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November 6, 2001 No.

17

Safety Valve or Flash Point?
The Worsening Conflict between U.S. Trade
Laws and WTO Rules
by Lewis E. Leibowitz

Executive Summary

The U.S. trade remedy laws—in particular, law and practice, the WTO Dispute
the antidumping and countervailing duty laws Settlement Body has handed down a number
and the section 201 “safeguard” provision— of key decisions finding the U.S. government
are often defended as necessary for ensuring in violation of its international obligations.
domestic political support for trade liberaliza- A review of those disputes and the rele-
tion. Consequently, the argument goes, they vant WTO rulings makes clear that the U.S.
actually strengthen the U.S. commitment to trade remedy laws have become a flash point
the World Trade Organization. of tension in the international trading sys-
This argument ignores the controversy tem. It is increasingly obvious that the U.S.
that the U.S. trade laws have sparked with laws in their current form and U.S. support
trading partners abroad. More than any other for negotiated trade liberalization are not
country, the United States is being challenged complementary but rather antagonistic and
for failure to abide by the multilateral rules that even incompatible. American policymakers
govern antidumping, countervailing duties, are now faced with a stark choice between
and safeguards. In response to a succession of the trade law status quo and the integrity of
wide-ranging challenges to U.S. trade remedy the U.S. commitment to the WTO.

Lewis E. Leibowitz is a partner with the law firm of Hogan & Hartson in
Washington, D.C. He specializes in international trade law and regulation and is
counsel to the Consuming Industries Trade Action Coalition.
More than any On the first point, the U.S. government has
other country, the Introduction thus far resisted calls for negotiations that
could result in the “weakening” of the U.S.
United States is The U.S. trade remedy laws—in particular, trade laws. U.S. intransigence on this subject
being challenged the antidumping and countervailing duty laws has become a major sticking point at both the
and the section 201 “safeguard” provision—are multilateral and regional levels. The U.S.
for failure to abide widely defended as a political “safety valve” that refusal to allow new WTO talks on antidump-
by the multilateral alleviates protectionist pressure. Even free traders ing was a major reason for the collapse of talks
rules that govern who understand that these laws are themselves that were intended to start a new WTO round
protectionist have nonetheless supported them during the ill-fated 1999 ministerial confer-
antidumping, coun- on the ground that they prevent even greater ence in Seattle. Continued opposition could
tervailing duties, backsliding away from open markets. As Richard cause a similar failure at the upcoming WTO
and safeguards. Boltuck and Robert Litan explain: ministerial meeting.
Meanwhile, plans for a free-trade area of the
At bottom, the imperfect success with Americas (FTAA) are also threatened by dis-
which domestic interests have pursued agreements over antidumping. In particular,
unfair trade remedies suggests perhaps Brazilian president Fernando Henrique Cardoso
the only principled reason for the has said that no FTAA is possible unless it
statutes: as a legal “safety valve” for chan- includes antidumping reform.
neling the strongest claimants for pro- The second point—the increasing friction
tection away from overtly supporting between the trade remedy laws and existing U.S.
more transparent forms of protection. market-opening commitments—is the subject
Thus, the overall effort to enforce the of this paper. More than any other country, the
unfair trade practice program can be United States is being challenged for failure to
rationalized to the extent it successfully abide by the multilateral rules that govern
prevents more unjustified protection antidumping, countervailing duties, and safe-
than it hands out.1 guards. In response to a succession of wide-
ranging challenges to U.S. trade remedy law and
According to this line of reasoning, the trade practice, the WTO Dispute Settlement Body
remedy laws complement the overall U.S. trade has handed down a number of key decisions
policy of gradual negotiated trade liberalization. finding the U.S. government2 in violation of its
Anti-trade commercial interests that might other- commitments under the Agreement on
wise seek to block new trade-opening agreements Implementation of Article VI of the General
are mollified by the opportunity the laws provide to Agreement on Tariffs and Trade of 1994
obtain relief from foreign competition. By sacrific- (Antidumping Agreement), the Agreement on
ing free trade at the margins, the argument goes, Subsidies and Countervailing Measures, and the
the laws serve the greater good by putting trade lib- Agreement on Safeguards.
eralization on a firmer political foundation. These decisions, together with other WTO
What this strategy ignores, however, is the decisions concerning the trade remedy regimes
controversy that the U.S. trade laws have of other WTO members that have implica-
sparked with trading partners abroad. This con- tions for U.S. laws, will require the United
troversy has been intensifying in recent years States to amend its trade remedy laws and
along two fronts. First, many foreign countries practices or face potential retaliation against
have made the reform of the U.S. antidumping U.S. exports. In the coming months, Congress
law a major priority for future trade negotia- and the Bush administration will need to eval-
tions. Second, the trade laws themselves have uate the necessary changes and implement
been successfully challenged in the World Trade them or risk undermining the WTO system
Organization as being inconsistent with U.S. that benefits the United States at least as much
market-opening commitments. as any other country in the world. The conse-

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quences of defying the WTO would adversely 1994 WTO Antidumping Agreement. This
affect a broad range of interests within the agreement, negotiated during the Uruguay Round
American economy and around the world. of multilateral trade talks, sets standards for what
In this paper I examine the recent WTO national governments can and cannot do in the
decisions affecting U.S. trade remedy laws in name of antidumping. Unfortunately, the stan-
the areas of antidumping, countervailing dards set by the agreement are quite lax, especially
duties, and safeguards. In particular, I discuss with respect to how “dumping” is defined. As a
the effect those decisions may have on existing result, the agreement offers wide scope for outright
U.S. law and practice and the changes that may protectionism in the name of fighting “unfair
be required as a result. Finally, I examine sever- trade.” Furthermore, Article 17.6 of the agreement
al key WTO rulings against other WTO establishes a special—and especially deferential—
members that have implications for the WTO standard for reviewing antidumping determina-
consistency of U.S. law. tions under the WTO dispute settlement stan-
What emerges from this review is the clear dard. Specifically, it provides that a dispute settle-
conclusion that the U.S. trade remedy laws have ment panel should bow to national authorities’ fac-
become a flash point of tension in the interna- tual determinations whenever the “establishment
tional trading system. It is increasingly obvious of the facts was proper” and the “evaluation of those
that the U.S. trade laws in their current form and facts was unbiased and objective”—even if the
The U.S. trade
U.S. support for negotiated trade liberalization panel itself might have reached a different factual remedy laws have
are not complementary but rather antagonistic conclusion. In the same vein, it provides that a become a flash
and even incompatible. In particular, American panel should accept a national authority’s legal
policymakers are now faced with a stark choice interpretation whenever it is one of perhaps multi- point of tension in
between the trade law status quo and the ongo- ple “permissible” interpretations —even if it is not the international
ing integrity of the U.S. commitment to the the one favored by the panel.
WTO. At stake in this choice is nothing less Despite the weakness of current WTO
trading system.
than the enormous U.S. national interest in the rules, antidumping has been a frequent subject
relatively free and open world trading system of WTO dispute settlement decisions. U.S.
that WTO rules help to support.3 antidumping practice, in particular, has been
under scrutiny by four different dispute settle-
ment panels. Although many foreign claims
U.S. Antidumping were rejected in those cases, on all four occa-
sions the panel found at least some violations
Determinations of WTO norms.
The antidumping law is by far the most fre-
quently used of the anti-import remedies Calculation of Net Prices
afforded by U.S. trade law. Under its provisions, Dumping determinations often entail highly
imports are subject to special duties whenever complicated comparisons of “net” prices. Sales in
they are found to (1) be sold at “less than fair the export market (the country where the investi-
value” (as determined by the Commerce gation is occurring) by a foreign producer accused
Department) and (2) cause or threaten “materi- of dumping are typically compared to sales by that
al injury” to a competing U.S. industry (as deter- producer in its home market. But before actual
mined by the International Trade Commission). comparisons are made, a multitude of adjustments
Although the antidumping law is defended as a is performed to strip out movement and packing
necessary shield against “unfair trade,” the fact is costs and reflect differences in credit terms, war-
that its rules are so heavily biased against foreign ranties, advertising, physical characteristics, and so
competition that normal business practices are on. The idea is to arrive at net “ex factory” prices so
routinely penalized.4 that proper “apples to apples” comparisons can be
Imposing some restraint on the U.S. law— and made. In practice, however, determinations regard-
similar laws in dozens of other countries5—is the ing which adjustments to make and how they

