Safeguards gain traction at the WTO

News & Insights
Dec 14, 2010

Yesterday a WTO panel upheld the U.S. “special safeguard” tariffs on Chinese tires.  Many will note that this is the first time a WTO body has upheld a U.S. “safeguard” measure.  After the United States lost a string of safeguard cases at the WTO a decade or so ago, the temporary “safeguard” had largely receded from the trade law toolbox until the Chinese tires case in 2009.

That this measure targeted China – a country whose mercantilist trade policies cause concern throughout the world, and presumably in Geneva as well – no doubt played a role in the outcome.  Still, this case presented an unlikely candidate to be the first safeguard action to pass WTO muster.  The original 2009 petition was filed by the United Steelworkers, without the support of a single U.S. tire producer – in fact, the petition was actively opposed by a sizeable portion of tire companies producing here.  If even U.S. producers didn’t want temporary tariff protection from Chinese imports, one might legitimately wonder how strong the argument for imposing tariffs could possibly be.

China argued to the WTO panel – as it did to the U.S. International Trade Commission – that U.S. producers, not Chinese exporters, were responsible for the surge in Chinese tire imports.  According to China, U.S. producers “were engaged in a long-term strategy that led them to voluntarily close high-cost U.S. plants . . . and shift production in the United States towards the higher-end segments of the market” (para. 7.266).  Indeed, the panel noted China’s argument that “U.S. producers are ‘global companies with global sourcing strategies,’ and that their ‘operations in China have enhanced their profitability’” (para. 7.267).  In other words, China’s case against the tariffs was that U.S. producers not only weren’t injured by Chinese imports, they actually benefitted from shifting high-cost U.S. production facilities to low-cost China.  That might explain why no U.S. producer would publicly support the union’s request for duties on Chinese tires.  In any event, the ITC majority didn’t think the evidence, on close examination, supported China’s story, and the WTO panel concluded that, on balance, the ITC analysis was a fair reading of the record. But even if China’s theory were completely true, the ITC and the WTO would have been right to reject this argument.  The trade laws (antidumping, countervailing duty, and safeguard) provide an opportunity for relief when the ITC finds that imports are causing or threatening injury to the “domestic industry.”  When a global company closes a U.S. factory and moves production – and jobs – to China or another low-cost, low-wage, low-regulation environment, that is injury to the domestic industry, and in appropriate cases the trade laws are meant to provide access to a remedy for that injury.  Whether corporations based in the United States can earn greater profits by offshoring production to China or anywhere else isn’t supposed to be relevant.

The WTO has recognized this principle before.  Back in the 1990s, the EU and the United States both brought a WTO case against Indonesia’s lavish subsidies for the car company owned by then-dictator Suharto’s son.  The EU and the United States made several claims, one of them that these subsidies caused “serious prejudice” to their respective domestic auto industries.  Europe won, because it proved that European-made cars would have been sold in Indonesia but for the subsidies.  The United States lost, even though we could have shown that General Motors and Ford also lost market share in Indonesia – but neither GM nor Ford would have made those cars in the United States, and their overseas production is not the “U.S. domestic industry” (para. 14.201).  The Tires panel didn’t cite that case – but it could have, and it came to the same basic conclusion:  The trade laws are there to defend U.S. industries, meaning U.S. production and U.S. jobs – not U.S. offshoring corporations.