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This article is written by Rishabha Meena. The article discusses the Impact of increased U.S. tariffs on imported washers, solar panels on the Indian Market.

The issue here is with regard to the legality of the tariff imposed by the United States on imported washing machines and solar cells. A tariff is imposed on imported washing machines and solar cells by the US. It is inconsistent with Agreement on Safeguards [AoS] and the General Agreement on Tariffs and Trade, 1994 [GATT]. The Agreement on Safeguards and Article XIX of GATT deal with the application of safeguard measures and before any such measure is imposed, the conditions under both the provisions must be satisfied.

Non-compliance with Article 12 of the AoS and XIX 12 of the GATT

Under Article XIX:2 of the GATT and Article 12.3 of the AoS, it is mandatory to provide an opportunity to the exporting countries to participate in consultations with the importing country before the imposition of a safeguard measure. This obligation has been ignored by the U.S.[1]

Article XIX:2 of GATT contains two obligations, first,  is the granting of a notice in writing before taking action pursuant to Article XIX:1(a) and the second, is the opportunity to hold consultations in respect of proposed action.

The word ‘shall’ in Article 12.3 of the AoS indicates the provision is not merely hortatory. As noted by the Panel in U.S.-Wheat Gluten,[2] Article 12.3 of the AoS allows the exchange of views and hence enables the exporting members to reach an equivalent level of concessions. Under Article 12.3 of the AoS, information on the measure must be provided in advance so that the measure can be correctly addressed during the consultations. In U.S.-Line Pipe,[3] the Panel expressly stated that non-compliance with Article XIX of the GATT and Article 12.3 of the AoS results in inconsistency with the AoS.

Under Article 12.4 of the AoS, a country must notify the Committee on Safeguards regarding the proposal of the imposition of a safeguard measure, i.e. before actual imposition. The importance of this provision as stated in Korea—Dairy,[4] is that it allows any interested Member to decide whether to request consultations with the importing country and persuade the latter to modify the proposed measure and/or reach an agreement on compensation.

Thus, US has not complied with this obligation. Therefore, the imposition of the measure is invalid even if there exists a situation of imposition of safeguard measure.

The non-existence of the critical circumstances so as to be exempted from consultation

Article XIX:2 resembles Article 6 of the AoS. These provisions exempt the country from having consultations if there exist any ‘critical circumstances’. ‘Critical circumstances’ include the situations of precarious finances of companies, high unemployment, decrease in production and decline in capacity utilization reflected in the decreasing share of that industry in the GDP due to increase in imports.[5]

There is no critical circumstance in the U.S. as per the fact sheet released by the U.S. Trade Representative which would exempt it from having a consultation.

Analysis under Article 6 of the AoS

Although the imposition of provisional safeguard measures is allowed under Article 6 of the AoS, but critical circumstances must exist in the importing country and a preliminary determination showing evidence that the increasing imports might cause serious injury must be made. Further, under, Article 6 of the AoS, a provisional safeguard measure can exist for maximum 200 days.

Insufficiency and validity of data

In Argentina-Footwear (EC),[6] the panel stated that mere presentation of data and conclusion is not sufficient, there must be reasoned explanation which links the data to the conclusion. According to Committee on Safeguards, Systemic Concerns with Certain Safeguard Proceedings, the hasty imposition of safeguards in a very short period of time without any basis in ‘clear evidence’ has been recognized as a systemic concern regarding the application of safeguard.[7]

As per the fact sheet released by the U.S. Trade Representative,[8] washing machines were allegedly dumped and their production subsidized. Consequently, U.S. manufacturers filed a case against this and consequently, the producers shifted to China, then to Thailand and Vietnam. With regard to Solar Cells, it states that from 2012-2017, 25 domestic companies have closed. It also states that only two producers and eight firms remain viable, but is silent on the total number of producers and firms in the U.S. domestic market.

The data released by USTR is based on insufficient evidence as USTR Report is silent on the aspect of total number of manufacturer and firm in its domestic market.

The existence of critical circumstances

Critical circumstances refer to a situation where damage would be difficult to repair in addition to there being a causal link between the import and the injury caused. This test for critical circumstances is similar to Article 2.1 of the AoS. In Argentina-Footwear, the Panel refused to adjudicate Article 6 on the ground that the measure already violated Article 2 of the AoS.