3
should be quantified offer wide scope for manipu- tation and resale” can be stretched to
lation and abuse. By making steep downward include costs that not only were not
adjustments to export prices, while disallowing incurred in an accounting sense until the
appropriate adjustments to home-market prices, date of resale but which were entirely
antidumping authorities can generate dumping unforeseen at that time.7
margins out of thin air.
Just such a problem came before a WTO Once net prices in the comparison and
dispute settlement panel in the Korean Stainless export markets are calculated, it is frequently
Steel case. The panel found WTO inconsisten- necessary to perform currency conversions
cies in the Commerce Department’s treatment before comparisons can be made. The question
of certain unpaid U.S. sales of Korean steel. In of which exchange rate to use opens up oppor-
the underlying investigations of stainless steel tunities to manufacture price differences—and
plate and sheet, Commerce found that a U.S. thus “unfair trade”—from of the fact of fluctuat-
customer of POSCO, a Korean steel producer, ing currencies. In the Korean Stainless Steel case,
had failed to make payment and ultimately the Commerce Department’s decision to make
declared bankruptcy; Commerce responded by an unnecessary currency conversion provoked
adjusting U.S. sales prices down accordingly and the WTO panel’s censure. In the original inves-
treating this bit of bad luck as evidence of tigation, local sales in Korea were ordered and
dumping. Before the WTO panel, the U.S. gov- invoiced in dollars; nevertheless, Commerce
ernment defended Commerce’s action as a valid opted to convert the prices into won at one
interpretation of the Antidumping Agreement. exchange rate and then convert them back into
Specifically, Article 2.4 allows adjustments to dollars at a different exchange rate—inflating
export price for “differences in conditions and dumping margins in the process.
terms of sale” and allowances to constructed The panel found that some of Commerce’s
export price (resales by a related importer to double currency conversions violated Article
unrelated customers) for costs “incurred 2.4.1 of the Antidumping Agreement. In so rul-
between importation and resale.” The U.S. gov- ing, the panel recognized that a special standard
ernment defended Commerce’s decision to treat of review applied to its examination of the facts
a totally unforeseen default by a customer as underlying the currency conversions at issue. For
coming within this language. questions of fact in antidumping cases, Article
The panel rejected the U.S. government’s argu- 17.6(i) of the Antidumping Agreement limits
ment. With respect to Article 2.4, the panel held: the panel to determining

By making steep We do not consider that the phrase whether the authorities’ establishment
“differences in conditions and terms of of the facts was proper and whether
downward adjust- sale,” interpreted in accordance with their evaluation of those facts was unbi-
ments to export customary rules of interpretation of ased and objective. If the establishment
prices, while disal- public international law, can be under- of the facts was proper and the evalua-
stood to encompass differences arising tion was unbiased and objective, even
lowing appropriate from the unforeseen bankruptcy of a though the Panel might have reached a
adjustments to customer and consequent failure to pay different conclusion, the evaluation
for certain sales. 6 shall not be overturned.
home-market prices,
antidumping author- With respect to U.S. treatment of unpaid sales This deferential standard prevented the panel
ities can generate as a cost incurred between importation and in Korean Stainless Steel from substituting its judg-
resale, the panel stated, ment for that of the investigating authority regard-
dumping margins ing factual issues so long as establishment of the
out of thin air. We do not believe . . . that this interpre- facts was “proper” and the evaluation was “unbiased
tation of costs “incurred between impor- and objective.” Although it was clear to the

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panel—and uncontested by the U.S. govern- related importers and instead uses resales to unre- Under the
ment—that the dollar price controlled the eventu- lated purchasers as the basis for constructed export Commerce policy,
al amount of payment by the customer (payment price. That methodology, for better or for worse, is
was made in won at the prevailing exchange rate enshrined in the WTO Antidumping Agreement. prices are rejected
on the date of payment), the factual record in the For sales in the comparison market, Commerce only when they
underlying plate investigation did not unambigu- has an established practice of subjecting related-
ously establish this point. With respect to that party sales to an arm’s-length test. Under that test,
are lower than
investigation, accordingly, the panel gave the U.S. if related-party sales are found to be less than 99.5 average, not when
government the benefit of the doubt. With respect percent of the weighted average price of sales to they are higher.
to the sheet investigation, however, the facts of unrelated customers, they are excluded as “outside
record clearly established that the dollar prices were the ordinary course of trade.” Commerce then
controlling. The panel therefore concluded: requires the foreign producer to report sales by the
affiliated customer to its unrelated purchasers.9
As we have seen, it was clear from The Commerce Department’s practice with
the record in the Sheet investigation that regard to related-party sales in the comparison mar-
the won price which the [Department of ket was reviewed in the Japanese Hot-Rolled Steel
Commerce] considered to be the price case. The panel found that Commerce policy failed
in which local sales were denominated to pass WTO muster because such sales were not
was in no sense controlling. Rather, the within the meaning of sales “outside the ordinary
won amount ultimately paid would be course of trade.” The Appellate Body affirmed the
determined by converting the dollar panel’s conclusion on other grounds. The Appellate
amount appearing on the invoice into Body found that the 99.5 percent arm’s-length test
won at the rate of exchange prevailing is not “even-handed” in its consideration of affiliat-
on the date of payment. . . . ed-party sales at high prices as well as those at low
For the foregoing reasons, we con- prices.10 Such “even-handed” treatment is required
clude that an unbiased and objective in the determination of whether sales to affiliates in
investigating authority evaluating the the comparison market are in the “ordinary course
evidence before the DOC in the Sheet of trade.”11 Under the Commerce policy, prices are
investigation could not properly have rejected only when they are lower than average, not
determined that the local sales in when they are higher. By not taking “equal account”
question were made in won. 8 of the prospect that affiliate-party sales could distort
comparisons whether they are at prices above or
Related Parties below the average prices to nonaffiliated buyers, the
Before prices are compared to assess the exis- Appellate Body concluded, the arm’s-length test
tence of dumping, it must be decided which sales violated the Antidumping Agreement.12
are to be included in the analysis. In particular, the
existence of sales to affiliated companies, whether Averaging
in the export market or the comparison market, Article 2.4.2 of the Antidumping Agreement
raises methodological issues. Sales prices to affili- provides that dumping shall normally be deter-
ates may reflect arm’s-length bargaining, or they mined on the basis of a comparison of weighted
may reflect larger corporate strategy (for example, average normal value and weighted average export
to shift income to particular affiliates for tax pur- prices, or on the basis of a comparison of normal
poses). In the latter case, prices do not reflect mar- value and export prices on a transaction-by-trans-
ket conditions and therefore are not reliable evi- action basis. This provision was a response to the
dence of possible market distortions. abusive practice of comparing weighted average
In light of those concerns, the U.S. antidump- normal value to individual export transactions and
ing law establishes special procedures for handling then ignoring “negative” dumping margins (that
sales to related parties. In the U.S. market, the is, comparisons in which export prices are higher
Commerce Department disregards all sales to than normal value). Under that skewed method-

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ology, identical prices in two markets would still investigations. However, the panel’s conclusions
generate findings of dumping. Article 2.4.2 does may have broader implications. Under U.S. law,
allow comparison of weighted average normal Commerce enjoys wide latitude in determining
value to individual export prices to reveal so-called how to calculate average prices to determine
targeted dumping—instances in which dumped whether sales have taken place at less than fair
export prices are concentrated in sales to a partic- value.14 Clearly, however, if Commerce continues
ular customer or region or during a particular time to use the interpretation of Article 2.4.2 it
period and whose existence would therefore be advanced in the Korean Stainless Steel case to justify
masked by averaging. multiple averaging in future cases, it will be vulner-
In the Korean Stainless Steel case, the panel able to additional WTO challenges. Moreover, the
struck down a deviation by the Commerce WTO ruling calls into question the validity of the
Department from the requirements of Article U.S. antidumping regulations themselves, which
2.4.2. Commerce in the underlying investigtions explicitly authorize multiple averaging in the very
had engaged in “multiple averaging”; namely, it situation the panel found impermissible under
split the period of investigation— which coincid- Article 2.4.2.15
ed with the Asian financial crisis—into two seg-
ments in order to prevent the low normal values Facts Available
Given the mind- (in dollar terms) during the second half of the Many dumping determinations in the United
boggling complexity period from dragging down dumping margins States and elsewhere are based, not on information
of antidumping during the first half. The U.S. government argued provided by the foreign producer under investiga-
that because Article 2.4.2 requires that transac- tion, but rather on “facts available”—which usually
investigations, tions underlying the normal value be “compara- means information cooked up by the complaining
authorities so ble” to export transactions in establishing the domestic industry. Facts available are used when a
dumping margin, multiple averaging may be used foreign producer fails to participate, or when the
inclined can almost where there are significant differences in normal information it does provide is deemed insufficient-
always manufacture value over the course of the investigation. The ly accurate or complete by the antidumping
some pretext for panel rejected this interpretation of Article 2.4.2: authorities. In the latter case the authorities have
wide discretion that is highly prone to abuse: given
throwing out [T]he United States asserts that the exis- the mind-boggling complexity of antidumping
respondents’ data. tence of differences in the timing of sales in investigations, authorities so inclined can almost
the home market and the export market always manufacture some pretext for throwing out
renders transactions non-comparable, at respondents’ data. Meanwhile, the standards gov-
least in cases where there are significant erning what constitutes facts available are notori-
differences in the normal value, export ously inexact. As a result, dumping margins based
price or constructed export price over the on facts available are often punishingly high. For
course of the investigation. . . . example, a recent review of 141 U.S. dumping cal-
Yet to interpret the word “comparable,” culations over a three-year period found that 36 of
when combined with the requirement that those determinations were based on facts avail-
sales be compared “at as nearly as possible able—and that the average margin in those cases
the same time,” to obligate Members to was 95.58 percent.16
perform numerous average to average Several aspects of U.S. antidumping practice
comparisons based on the shortest possible involving the use of facts available were found
time periods would in effect read the WTO-deficient in the Japanese Hot-Rolled Steel
Article 2.4.2 authorization to perform case. The most egregious abuse by Commerce
average to average comparisons out of the was its decision to apply “adverse facts available”
[Antidumping] Agreement. . . .13 against one of the respondents, Kawasaki Steel
Corporation. Some of Kawasaki’s U.S. sales
The panel’s finding was limited to the dump- were to California Steel Industries, an affiliate
ing calculations in those individual stainless steel that was also one of the petitioners in the

