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Thursday, February 10, 2011

Chinese Tire Imports: Section 421 Safeguards and the World Trade Organization (WTO)

Jeanne J. Grimmett
Legislative Attorney

On April 20, 2009, the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union filed a petition with the U.S. International Trade Commission (ITC) requesting an investigation under Section 421 of the Trade Act of 1974, 19 U.S.C. § 2451, a trade remedy statute addressing import surges from China, to examine whether Chinese passenger vehicle and light truck tires were causing market disruption to U.S. tire producers. Market disruption will be found to occur under Section 421 whenever imports of a Chinese product that is “like or directly competitive with” a domestic product “are increasing rapidly ... so as to be a significant cause of material injury, or threat of material injury, to the domestic industry.” The ITC initiated the investigation (TA-421-7) on April 24, 2009.

As a result of its investigation, the ITC in June 2009 voted 4-2 that imports of the subject tires were causing domestic market disruption and recommended that the President impose an additional duty on these items for three years at an annually declining rate. The ITC also recommended expedited consideration of trade adjustment assistance applications filed by affected firms or workers. On September 11, 2009, President Obama proclaimed increased tariffs on Chinese tires for three years effective September 26, 2009, albeit at lower rates than those recommended by the ITC. The tariff increase is 35% ad valorem in the first year, 30% in the second year, and 25% in the third year. The President also directed the Secretaries of Labor and Commerce to expedite applications for trade adjustment assistance and to provide other available economic assistance to affected workers, firms, and communities. While the President was authorized to review the tariffs after six months and to modify, reduce, or terminate them, he did not take any of these actions. Six petitions had been filed under Section 421 in the past, with the ITC finding that market disruption existed in four out of six of its investigations; President Bush decided not to provide import relief, however, in these earlier cases.

Section 421 was enacted as one element of 2000 legislation that permitted the President to grant most-favored-nation (MFN) tariff treatment to Chinese products upon China’s accession to the World Trade Organization (WTO). Section 421 authorizes the President to impose safeguards— that is, temporary measures such as import surcharges or quotas—on Chinese goods if domestic market disruption is found. The statute implements a China-specific safeguard mechanism in China’s WTO Accession Protocol that may be utilized by WTO members through December 2013. The provision is separate from Article XIX of the General Agreement on Tariffs and Trade (GATT) 1994 and the WTO Agreement on Safeguards, which allow WTO members to respond to injurious import surges but on a stricter basis than under the Protocol. A major difference is that the Protocol permits a safeguard to be applied only to Chinese products while the Safeguards Agreement requires that any safeguard be applied to a product regardless of its source.

China filed a WTO complaint against the United States in September 2009; a dispute panel was established in January 2010 and panelists appointed in March 2010. China claimed that the Section 421 tariffs violate U.S. GATT obligations to accord Chinese tires MFN tariff treatment and not to exceed negotiated tariff rates, that the United States imposed tariffs under China’s Accession Protocol without first attempting to justify them under GATT and WTO safeguard provisions, and that Section 421 and its application in this case violate U.S. obligations under the Protocol. In a report issued December 13, 2010, the WTO panel rejected all of China’s claims. Under WTO rules, either party may appeal the report within 60 days, an action that China reportedly intends to take. The parties have since asked the WTO to extend the appeal period to May 24, 2011.

Date of Report: January 31, 2011
Number of Pages: 29
Order Number: R40844
Price: $29.95

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