First, increased import means that the import is recent, sudden, i.e. over a relatively short period of time, sharp, and significant.[9] It is determined by taking into account the rate, as well as amount of increase, must be considered.[10] The increase in import must be the result of unexpected development.[11] In US – Steel Safeguards, it was held that member imposing the measure must give reasoned and adequate explanation of unforeseen development and the effects of tariff concessions resulted in increased imports causing or threatening to cause serious injury to the relevant domestic producers.[12]

The USTR Fact Sheet states that import of washer increased dramatically from 2012-2016 which does not lead to the conclusion that increase in import was recent and sudden. Further, the Fact Sheet is silent upon the amount as well as rate of increase in import. Thus, there is no increased import.

Second, serious injury is a significant overall impairment in the position of a domestic industry.[13] Domestic industry is determined by (i) the products at issue; and (ii) the number and the representative nature of the producers of these products[14].

Although, there is serious injury to the domestic industry which is evident from the fact that by 2017, two producers of both solar cells and modules, and eight firms that produced modules using imported cells, remained viable.[15]

Third, there is no causal link between the increased import and the serious injury as there is no increased import in the first place.

Thus, there is no critical circumstance so as to apply the safeguard measure.

Further, the U.S. imposition of tariff on the washing machines and the solar panels is inconsistent with AoS as there is no critical condition and it is being imposed for a period longer than 200 days. There does not exist any causal link between the import and injury.  Further, the report by U.S.T.R. has been given in a very short period of time and it is not based on any ‘clear evidence’ as per the above principle.

A tariff is tax or duty to be paid on a particular class of imports or exports.

Violation of Article 2.2 of the AoS

According to a report,[16] the measure excludes some countries, citing “legally-mandated thresholds of import share and injury to domestic producers which must be met to qualify.” This violates Article 2.2 of the AoS according to which the measure should be applied on the imported goods irrespective of its source. It is, therefore, accepted that if a WTO Member wants to apply a safeguard, it must apply it to all imports including those specific imports or sources of importation that do not cause injury.

Conclusion

Thus, the safeguard measure is in violation of the AoS and the GATT.

[1] Amiti Sen, US rejects India’s request for talks on steel, aluminium tariffs under safeguards pact, Hindustan Times (April 19, 2018), https://www.thehindubusinessline.com/news/world/us-rejects-indias-request-for-talks-on-steel-aluminium-tariffs-under-safeguards-pact/article23606686.ece

[2] Panel Report, United States – Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities, WT/DS166/R, adopted 19 January 2001, as modified by Appellate Body Report WT/DS166/AB/R, DSR 2001:III, p. 779, ¶ 8.202.

[3] Panel Report, United States – Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea, WT/DS202/R, adopted 8 March 2002, as modified by Appellate Body Report WT/DS202/AB/, DSR 2002:IV, p. 1473, ¶ 7.303.

[4] Panel Report, Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS98/R and Corr.1, adopted 12 January 2000, as modified by Appellate Body Report WT/DS98/AB/R, DSR 2000:I, p. 49, ¶ 7.128.

[5] Panel Report, Argentina – Safeguard Measures on Imports of Footwear, WT/DS121/R, adopted 12 January 2000, as modified by Appellate Body Report WT/DS121/AB/R, DSR 2000:II, p. 575, ¶ 5.424.

[6] supra note 4, ¶ 8.225.

[7] Committee on Safeguards, Systemic Concerns with Certain Safeguard Proceedings, G/SG/W/226, p. 1 (Oct. 5, 2012),

[8] FACT SHEET, Section 201 Cases: Imported Large Residential Washing Machines and Imported Solar Cells and Modules,https://ustr.gov/sites/default/files/files/Press/fs/201%20FactSheet.pdf, Accessed on 23rd April, 2018.

[9] Appellate Body Report, Argentina – Safeguard Measures on Imports of Footwear, WT/DS121/AB/R, adopted 12 January 2000, DSR 2000:I, p. 515, ¶. 131.

[10] Article 4.2, Agreement on Safeguards.

[11] Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS98/AB/R, adopted 12 January 2000, DSR 2000:I, p. 3, ¶ 85.

[12] Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Certain Steel Products, WT/DS248/AB/R, WT/DS249/AB/R, WT/DS251/AB/R, WT/DS252/AB/R, WT/DS253/AB/R, WT/DS254/AB/R, WT/DS258/AB/R, WT/DS259/AB/R, adopted 10 December 2003, DSR 2003:VII, p. 3117, ¶ 289-281.

[13] Article 4.1, Agreement on Safeguards.

[14] Article 4.1(c), Agreement on Safeguards.

[15] supra note 8.

[16] US President Confirms Hefty Tariffs on Solar Products, Washing Machines, https://www.ictsd.org/bridges-news/bridges/news/us-president-confirms-hefty-tariffs-on-solar-products-washing-machines, Accessed on 23rd April, 2018.

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