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antidumping investigation. Commerce, as usual, Revocation of Antidumping Orders
asked Kawasaki to report resales by its related The first successful WTO challenge to the U.S.
importers in the United States; in this case, antidumping law occurred in the Korean DRAMs
unsurprisingly, California Steel refused to pro- case. Although the Korean government lost sever-
vide the necessary information. Commerce al arguments before the panel,19 it prevailed on a
found that Kawasaki was refusing to cooperate crucial claim in the case—that Commerce was
with the investigation—because it was unable to using the wrong legal standard for determining
convince an opposing party to come to its assis- whether to revoke antidumping orders.
tance!—and decided to apply adverse facts avail- The panel in the Korean DRAMs case rejected
able against Kawasaki. Using punitively negative the U.S. regulatory standard for revocation of an
information, Commerce slammed Kawasaki antidumping order, which required the continua-
with a 68 percent dumping margin. tion of antidumping duties in all cases unless it
The WTO panel and Appellate Body found could be shown, to the satisfaction of the
that Commerce’s action violated the Commerce Department, that dumping was not
Antidumping Agreement. Both ruled that no likely to recur.20 The panel determined that this
unbiased and objective fact-finder could have “not likely” test failed to meet the requirement in
reasonably concluded that Kawasaki, caught in Article 11.2 of the Antidumping Agreement that
an impossible situation, was refusing to cooper- continued imposition of an antidumping duty be
ate. They therefore concluded that Commerce’s “necessary to offset dumping.” The panel found
use of punitive data violated the Antidumping that the U.S. test reversed the burden of proof by
Agreement’s rules for use of facts available17 requiring that antidumping orders be maintained
In addition, the panel and Appellate Body unless and until there is evidence that dumping is
in Japanese Hot-Rolled Steel found that the U.S. not likely to recur.21 Accordingly, it held that
antidumping statute’s rules regarding use of Commerce had adopted an impermissible inter-
facts available in the calculation of “all-others” pretation that did not comport with the customary
rates violate the Antidumping Agreement. In rules of interpretation of public international law.22
antidumping investigations, Commerce typi- The Commerce Department has changed its
cally investigates and assigns company-specific regulations to implement the WTO’s ruling,
dumping rates only to the largest foreign pro- replacing the old “not likely” standard with the
ducers; the rest receive an all-others rate that is appropriate “necessary to offset dumping”
a weighted average of the investigated compa- requirement. Commerce’s application of the new
nies’ rates. Article 9.4 of the Antidumping standard, though, remains a contentious issue. 23
Agreement, however, provides that rates based
on facts available cannot be included in the cal- Captive Production Commerce found
culation of the all-others rate. The U.S. statute The “captive production” provision of the U.S.
purports to acknowledge this requirement by law addresses those situations in which vertically that Kawasaki was
excluding rates based entirely on facts available integrated producers consume their own products refusing to cooper-
from the all-others calculation; under U.S. law, for downstream production as well as sell them ate with the investi-
however, rates based only partially on facts on the “merchant” market. In those situations, so-
available (for example, Kawasaki’s rate in the called captive production is effectively shielded gation—because it
original hot-rolled steel investigation) are from foreign competition—and thus incapable of was unable to
included in the calculation. The Appellate being injured by imports. In order to encourage
Body upheld the panel’s ruling that the distinc- the International Trade Commission to find that
convince an oppos-
tion between partial and full use of facts avail- imports are injuring domestic producers regard- ing party to come to
able could not be squared with the language of less of such insulation from competition, the cap- its assistance!
Article 9.4, and therefore that the statutory tive production provision instructs the ITC,
provision, and its application in the Japanese under defined circumstances, to “focus primarily”
hot-rolled steel investigation, violates the on the merchant market when conducting its
Antidumping Agreement. 18 injury analysis. 24

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The obscure and In the Japanese Hot-Rolled Steel case, the panel Article VI and the Antidumping Agreement make
infrequently sided with the U.S. government in finding that clear that antidumping duties are the only permis-
the captive production provision, both on its face sible remedy for dumping under multilateral rules.27
invoked and as applied in the underlying antidumping Since the 1916 act allows for treble damages, crim-
Antidumping Act investigation, was consistent with WTO rules. inal fines, and imprisonment, it violates both the
The Appellate Body, however, disagreed. GATT and the WTO Antidumping Agreement.
of 1916 creates a Although it did not find that the provision vio- The U.S. government appealed the panels’ rulings,
private right of lates the Antidumping Agreement on its face, it but the WTO Appellate Body upheld their con-
action in federal ruled that if “authorities examine one part of a clusions. As the Appellate Body concluded:
domestic industry, they must examine, in like
courts and provides manner, all the other parts of the industry, or, in Article VI, and, in particular, Article VI:2,
for treble damages, the alternative, provide a satisfactory explanation read in conjunction with the Anti-Dumping
as to why it is not necessary to examine directly or Agreement, limit the permissible responses
criminal fines, and specifically the other parts.”25 In the hot-rolled to dumping to definitive anti-dumping
even imprisonment. steel investigation, the ITC examined conditions duties, provisional measures and price under-
in the merchant market, and in the hot-rolled takings. Therefore, the 1916 Act is inconsis-
industry as a whole, but not in the captive seg- tent with Article VI:2 and the Anti-
ment. The Appellate Body found that this “selec- Dumping Agreement to the extent that it
tive examination of one part of a domestic indus- provides for “specific action against dumping”
try” conflicted with the requirement under Article in the form of civil and criminal proceedings
3.1 of the Antidumping Agreement that injury and penalties.28
determinations be based on an “objective exami-
nation” of the relevant evidence. 26 This ruling In a binding arbitrator’s decision issued in
deals a major blow to the captive production pro- February 2001, the U.S. government was given
vision’s utility in slanting the ITC’s analysis in 10 months, or until July 26, 2001, to imple-
favor of affirmative injury determinations. ment the WTO ruling.29 The arbitrator did not
specify what form implementation should take,
1916 Antidumping Act but it is difficult to see how implementation
The United States has not one but two could mean anything other than congressional
antidumping laws. In addition to the well-known repeal of the 1916 act. In July 2001 the Bush
and often-used statute that provides for imposi- administration committed itself to securing
tion of duties (Title VII, Tariff Act of 1930, as repeal of the act by the end of 2001.
amended), the obscure and infrequently invoked
Antidumping Act of 1916 creates a private right Pending Challenges to Byrd Amendment
of action in federal courts and provides for treble An important change in the U.S. antidump-
damages, criminal fines, and even imprisonment. ing law occurred last year through an act of leg-
In the long history of this relic of World War I, islative sleight of hand. Bypassing the normal
the Justice Department has never brought a crim- congressional committees that oversee U.S. trade
inal case under its authority, and no court has ever laws, Sen. Robert Byrd (D-W.Va.) inserted the
awarded treble damages. Two 1916 act claims by Continued Dumping and Subsidy Offset Act
steel producers and one by a producer of newspa- into the agriculture appropriations bill. This piece
per printing presses have been brought in recent of legislation, popularly known as the Byrd
years, and in one steel case defendants opted to amendment, was signed into law despite Clinton
settle rather than fight. administration protests in October 2000.
The European Union and Japan separately The Byrd amendment provides that
challenged the 1916 act as a violation of the antidumping duties collected by the Customs
Antidumping Agreement as well as the underlying Service are to be distributed among those com-
Article VI of the GATT (which provides for panies that originally petitioned for antidump-
antidumping measures). Both panels ruled that ing relief. In other words, those companies will

