis of the U.S. and the WTO legislative materials governing the application of safeguards, and analyzes the major issues as addressed in the WTO cases brought against the U.S. that challenge U.S.-imposed safeguards. The problem presented concerns the potential viability of safeguards as a trade remedy, in light of the thesis that the Appellate Body has made it virtually impossible for the U.S. to adequately defend a safeguard measure in the WfO dispute settlement system. This paper examines the inconsistencies in the Appellate Body's analysis, the failed attempts by the U.S. to comply with the increasingly stringent requirements of the Appellate Body, and how the confusion in the Appellate Body's analysis provides no clear guidance to Member States in effectively imposing safeguards and in fact signals a lack of deference to Member States' decisions to utilize safeguards as a trade remedy.

I. INTRODUCTION

The United States has never won definitively a safeguards case at the Appellate Body level of the WTO dispute settlement system. The real question is not why the United States has never won or even what will it take to win in the future, but rather, whether winning is even a possibility for the United States. The answer is no.

There are inherent differences between the U.S. and Appellate Body standards and analysis to determine whether a serious injury or threat thereof exists and whether that injury is caused by imports such that a safeguard remedy can be applied. Not only are there textual differences between the U.S. Trade Act of 1974 and the Agreement on Safeguards, but there is also a difference in interpretation regarding the basic causation analysis that makes it impossible for the United States to satisfy both its own and the Appellate Body's standards simultaneously. The United States has tried to appease the Appellate Body by complying with its requirements, but this Paper will show that in each case, the Appellate Body has developed new and more stringent standards that nullify U.S. efforts to comply with previously articulated standards. This area of the WTO trade remedy jurisprudence is one that definitely signals a lack of deference for the decisions of Member States, or at least, a lack of deference to the United States.

II. BACKGROUND

A. Policy

Section 201 of the 1974 Trade Act is, in its essence, an "escape clause"-that is, it "allows [the] US to escape obligations under GATT to remedy serious injury substantially caused by imports."1 The policy justifications for allowing this government action in contradiction of GATT obligations are advanced in two basic arguments. First, safeguards are justified as a temporary economic adjustment to harm that is caused by an increase in imports.2 The problem with this justification is that there are other kinds of economic forces that may injure domestic industries, such as changes in consumer tastes, government spending or a lack thereof, and economic downturns.3 These problems do not justify government-imposed remedies, but perhaps it can be argued that an increase in imports is a more readily quantifiable injury that can be more easily addressed by a quantitative restriction than other possible causes.

The second policy argument for safeguards is a more practical political argument. Governments appease domestic industries that hold strong lobbying power, even at the expense of foreign producers or sellers of like products, simply because the domestic producers are voting constituents. It is argued that a better solution to the strain on domestic industries is to impose these temporary measures from time to time to ease pressure on the industry rather than to take any permanent action that might dismantle liberal trade policies in general.4 The problem with this justification is that there are usually other possible ways to alleviate this pressure that do not involve restriction on imports to the detriment of foreign producers, such as government aid, tax relief, and cross-border cooperation in a particular industry sector to provide temporary relief.5

B. History

The U.S. domestic jurisprudence on safeguards is quite extensive.6 The United States first embraced the escape clause concept in a series of bilateral agreements with other nations to mutually reduce tariffs (Reciprocal Trade Agreements) in 1934. These agreements provided for the possibility of modification if tariff reduction resulted in injury to domestic industry.8 The U.S. agreement with Mexico in 1942 contained language that was later used as the basis for the escape clause found in GATT Article XIX.9 However, the GATT language remained static while subsequent U.S. case development under Article XIX and amendments to the U.S. statute made its domestic escape clause jurisprudence more flexible.10

The amendments to the escape clause concept evolved as legislators tried to make the statute more workable. For example, the Trade Expansion Act of 1962 ('62 Act) broadened the available relief to include adjustment assistance and gave the President more flexibility in using remedies other than restrictions on imports.11 However, it was still difficult to obtain relief under the '62 Act because the increase in injury-causing imports had to occur as a result of trade-liberalizing concessions under the GATT.12 As a consequence, Voluntary Restraint Agreements (VRAs) were often made in lieu of proceeding under the '62 Act, but these were heavily criticized because they were not provided for in the GATT, could only be effectively used by politically powerful countries, and provided for limited relief from only one country's imports.13 To remedy these problems, the Trade Reform Act of 1974 ('74 Act) revised the U.S. statute by removing the required link to trade concessions, which broadened the scope of the statute to include a wide variety of products that were not the subject of tariff concessions.14 The '74 Act also revised the degree of causation required to justify a remedy by altering the previous language from a "major factor in causing" injury to a "substantial cause," which would later become a contentious point in WTO cases.15 The GATT escape clause in Article XIX finally saw some textual development in the establishment of the Agreement on Safeguards in 1994 as part of the Agreement establishing the WTO.16