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Tuesday, September 11, 2012

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 Chinese tire imports were causing domestic market disruption and recommended that the President impose an added duty on these items for three years at an annually declining rate. The ITC also recommended expedited consideration of trade adjustment assistance (TAA) 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 recommended by the ITC. The proclaimed increase was 35% ad valorem in the first year, 30% in the second, and 25% in the third year. The President also directed the Secretaries of Labor and Commerce to expedite TAA applications and to provide other 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. No formal requests have been made to extend the tire tariffs, which are scheduled to expire on September 25, 2012. Six petitions had been previously filed under Section 421, with the ITC finding market disruption in four out of six of its investigations. President Bush decided not to provide import relief in these earlier cases.

Section 421 was enacted as part of an October 2000 statute that also 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 allows 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, claiming 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 the safeguard mechanism in 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 December 2010 report, the WTO panel rejected all of China’s claims. China later appealed panel findings related to the Accession Protocol. The WTO Appellate Body upheld the panel, and thus U.S. actions under the Protocol, in a September 2011 report. The panel and Appellate Body reports were adopted by the WTO Dispute Settlement Body on October 5, 2011, ending the WTO dispute.

Date of Report: August 24, 2012
Number of Pages: 35
Order Number: R40844
Price: $29.95

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