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now receive, not only the benefit of squelched export prices and any negative dumping margins
competition and increased prices, but direct were treated as if they were zero dumping margins.
financial support as well. The Byrd amendment The upshot of this methodology was that identical
prompted widespread denunciation by U.S. prices in two markets could still yield dumping
trading partners. No fewer than nine WTO margins. After the signing of the Antidumping
members—Australia, Brazil, Chile, the Agreement, the United States changed its regula-
European Union, India, Indonesia, Japan, tions to provide for average-to-average compar-
Korea, and Thailand—requested a dispute set- isons—but only in original investigations (not
tlement panel in July 2001 to hear their claim administrative reviews that recalculate dumping
that the Byrd amendment is WTO-inconsis- rates and assign final antidumping liability) and
tent. Canada and Mexico are expected to submit only on a model-specific basis. As to the second
their own panel requests as well. qualification, Commerce now compares weighted
It is risky to predict the outcome of a WTO average normal values and export prices of each
challenge, but it can be said that there are strong particular model of the product under investiga-
arguments in support of a legal challenge to the tion, but still negative dumping margins for partic-
Byrd amendment. The Appellate Body stated ular models are treated as zero dumping margins
clearly in the 1916 Act case that antidumping for purposes of the final calculation of an overall
duties are the only permissible remedy under the weighted average dumping margin. Under this It can be argued
Antidumping Agreement. In light of that prece- revised methodology, identical prices for identical with considerable
dent, it can be argued with considerable force that models in two markets could no longer generate force that the Byrd
the Byrd amendment’s provision of monetary dumping margins, but it remained the case that
awards for petitioning companies exceeds the higher overall prices in the export market could still amendment’s pro-
limited scope of remedies provided under the yield findings of dumping. vision of monetary
Antidumping Agreement and thus violates The European Union’s zeroing methodolo-
WTO rules. If a WTO panel should make this gy, substantially identical to the current U.S.
awards for peti-
finding, and if that ruling were to be upheld by approach, was under review in the EC—Bed tioning companies
the Appellate Body, Congress would be faced Linens case. Upholding a panel’s ruling in favor exceeds the limited
with the choice of repealing the Byrd amendment of India’s challenge to the practice, the Appellate
or defying U.S. WTO obligations. Body agreed with the panel’s finding that zero- scope of remedies
ing manipulates individual export prices by provided under the
Other WTO Antidumping Rulings treating the weighted average export price as
The conflict between the U.S. antidumping equal to, instead of greater than, the weighted
Antidumping
law and U.S. WTO obligations goes beyond average normal value in those cases. Zeroing Agreement.
specific WTO rulings in which the U.S. govern- violates the rules for establishing dumping mar-
ment was a defendant. A number of rulings gins under Article 2.4.2, the Appellate Body
regarding the antidumping laws of other WTO concluded, because it fails to account fully for
members have direct implications for the the export prices of all comparable transactions
WTO-consistency of U.S. law and practice. involving a like product. The Appellate Body
Perhaps most important, an Indian complaint noted that once a member defines the scope of
against the European Union’s antidumping regula- the “like product” in an antidumping investiga-
tion has resulted in an Appellate Body ruling tion, it cannot turn around and argue that trans-
against the controversial practice of “zeroing” in actions involving different subcategories of the
calculating a weighted average dumping margin. like product are not comparable.30
As discussed above, Article 2.4.2 of the The EC—Bed Linens case has no direct legal
Antidumping Agreement states that weighted impact on the similar U.S. practice. However,
average normal values will normally be compared there is no substantial legal distinction between
to weighted average export prices. This provision U.S. and EU practices, and it is only a matter of
took aim at an abusive practice in which weighted time before the U.S. averaging methodology is
average normal value was compared to individual subjected to a WTO challenge.31 In light of the

9
Appellate Body’s ruling, it appears very likely listed factors in Article 3.4 must be con-
that the U.S. methodology will be found to vio- sidered in all cases. The provision is spe-
late Article 2.4.2 as well. The U.S. government, cific and mandatory in this regard. . . .
recognizing the threat that India’s dispute with On the basis of this textual analysis
the European Union poses, made arguments of Article 3.4, we are therefore of the
before the EC—Bed Linens panel in favor of the view that each of the fifteen individual
European approach. All of those arguments factors listed in the mandatory list of
were rejected. factors in Article 3.4 must be evaluated
Dispute settlement panels in four recent by the investigating authorities. 33
WTO cases32 have established a significant
rule for injury determinations in antidumping Thailand appealed the panel’s ruling, but the
cases. In examining the impact of dumping on Appellate Body upheld the panel’s interpreta-
the domestic industry, investigating authorities tion of Article 3.4. 34
are required under Article 3.4 of the It is noteworthy that the U.S. government’s
Antidumping Agreement to position on this issue has been somewhat incon-
sistent. Most recently, as a third party in
include an evaluation of all relevant eco- Thailand—Steel, the U.S. government supported
nomic factors and indices having a bear- the position of Poland that each of the Article
ing on the state of the industry, including 3.4 factors must be considered in every
actual and potential decline in sales, prof- antidumping investigation.35 However, as the
its, output, market share, productivity, complaining party in the Mexico—High Fructose
return on investments, or utilization of Corn Syrup case, the U.S. government advanced
capacity; factors affecting domestic prices; a different interpretation of Article 3.4 that did
the magnitude of the margin of dumping; not require consideration of all factors.36
actual and potential negative effects on Moreover, in a much earlier WTO case
cash flow, inventories, employment, involving an analogous provision in Article 6.3
wages, growth, ability to raise capital or of the WTO Agreement on Textiles and
investments. This list is not exhaustive, Clothing, the U.S. government as responding
nor can one or several of these factors party had argued, unsuccessfully, that the list of
necessarily give decisive guidance. factors in that provision was merely illustrative
and that the U.S. government had satisfied its
In each case, there was much disagreement WTO obligations by considering “some of the
among the parties (including the U.S. government relevant factors listed in Article 6.3 of the ATC”
It is only a matter as both a party in interest and a third-party partic- and examining “factors ‘such as’ the listed fac-
ipant) as to the precise scope of the Article 3.4 fac- tors.”37 The panel in that case rejected the U.S.
of time before the tors. Specifically, the panels were asked to decide government’s interpretation, finding that the list
U.S. averaging whether investigating authorities must consider all of factors under the ATC was mandatory. 38
methodology is of the factors enumerated under Article 3.4 or The succession of consistent WTO rulings on
whether Article 3.4 gives authorities a certain Article 3.4 of the Antidumping Agreement estab-
subjected to a amount of discretion in deciding which factors to lishes a clear rule for injury determinations and
WTO challenge. examine. Despite WTO members’ widely diverg- means that in each antidumping case the ITC
ing views on the issue, the panels in all four cases must, in order to uphold WTO commitments,
concluded that Article 3.4 admits of only one per- consider each of the 15 factors listed in Article 3.4.
missible interpretation—that authorities must The sufficiency of the evidence to justify initi-
consider all the enumerated factors. As the panel in ation of an antidumping investigation was a key
the Thailand—Steel case found: element of the WTO ruling in Guatemala—
Cement. This is also an issue that has relevance for
We are of the view that the language in U.S. antidumping investigations. The panel
Article 3.4 makes it clear that all of the found that Guatemala had failed to satisfy the

10
requirement of Article 5.3 of the Antidumping The absence of an
Agreement that there be “sufficient evidence” in U.S. Countervailing injury test made the
order to initiate an investigation. Central to this
finding was the panel’s linkage of the Article 5.3
Duty Determinations CVD law a popular
requirement with the substantive provisions on The U.S. countervailing duty (CVD) law tar- protectionist
dumping and threat of injury contained in gets subsidized imports that injure or threaten
Articles 2 and 3.7. The panel held that the legal domestic U.S. industries. As is that of the
weapon against the
elements of dumping, as defined in Article 2, antidumping law, administration of the CVD law exports of develop-
“provide guidance” for determining whether an is bifurcated: Commerce conducts the subsidy ing countries.
investigation is warranted. “[T]hey are certainly analysis, and the ITC examines the injury ques-
relevant,” the panel found, “to an investigating tion. If both agencies make affirmative determi-
authority’s consideration as to whether sufficient nations, special duties are imposed to “counter-
evidence of dumping exists to justify the initiation vail” the effect of foreign government subsidies.
of an investigation.”39 Similarly, consideration of Prior to 1995, when the Uruguay Round
the Article 3.7 factors governing threat of injury Agreements Act went into effect, only countries
determinations “is certainly pertinent to an evalu- that were signatories of the old Tokyo Round
ation of whether there was sufficient evidence of Subsidies Code (now superseded by the WTO
threat of material injury to justify the initiation of Agreement on Subsidies and Countervailing
an investigation.”40 Measures) were entitled to an injury test under
The U.S. government argued as a third party U.S. law. When nonsignatory countries—includ-
in favor of finding Guatemala in violation of ing many less-developed nations—were investi-
Article 5.3, but with an important qualifier. The gated, it was necessary only for Commerce to find
U.S. government believed the sufficiency of evi- subsidies, and then duties were imposed regard-
dence for initiation of an investigation could be less of their effect on U.S. industries. The absence
determined without reference to the specific ele- of an injury test made the CVD law a popular
ments of dumping under Article 2. In fact, the protectionist weapon against the exports of devel-
U.S. government called on the panel to not oping countries. Now, however, that the injury
establish any linkage between the two provi- test has been extended to all WTO members, the
sions: “[T]he Panel need not define the precise popularity of the CVD law has waned consider-
relationship between Articles 5.2 and 5.3 and ably. Thus, from 1980 to 1994, on average, 19
Articles 2 and 3. . . . [T]he legal sufficiency of new cases were initiated every year; by contrast,
Guatemala’s decision to initiate the anti-dump- during 1995–99 the average number of new cases
ing investigation can be assessed by the Panel per year fell to 6.42
without a finding regarding the extent to which The U.S. CVD law is subject to the WTO
Articles 2 and 3 inform Articles 5.2 and 5.3.”41 Agreement on Subsidies and Countervailing
The panel’s determination—rejecting the U.S. Measures. That agreement establishes disciplines
government’s argument—that Article 2 (and regarding both how member countries can subsi-
Article 3.7 in threat of injury cases) necessarily dize their industries and how members can respond
informs a WTO member’s evaluation of the suf- (with countervailing measures) to subsidized
ficiency of evidence under Article 5.3 may play an import competition. Two WTO dispute settlement
important role in future WTO cases involving cases thus far have scrutinized the operation of the
U.S. antidumping investigations. On the basis of U.S. law. In both cases, critical elements of U.S. law
Guatemala—Cement, each WTO member now or practice were found to violate WTO rules.
bears the responsibility of ensuring that its inves-
tigating authorities assess the quantity and quali- Privatization
ty of evidence before them, paying careful heed to At issue in the UK Lead Bar case was how
the WTO-mandated elements of an antidump- subsidized capital injections granted to state-
ing case before determining whether an investi- owned firms should be treated after those firms
gation is warranted. have been privatized. Does the subsidy contin-

