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Tuesday, March 23, 2010

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 that it initiate an investigation under Section 421 of the Trade Act of 1974, a trade remedy statute addressing import surges from China, to examine whether Chinese passenger vehicle and light truck tires were causing market disruption to U.S. tire producers. Market disruption will be found to occur under Section 421 whenever imports of a Chinese product that is "like or directly competitive with" a domestic product "are increasing rapidly ... so as to be a significant cause of material injury, or threat of material injury, to the domestic industry." The ITC initiated the investigation (TA-421-7) on April 24, 2009. 

As a result of its investigation, the ITC in June 2009 voted 4-2 that imports of the subject tires were causing domestic market disruption and recommended that the President impose an additional duty on these items for three years at an annually declining rate. The ITC also recommended expedited consideration of trade adjustment assistance applications filed by affected firms or workers. On September 11, 2009, President Obama proclaimed increased tariffs on Chinese tires for three years effective September 26, 2009, albeit at lower rates than those recommended by the ITC. The tariff increase is 35% ad valorem in the first year, 30% in the second year, and 25% in the third year. The President also directed the Secretaries of Labor and Commerce to expedite applications for trade adjustment assistance and to provide other available economic assistance to affected workers, firms, and communities. The President may review the tariffs in six months and, after receiving an ITC report on the probable effects of any change, may modify, reduce or terminate them. Although six petitions were filed under Section 421 in the past and the ITC found that market disruption existed in four out of six of its investigations, President Bush decided against providing import relief under the statute in these earlier cases. 

Section 421 was enacted as one element of 2000 legislation that permitted the President to grant most-favored-nation (MFN) tariff treatment to Chinese products upon China's accession to the World Trade Organization (WTO). Section 421 authorizes the President to impose safeguards— i.e., 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 contained in China's WTO Accession Protocol that may be utilized by WTO Members through December 2013. The Protocol 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 generally but on a stricter basis than under the Protocol. A major difference is that the Protocol provision permits a safeguard to be applied only to Chinese products while the Safeguards Agreement requires that a safeguard be applied to a product regardless of its source. 

China filed a WTO complaint against the United States on September 14, 2009, and requested a dispute panel on December 21, 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 China's Accession Protocol without first attempting to justify them under general GATT and WTO safeguard provisions, and that Section 421 and its application in this case violate U.S. obligations under the Protocol. A dispute panel was established on January 19, 2010; panelists were appointed March 12, 2010. This will be the first WTO dispute panel to consider the obligations of an importing WTO Member under the China specific safeguard. 

Date of Report: March 18, 2010
Number of Pages: 29
Order Number: R40844
Price: $29.95

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