11
ue to exist, or is it extinguished by the sale? to a federal appeals court decision that the old
Presumably, the value of those prior equity test failed to satisfy U.S. statutory require-
infusions is incorporated into the price of the ments.45 Under the new methodology,
company when it is sold; private investors Commerce determines as a threshold matter
therefore must pay full market value for those whether the current producer-exporter is the
equity infusions and thus receive no subsidized “same legal person” as the original subsidy recip-
benefit because of them. Assuming that the ient, and if so, Commerce “will determine that
privatization is conducted on an arm’s-length all of the elements of a subsidy are established,
basis, privatization should eliminate the sub- i.e., we will determine that a ‘financial contribu-
sidy. Nevertheless, despite this logic, the U.S. tion’ and a ‘benefit’ have been received by the
CVD law treated subsidies as continuing ‘person’ that is the firm under investigation.”46
regardless of intervening privatization. The new methodology, which assumes that 100
In the UK Lead Bar case, the WTO panel percent of the original subsidy “passes through”
ruled that the U.S. approach violated the after the change in ownership, actually leads to
ASCM. In May 2000 the Appellate Body con- even higher countervailing duties in some cases
firmed the panel’s findings. The Appellate Body than did apportioning part of the subsidy to the
ruled that in presuming that the benefit of sub- presale company under the old methodology.
The U.S. CVD law sidies to the state-owned British Steel After a series of discussions with U.S. author-
treated subsidies as Corporation “passed through” to the postpriva- ities, the European Union announced its inten-
continuing regard- tization company, the Commerce Department tion to bring 12 new privatization cases to the
had failed to abide by the requirement in Article WTO in July 2001. It is quite likely that the new
less of intervening 1.1(b) of the ASCM that there be a “benefit to Commerce methodology will also run counter to
privatization. the recipient” in order for a subsidy to be coun- the requirements of the Subsidies Agreement.47
tervailable. 43 The Appellate Body squarely
rejected the U.S. government’s argument that Export Restraints
there was no need to establish the existence of a A recent WTO panel decision has cast a
separate “benefit” to the privatized company: dark cloud over the U.S. practice of treating
export restraints as countervailable subsidies.48
In this case, given the changes in owner- In previous CVD investigations, the
ship leading to the creation of [postprivati- Commerce Department has found that export
zation companies] UES and BSplc/BSES, restraints on certain upstream products consti-
the U.S. [Department of Commerce] was tute subsidies for producers of downstream
required under Article 21.2 to examine, on products, since they act to divert upstream
the basis of the information before it relat- products away from export markets and toward
ing to these changes, whether a “benefit” the domestic market and thus depress the price
accrued to UES and BSplc/BSES.44 paid by domestic downstream producers for
their inputs. In particular, in its 1992 CVD
As to the specific CVD order in dispute, investigation of softwood lumber from
Commerce actually terminated countervailing Canada, Commerce found that Canadian
duties on lead bar from the United Kingdom restrictions on exports of unprocessed logs
prior to the Appellate Body’s ruling (it did so amounted to a subsidy for downstream soft-
because petitioners failed to request a “sunset” wood lumber producers.
review under other provisions of the U.S. law). In Canada, fearing a new CVD investigation of
spite of the WTO ruling, however, Commerce softwood lumber (a fear that was realized in April
has refused to back down from its position that 2001), preemptively challenged U.S. CVD practice
privatization does not extinguish prior subsidies. on export restraints as a violation of the ASCM.
Since the Appellate Body ruling, the Since there was no specific CVD case under way
Commerce Department has instituted a new at the time of the challenge, Canada argued that
change-in-ownership methodology in response U.S. law and practice mandate the treatment of

12
export restraints as subsidies and that this require- butions is inconsistent with Article
ment violates WTO rules on its face. 1.1(a) of the SCM Agreement. 49
In the United States—Export Restraints
case, the panel proceeded with a two-step The panel went on to find, however, that the
analysis. First, it examined whether export U.S. CVD statute does not require that export
restraints can be treated as subsidies under the restraints be treated as countervailable subsidies,
provisions of the ASCM; second, it examined and thus is not facially inconsistent with the
whether U.S. law requires that export restraints ASCM. Although technically the U.S. govern-
be so treated. On the first point, it ruled in ment won the case, in substance it was a total
Canada’s favor; on the second point, it sided defeat. An important element of U.S. CVD prac-
with the U.S. government. tice has been declared WTO-illegal, and the
There is a strong case in economic theory Commerce Department is therefore on notice that
that restrictions on exports act to subsidize any continuation of that practice will constitute a
downstream producers. Indeed, that subsidizing violation of U.S. WTO obligations.50
effect is precisely why many governments
restrict the exports of primary products: they are
hoping to nurture the development of value- Safeguard Measures
added processing industries. Nevertheless, not
all market-distorting government interventions
under Section 201
are classified as subsidies under WTO rules— Section 201 of the Trade Act of 1974 is the
and thus not all are countervailable under CVD “safeguard” provision of U.S. trade law.51 Under
laws. The ASCM sets forth specific criteria for Article XIX of the GATT, and the WTO
what constitutes a countervailable subsidy, none Agreement on Safeguards that interprets and
of which includes export restraints. The U.S. expands upon Article XIX, countries can
government attempted to argue that export impose temporary trade barriers, or “safeguards,”
restraints constitute a “financial contribution” by when increased imports cause or threaten “seri-
a government in accordance with ASCM provi- ous injury” to a domestic industry. There is no
sions, but the panel concluded otherwise. It rea- fig leaf here of allegations of unfair trade or an
soned that if export restraints make a financial unlevel playing field: safeguard remedies are an
contribution to downstream producers, import explicit deviation from open markets intended
tariffs likewise make a financial contribution to to help ailing domestic producers.
import-competing producers; such an elastic The U.S. safeguard provision, section 201,
definition of “subsidy,” however, could not be requires that increased imports (increased either in
squared with the language or negotiating histo- absolute terms or relative to domestic consump- Not all market-dis-
ry of the ASCM. Accordingly, the panel ruled: tion) must be a “substantial cause” (that is, at least
as important as any other single cause) of serious torting government
[W]e reject the US approach that, injury, or threat thereof, to the domestic industry interventions are
because, or to the extent that, an export under consideration. Before a safeguard measure is classified as
restraint causes an increased domestic imposed, U.S. law provides a two-stage process:
supply of the restrained good, it is the First, the ITC conducts an investigation to deter- subsidies under
same as if a government had expressly mine whether the serious injury standard is satis- WTO rules.
entrusted or directed a private body to fied. If the ITC reaches an affirmative injury deter-
provide the good domestically. The mination, it conducts proceedings to determine the
remaining textual elements . . . support appropriate form of remedy. The case then goes to
this conclusion. This conclusion is also the president, who determines whether awarding
confirmed by the negotiating history of relief is in the “national economic interest” by con-
the term “financial contribution.” ducting a cost/benefit analysis of the potential eco-
Accordingly, we find that the treatment nomic effects of protection.52 Relief can take the
of export restraints as financial contri- form of tariffs or quotas.

13
Two major dispute With the explosion of antidumping cases dur- Under Article 4.2(b) of the Agreement on
settlement cases— ing the 1980s and 1990s, safeguard remedies fell Safeguards, it is essential for the competent
into relative disuse in the United States. In the last authorities to examine whether factors
the Wheat Gluten three years of the Clinton administration, though, other than increased imports are simulta-
and Lamb cases— section 201 was invoked successfully by several neously causing injury. If the competent
American industries. U.S. producers of wheat authorities do not conduct this examina-
have identified sig- gluten, steel wire rod, welded line pipe, and lamb tion, they cannot ensure that injury caused
nificant discrepan- meat all have received relief since 1998. (In addi- by other factors is not “attributed” to
cies between U.S. tion, the United States imposed safeguard measures increased imports. It follows, in this case,
on imports of broom-corn brooms from Mexico that the USITC has not demonstrated
safeguard measures from 1996 to 1998.) And on June 5, 2001, the Bush adequately, as required by Article 4.2(b),
and WTO rules. administration announced that it was initiating on that any injury caused to the domestic
its own authority section 201 investigations of a industry by increases in average capacity
wide range of steel products. Consequently, safe- has not been “attributed” to increased
guards have gained renewed prominence in the imports and, in consequence, the USITC
U.S. protectionist arsenal. could not establish the existence of “the
Two major dispute settlement cases—the causal link” Article 4.2(b) requires between
Wheat Gluten and Lamb cases—have identified increased imports and serious injury. 54
significant discrepancies between U.S. safe-
guard measures and WTO rules. The rulings In Lamb, the Appellate Body noted that the
will require the United States to overhaul its ITC had identified six other factors besides
safeguard law and methodology or face retalia- imports that could have contributed to the
tory action by aggrieved WTO members. industry’s injured state but concluded—in
accordance with the U.S. statute—that each of
Causation of Injury those six factors was not a more important cause
Central to both cases was the question of the of injury than imports. “But to be certain that
appropriate standard for determining that the injury caused by these other factors, whatev-
increased imports are causing or threatening er its magnitude, was not attributed to increased
injury. Under U.S. law, the ITC must find that imports,” the Appellate Body reasoned, “the
imports are a “substantial cause” of injury, defined USITC should also have assessed, to some
as a cause not less important than any other cause extent, the injurious effect of these other factors.
that is contributing to the domestic industry’s It did not do so.”55 Consequently, the Appellate
plight.53 In neither the Wheat Gluten nor the Body concluded, the ITC’s analysis was not suf-
Lamb case was it alleged that this statutory stan- ficient to satisfy WTO requirements.
dard on its face violates WTO rules. Rather, the While striking down the ITC’s decisions in
ITC’s application of this standard was chal- these cases, the Appellate Body retreated from
lenged, and in both cases was found wanting. the standard set forth by the underlying dispute
In particular, the Appellate Body in both settlement panels. The panels in these cases had
cases found that the ITC had run afoul of concluded that the Safeguards Agreement
Article 4.2(b) of the Safeguards Agreement, requires that increased imports, by themselves, be
which requires that administering authorities’ a sufficient cause of serious injury before relief can
analysis of causation distinguish imports from be granted. The Appellate Body rejected that
other causes of injury and ensure that the effects bright-line standard in favor of a much murkier
of those other causes not be attributed to formulation. It ruled that, once an administering
imports. In Wheat Gluten, the Appellate Body authority isolates the injurious effects of imports
found that the ITC had not properly examined from those of other causal factors, the authority
other causal factors and thus had failed to estab- need not find that increased imports alone are
lish causation of injury by reason of increased causing or threatening serious injury. Rather, it
imports as required by WTO rules: need find only a “genuine and substantial rela-

14
tionship of cause and effect” between increased developments as unforeseen, those facts “do not
imports and serious injury that may be the com- constitute a conclusionthat the shift in the product
bined result of many causes.56 How exactly this mix or the increase in the cut size constituted an
standard should be applied in practice—and unanticipated change.”58
whether or how it jibes or conflicts with U.S. The panel’s unwillingness to defer to the
statutory requirements—is far from clear. This U.S. government’s subjective interpretation of
uncertainty makes future WTO disputes over ITC decisions paves the way for similar WTO
U.S. section 201 actions almost inevitable. challenges to safeguard determinations on
GATT Article XIX grounds. Indeed, several
“Unforeseen Developments” U.S. measures presently in force are vulnerable
The Lamb case included a claim by Australia on precisely this point and are the subject of
and New Zealand regarding a requirement of pending WTO dispute settlement cases filed
GATT Article XIX long ignored under U.S. law by the European Union and South Korea. 59
and practice—namely, that a safeguard measure can
be applied only if it is found that increased imports Definition of “Domestic Industry”
are causing or threatening serious injury “as a result Another important ruling in the Lamb case
of unforeseen developments.” The Appellate Body concerns the long-established U.S. practice of
in Lamb upheld the panel’s ruling that the ITC, by expanding the definition of “domestic industry” to Under the U.S.
failing to examine whether injury by reason of include upstream producers of raw materials or approach, imports
increased imports was due to unforeseen develop- inputs. Specifically, the ITC includes upstream of one product can
ments, had violated WTO rules. The panel held industries in its analysis when it finds that there is
that under GATT Article XIX, read in conjunction a “continuous line of production from the raw to be subject to safe-
with Article 3.1 of the Safeguards Agreement, the processed product” and a “substantial coinci- guard protection
dence of economic interests” between upstream
it must be clear from the published report and downstream producers.60 When the scope of
because of poor
that the investigating authorities examined the domestic industry is expanded in this way, performance in an
the existence of unforeseen developments imports of one product can be subject to safeguard upstream industry.
and came to a reasoned conclusion in this protection because of poor performance in an
regard. . . . [T]here needs to be a conclusion upstream industry.
that makes clear that changes that had not The dispute settlement panel in Lamb, howev-
been anticipated had taken place in the er, ruled that this U.S. practice violates WTO rules.
market, and that these changes had result- The Appellate Body, in turn, upheld the panel’s
ed in a situation in which increased decision. Citing as precedent two GATT cases
imports were causing or threatening to involving the definition of “domestic industry”
cause serious injury57 under the Tokyo Round Subsidies Code,61 the
Lamb panel found that there is no basis in the
In finding that the ITC had failed to make WTO Safeguards Agreement for the ITC’s prac-
explicit findings on the existence of unforeseen tice of including producers of raw materials in the
developments, the Lamb panel rejected the U.S. same industry as the producers of the end product,
government’s attempt to characterize certain ref- since Article 4.1(c) of the Safeguards Agreement
erences in the ITC’s report of its determination as makes it clear that an enterprise is a “producer” of
findings of unforeseen developments. It made only those goods that it actually makes. In its dis-
clear that the U.S. government cannot ignore approval of the ITC’s “continuous line of produc-
Article XIX when imposing safeguards and then tion” and “substantial coincidence of interests” test,
later, in the context of a WTO challenge, try to the panel found that this test impermissibly gives
construct a post hoc demonstration of unforeseen unbridled discretion to the ITC to decide how far
circumstances. After scrutinizing the ITC report, upstream or downstream to define the relevant
the panel concluded that while such facts suggest industry. Such a practice, the panel warned, “could
that the ITC may indeed have viewed certain easily defeat the Safeguard Agreement’s purpose of

15
reinforcing disciplines in the field of safeguards and determining whether the NAFTA exclusion
enhancing rather than limiting competition.”62 applies—whether the NAFTA goods “contribute
Unlike the more vague Appellate Body rul- importantly” to serious injury67—is based on the
ings on causation, the decision on defining the presumption that such goods have been included
scope of the domestic industry makes it absolute- in the scope of the serious injury and causation
ly clear that there are no circumstances in which determination. The European Union’s pending
the “continuous line of production” and “substan- challenge to U.S. steel wire rod and line pipe safe-
tial coincidence of economic interests” test would guards includes a claim, on this ground, that the
be acceptable in defining the domestic industry. 63 NAFTA exclusion is on its face inconsistent with
Thus, to comply with the Lamb ruling, the ITC the Safeguards Agreement.68 Moreover, the pend-
must remove any aspect of the test from its defi- ing EU challenge raises another fundamental
nition of the producers of a like product. question about the NAFTA exclusion: whether it
violates the most-favored nation (MFN) principles
Exclusion of NAFTA Countries of GATT Article I and Article 2.2 of the
Under section 201 as modified by implement- Safeguards Agreement.69 This question has never
ing legislation for the North American Free been addressed by the WTO and will require the
Trade Agreement, imports from Canada and dispute settlement panel to address the interplay
Mexico can be excluded from safeguard measures among the Safeguards Agreement, U.S. MFN
if certain criteria are met.64 In the Wheat Gluten obligations, and GATT Article XXIV, which pro-
case, though, the Appellate Body ruled that the vides a limited exception to the MFN principle for
U.S. decision to exclude Canadian and Mexican preferences accorded under free-trade agreements.
imports from the application of the safeguard, A WTO ruling against the statutory NAFTA
after including imports from all sources in the exclusion on its face could create a messy conflict
determination of serious injury and causation, between the U.S. WTO and NAFTA obligations.
violated the Safeguards Agreement. Citing well-
established precedent in an earlier WTO ruling
involving the same issue,65 the Appellate Body Conclusion
agreed with the panel that Articles 2.1 and 4.2
require “symmetry” and “parallelism” between the The “administrative protectionism” of the U.S.
scope of the imports in the investigation and the trade remedy laws has long been defended as a
scope of the imports on which the safeguard “safety valve” for protectionist pressure that actual-
measure is imposed. After examining how the ly serves to strengthen the U.S. commitment to the
NAFTA exclusion had been applied to the wheat multilateral trading system. With an increasing
The old pose that gluten safeguard, the Appellate Body found a lack number of rulings against current U.S. laws and
of symmetry because the ITC did not determine practices, however, the “safety valve” defense of
indulging in trade whether serious injury and causation existed trade remedy laws cannot be sustained.
remedy protection- without imports from Canada and Mexico.66 The old pose that indulging in trade remedy
ism and claiming The Appellate Body ruling against the protectionism and claiming leadership of the mul-
NAFTA exclusion was limited to its particular tilateral trading system are mutually supportive will
leadership of the application in that case, because the ITC in that no longer wash. U.S. policymakers now face a
multilateral trading case had failed to establish serious injury and cau- choice between defending U.S. trade laws in their
sation independent of NAFTA-origin imports. current form and defending the U.S. commitment
system are mutually However, the ruling raises serious questions about to the WTO. While this choice is politically diffi-
supportive will no the validity of the NAFTA exclusion provision as cult, it must be faced and faced soon. If the United
longer wash. a whole. The U.S. NAFTA-implementing legisla- States is going to continue its postwar role of lead-
tion mandates exclusion under certain circum- ership within the world trading system, it will be
stances, without first requiring that a separate seri- necessary to rethink laws that are bringing the
ous injury and causation determination be made by country into incessant and worsening conflict with
the ITC. In fact, one of the statutory criteria for its WTO obligations. The United States cannot

16
maintain its leadership role if it is widely perceived 7. Ibid. ¶ 6.100 The United States
to be flouting WTO rules, and it cannot urge other 8. Ibid., ¶¶ 6.37, 6.39. cannot maintain its
countries to live up to commitments that it does
not honor itself. In light of the enormous national 9. Although the arm’s-length test is not set forth in leadership role if it
any U.S. statutory or regulatory provision, it has
interest in a strong and vibrant international trad- been established as a uniform practice through is widely perceived
ing order, it is vitally important that policymakers Commerce Department and case law precedent.
make the right choice—and make it before the See, for example., U.S. Department of Commerce, to be flouting
damage done is irreparable. Notice of Final Results of Antidumping Duty WTO rules.
Administrative Review, Industrial Phosphoric Acid
from Belgium, October 2, 1996 (finding that
Commerce “must exclude” from the calculation of
Notes normal value those sales to affiliated parties that
“have not been shown to be at arm’s-length prices
(i.e., the weighted-average sales price . . . was less
The author would like to acknowledge the valuable than 99.5 percent of the weighted-average sales
research assistance provided by Irene Chang. price to unaffiliated parties)” (citing Usinor Sacilor v.
United States, 872 F. Supp. 1000, 1004 (CIT 1994)).
1. Richard Boltuck and Robert E. Litan, eds.,
Down in the Dumps: Administration of the Unfair Trade 10. Report by the Appellate Body on United
Laws (Washington: Brookings Institution Press, States—Anti-Dumping Measures on Certain Hot-Rolled
1991), p. 13. Steel Products from Japan, WT/DS184/AB/R, July
24, 2001, ¶ 154 n. 113.
2. It is often written that the “United States” (as
opposed to the U.S. government) won or lost this 11. Ibid., ¶ 148.
or that dispute—a shorthand that carries the
assumption that the whole nation is united behind 12. Ibid., ¶ 157.
the position taken by the government, and that 13. Panel Report, Stainless Steel from Korea, ¶¶
that position reflects the overall national interest. 6.119, 6.122.
That assumption is certainly not warranted with
respect to the U.S. government positions in WTO 14. See § 777A(b) of the Tariff Act of 1930 (“The
disputes regarding the U.S. trade remedy laws. authority to select averages and statistically valid sam-
ples shall rest exclusively with the administering
3. For an analysis of the U.S. interest in a healthy authority”). Furthermore, the U.S. antidumping reg-
WTO, see Daniel T. Griswold, “WTO Report Card: ulations provide: “When applying the average-to-aver-
America’s Economic Stake in Open Trade,” Cato age method, the Secretary normally will calculate
Institute Trade Briefing Paper no. 8, April 3, 2000. weighted averages for the entire period of investiga-
For a response to charges that WTO rules under- tion or review, as the case may be. However, when nor-
mine U.S. sovereignty, see William H. Lash III and mal values, export prices, or constructed export prices
Daniel T. Griswold, “WTO Report Card II: An differ significantly over the course of the period of
Exercise or Surrender of U.S. Sovereignty?” Cato investigation or review, the Secretary may calculate
Institute Trade Briefing Paper no. 9, May 4, 2000. weighted averages for such shorter period as the
4. For a full discussion of this point, see Brink Secretary deems appropriate.”
Lindsey, “The U.S. Antidumping Law: Rhetoric ver- 15. See 19 C.F.R. §351.414(d)(3).
sus Reality,” Cato Institute Trade Policy Analysis
no. 7, August 16, 1999. 16. Lindsey, p. 8.
5. For an analysis of the worldwide spread of 17. Panel Report, Hot-Rolled Steel from Japan, ¶ 7.73.
antidumping laws, see Brink Lindsey and Dan
Ikenson, “Coming Home to Roost: Proliferating 18. Ibid., ¶ 7.90; and Appellate Body Report, Hot-
Antidumping Laws and the Growing Threat to Rolled Steel from Japan, ¶ 130.
U.S. Exports,” Cato Institute Trade Policy Analysis
no. 14, July 30, 2001. 19. Report of the Panel on United States—Anti-Dumping
Duty on Dynamic Random Access Memory Semiconductors
6. Report of the Panel on United States—Anti- (DRAMS) of One Megabit or Above from Korea,
Dumping Measures on Stainless Steel Plate in Coils and WT/DS99/R, January 29, 1999. The panel ruled in
Stainless Steel Sheet and Strip from Korea, WT/ favor of the U.S. government on Korea’s claims that
DS179/R, December 22, 2000, ¶ 6.75. All WTO (1) Article 11.2 of the Antidumping Agreement
panel and Appellate Body reports are available at requires revocation as soon as a foreign exporter is
http://www.wto.org. found to have ceased dumping; (2) Article 11.2

17
requires the United States to initiate an administra- 32. Report by the Panel on Thailand—Anti-Dumping
tive review, based solely on the absence of dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy
for three and one-half years; (3) the U.S. 0.5 percent de Steel and H-Beams from Poland, WT/DS122/R,
minimis standard for the postinvestigation phase of September 28, 2000, ¶¶ 7.229, 7.231; Panel Report,
an antidumping proceeding was precluded by the EC—Bed Linen from India, ¶ 6.162; Report by the Panel
Antidumping Agreement’s de minimis rule for the on Guatemala—Definitive Anti-Dumping Measures on
investigation phase; (4) Korea could use rules govern- Grey Portland Cement from Mexico, WT/DS156/R,
ing post-WTO administrative reviews to challenge October 24, 2000, ¶ 8.283; and Report by the Panel
pre-WTO antidumping determinations. on Mexico—Anti-Dumping Investigation of High Fructose
Corn Syrup from the United States, WT/DS132/R,
20. The test was set forth in the former 19 C.F.R. January 28, 2000, ¶ 7.128.
353.25(a)(2)(ii).
33. Panel Report, Thailand—Angles, Shapes and
21. See Panel Report, DRAMs from Korea, ¶ 6.51. Sections, ¶¶ 7.229, 7.231.
22. See ibid., ¶ 6.54 n. 499. 34. Report by the Appellate Body on Thailand—
Antidumping Duties on Angles, Shapes and Sections of
23. 19 C.F.R. § 351.222(b)(1)(B). When the U.S. gov- Iron or Non-Alloy Steel and H-Beams from Poland,
ernment applied this new legal standard to a reconsid- WT/DS122/AB/R, March 12, 2001, ¶ 128.
eration of Korea’s revocation request, it again decided
to continue the DRAMs order by concluding that it 35. Third Party Submission by the United States on
was “necessary” to offset dumping. Korea challenged Thailand—Anti-Dumping Duties on Angles, Shapes and
this second determination, accusing the U.S. govern- Sections of Iron or Non-Alloy Steel and H-Beams from
ment of circumventing the panel’s recommendations. Poland, WT/DS122, February 21, 2000, ¶¶ 6–7.
The parties settled the dispute late last year, heading
off a WTO panel’s ruling on the compliance issue. 36. Panel Report, Mexico—High Fructose Corn Syrup,
¶ 7.121.
24. 19 U.S.C § 1677(7)(C)(iv).
37. Report by the Panel on United States—Measures
25. Appellate Body Report, Hot-Rolled Steel from Affecting Imports of Woven Wool Shirts and Blouses from
Japan, ¶ 211. India, WT/DS33/R, January 6, 1997, ¶¶ 5.35, 5.42.
26. Ibid., ¶ 214. 38. Ibid.
27. Report of the Panel on United States—Anti- 39. Panel Report, Guatemala—Cement, ¶ 8.36.
Dumping Act of 1916 (complaint by the European
Communities), March 31, 2000, WT/DS136/R; 40. Ibid., ¶ 8.52.
and Report of the Panel on United States—Anti-
Dumping Act of 1916 (complaint by Japan), 41. Ibid., ¶¶ 5.138, 5.140.
WT/DS136/R, May 29, 2000.
42. Information on initiations of CVD investigations
28. Report by the Appellate Body on United States— was obtained from the Commerce Department’s
Anti-Dumping Act of 1916, WT/DS136/AB/R, WT/ Web site, http://ia.ita.doc.gov/stats/cv8099.htm.
DS162/AB/R, August 28, 2000, ¶ 137.
43. Report by the Appellate Body on United
29. Award of the Arbitrator, United States—Anti- States—Imposition of Countervailing Duties on Certain
Dumping Act of 1916, WT/DS136/AB/R, WT/ Hot-Rolled Lead and Bismuth Carbon Steel Products
DS162/AB/R, February 28, 2001. Originating in the United Kingdom, WT/DS138/
AB/R, May 10, 2000, ¶ 58 (emphasis added).
30. Report by the Appellate Body on European
Communities—Anti-Dumping Duties on Imports of 44. Ibid., ¶ 62 (emphasis in original).
Cotton-Type Bed Linen from India, WT/DS141 /AB/R,
March 1, 2001, ¶ 58. See also Report by the Panel 45. Delverde, SrL v. United States, 202 F.3d 1360
on European Communities—Anti-Dumping Duties on (Fed. Cir.), February 2, 2000, rehearing denied,
Imports of Cotton-Type Bed Linen from India, June 20, 2000.
WT/DS141/R, October 30, 2000, ¶ 6.117. 46. Certain Pasta from Italy, Final Results of Commerce
31. Indeed, respondents in U.S. antidumping Department Redetermination Pursuant to Court
cases have begun to cite the EC—Bed Linens deci- Remand in Delverde, SrL v. United States (December 4,
sion in protest of Commerce’s own zeroing prac- 2000); and Stainless Steel Plate in Coils from Italy, Final
tice. Commerce thus far has refused to acknowl- Results of Commerce Department Redetermination
edge that the WTO ruling has any relevance to its Pursuant to Court Remand in Acciai Speciali Terni S.p.A
administration of U.S. law. v. United States (December 19, 2000).

18
47. The new methodology is also being challenged 1986; Certain Canned Tuna Fish, Inv. no. TA-201-53,
in several cases pending before the U.S. Court of Pub. 1558, August 1984; Mushrooms, Inv. no. TA-
International Trade. The author is involved in 201-3, USITC Pub. 1089, August 1980; and Honey,
some of this litigation. Inv. no. TA-201-14, USITC Pub. 781, June 1976.
While the WTO complaint against the lamb safe-
48. Report of the Panel on United States—Measures guards measure, including the “continuous line of
Treating Export Restraints as Subsidies, WT/DS194 production” and “substantial coincidence of inter-
/R, June 29, 2001. ests” test, was still pending, the ITC used the test in
another case, Crabmeat from Swimming Crabs, Inv. no.
49. Ibid., ¶ 8.75. TA-201-71, USITC Pub. 3349, August 2000.
50. In its preliminary determination in the latest CVD 61. Report by the Panel on United States—Definition
investigation of softwood lumber from Canada, of Industry Concerning Wine and Grape Products,
Commerce did not address whether Canadian restric- adopted by the Committee on Subsidies and
tions on log exports constitute a countervailable sub- Countervailing Measures, April 28, 1992, SCM/71,
sidy. That omission is likely a response to the WTO BISD 39S/436; and Report by the Panel on
ruling. It remains to be seen, however, if the issue will Canada—Imposition of Countervailing Duties on Imports
surface later in the investigation. of Manufacturing Beef from the EEC, October 13,
1987, not adopted, SCM/85.
51. 19 U.S.C. §§ 2251–53.
52. 19 U.S.C. § 2253(a)(2) (setting forth list of fac- 62. Panel Report, Lamb Meat, ¶ 7.77.
tors that must be considered). 63. Ibid., ¶ 7.109 (reviewing past GATT cases
rejecting the same test and concluding that “sep-
53. 19 U.S.C. § 2252(b)(1)(B).
arability of operations and data between different
54. Report by the Appellate Body on United stages of production, rather than vertical integra-
States—Definitive Safeguard Measures on Imports of tion, common ownership, continuous lines of
Wheat Gluten from the European Communities, WT/ production, economic interdependence or sub-
DS166 /AB/R, December 22, 2000, ¶ 91 (empha- stantial coincidence in economic interests are rel-
sis in original). evant for determining the scope of the industry in
consistency with SG Article 4.1(c)”).
55. Report by the Appellate Body on United States—
Safeguard Measures on Imports of Fresh, Chilled or Frozen 64. Article 802 of NAFTA provides in relevant part:
Lamb Meat from New Zealand and Australia, WT/
Any Party taking an emergency action
DS177/AB/R, WT/DS178/AB/R, May 1, 2001, ¶ 185.
under Article XIX or any such agreement
56. Ibid., ¶ 168, quoting Appellate Body Report, shall exclude imports of a good from each
Wheat Gluten, ¶ 69. other Party from the action unless:
(a) imports from a Party, considered
57. Report by the Panel on United States—Safeguard individually, account for a substantial
Measures on Imports of Fresh, Chilled or Frozen Lamb share of total imports
Meat from New Zealand and Australia, WT/DS178/R, (b); and imports from a Party, considered
December 21, 2000, ¶¶ 7.29, 7.31. individually, or in exceptional circum-
stances imports from Parties considered
58. Ibid., ¶ 7.42. collectively, contribute importantly to
the serious injury, or threat thereof,
59. See Request for Establishment of a Panel by caused by imports.
Korea, United States—Definitive Safeguard Measures
on Imports of Circular Welded Carbon Quality Line See also NAFTA Implementation Act, Public. Law
Pipe from Korea, WT/DS202/4, September 15, no. 103-182, sec. 312(b), 19 U.S.C. § 3372(b) (pro-
2000; and Request for Consultations by the hibiting U.S. president from imposing safeguards
European Communities, United States—Definitive against NAFTA-origin products unless conditions
Safeguard Measures on Imports of Steel Wire Rod and specified in Article 802 of NAFTA are satisfied).
Circular Welded Quality Line Pipe, WT/DS214/1,
December 7, 2000. 65. Report by the Appellate Body on Argentina—
Safeguard Measures on Imports of Footwear, WT/
60. Lamb Meat, Inv. no. TA-201-68, USITC Pub. DS121/AB/R, January 12, 2000.
3176, April 1999. The same test had been applied by
the ITC in a number of previous safeguards investi- 66. Appellate Body Report, Wheat Gluten, ¶ 98.
gations. See Fresh Tomatoes and Bell Peppers, Inv. no.
TA-201-66, USITC Pub. 2985, August 1996; Apple 67. NAFTA Implementation Act, § 312(a)(2) at 19
Juice, Inv. no. TA-201-59, USITC Pub. 1861, June U.S.C. § 3372(a)(2).

19
68. See Request for Consultations, EC Steel Wire Rod. In by any contracting party to any product originat-
a separate WTO complaint, Korea is challenging the ing in or destined for any other country shall be
NAFTA exclusion as applied. Request for Establish- accorded immediately and unconditionally to the
ment of a Panel, Korean Circular Welded Line Pipe. like product originating in or destined for the ter-
ritories of all other contracting parties.” Moreover,
69. The most-favored nation principle is embodied Article 2.2 of the Safeguards Agreement provides
in GATT Article I:1, which provides that “any that safeguard measures shall be applied to “a
advantage, favour, privilege or immunity granted product being imported irrespective of its source.”

20
Board of Advisers CENTER FOR TRADE POLICY STUDIES
James K. Glassman
American Enterprise
Institute T he mission of the Cato Institute’s Center for Trade Policy Studies is to increase public
understanding of the benefits of free trade and the costs of protectionism. The center
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Lawrence Kudlow encourages greater productivity and innovation. Those benefits are available to any country
Kudlow & Co. that adopts free-trade policies; they are not contingent upon “fair trade” or a “level playing
field” in other countries. Moreover, the case for free trade goes beyond economic efficiency.
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International Center for people in peaceful cooperation and mutual prosperity.
Pension Reform
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Other Trade Studies from the Cato Institute
Walter B. Wriston
Former Chairman and
CEO, Citicorp/Citibank
“Safe Harbor or Stormy Waters? Living with the EU Data Protection Directive” by Aaron
Lukas, Trade Policy Analysis no. 16 (October 30, 2001)
Clayton Yeutter
Former U.S. Trade “Trade, Labor, and the Environment, How Blue and Green Sanctions Threaten Higher
Representative Standards” by Daniel T. Griswold, Trade Policy Analysis no. 15 (August 2, 2001)

“Coming Home to Roost: Proliferating Antidumping Laws and the Growing Threat to U.S.
Exports” by Brink Lindsey and Dan Ikenson, Trade Policy Analysis no. 14 (July 30, 2001)

“Missing the Target: The Failure of the Helms-Burton Act” by Mark A. Groombridge,
Trade Briefing Paper no. 12 (June 5, 2001)

“Free Trade, Free Markets: Rating the 106th Congress” by Daniel T. Griswold, Trade Policy
Analysis no. 13 (March 26, 2001)

“The Case for Open Capital Markets” by Robert Krol, Trade Briefing Paper no. 11 (March
15, 2001)

“America’s Record Trade Deficit: A Symbol of Economic Strength” by Daniel T. Griswold,
Trade Policy Analysis no. 12 (February 9, 2001)

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