Introduction
WTO Members who initiate and conduct safeguard investigations are required to abide by the requirements of both, the WTO Safeguards Agreement as well as GATT, Article XIX. Article XIX: 1(a) of GATT states, in relevant part, as follows:
“If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession.”
The object and purpose of Article XIX is, to allow a member to re-adjust temporarily, the balance in the level of concessions between that member and other exporting members when it is faced with ‘unexpected’ circumstances which cause or threaten serious injury to domestic producers of like or directly competitive products.
Three legal prerequisites as set out in Article XIX:1(a) of GATT are (a) unforeseen developments; (b) obligations undertaken under GATT, including tariff concessions; and (c) the two factors stated above cause increased imports.
Obligations
The Appellate Body in Argentina-Footwear (EC) opined that it must be demonstrated, that the importing member has incurred obligations under the GATT 1994, including tariff concessions [see end note 1]. The contours of such “obligations”, however, have not been defined. Yet, the investigating authorities should not presume that by becoming members of the WTO and by binding themselves to some commitments other than tariff concessions, they automatically meet this requirement of Article XIX: 1(a). Instead, such an examination should be done on a case by case basis. In Dominican Republic – Polypropylene Bags and Tubular Fabrics, the Panel held that the importing Member must have incurred obligations under the GATT 1994, for example, tariff concessions with respect to the product in question; it then falls on the importing Member to identify those obligations incurred under the GATT 1994 that are linked with the increase in imports causing serious injury to its domestic industry; these findings and conclusions must be reflected in the report of the competent authority. India does not appear to have examined this aspect in this manner in any of its findings so far.
Unforeseen development
It means the circumstances which were unforeseen or unexpected at the time of entry into force of WTO Agreement and at the time of incurring such obligation [see end note 2]. Mere listing of certain developments as unforeseen developments will not be sufficient. The investigating authority shall demonstrate why such developments are considered unforeseen. Therefore, if increased imports are caused by factors other than the unforeseen development identified by the investigating authority, the requirement of Article XIX: 1(a) remains unsatisfied.
In terms of procedural obligation, the Appellate Body in US-Lamb has ruled that existence of “unforeseen developments” is a pertinent issue of fact and law under Article 3.1 of the Agreement on Safeguards (AoS) and it is necessary that the published report of the competent authorities, under that article, must contain a finding or reasoned conclusion on unforeseen developments [see end note 3]. Therefore, investigating agencies must clearly show in their finding that the issue of unforeseen development has been examined by the agencies and how the “unforeseen developments” resulted in the increase in imports of the subject goods causing serious injury to the domestic industry.
The demonstration of "unforeseen developments" must be performed for each product subject to a safeguard measure[see end note 4]. It is not sufficient merely to demonstrate that "unforeseen developments" resulted in increased imports of a broad category of products that included the specific products subject to the respective determinations.
However, the Indian practice on existence of unforeseen developments is not in accordance with the AoS and WTO jurisprudence. For example, the panel in Argentina-Preserved Peaches emphasized that increase in imports should not be equated with unforeseen developments whereas the Indian Safeguard authority has held increase in imports itself as “unforeseen development” in a number of its decisions.
Analysis of the findings by India in the last 6 years
Some of decisions of the Indian Safeguard authority Directorate General of Safeguards (“DG Safeguards”) relating to the unforeseen developments are examined here.
Trade remedial actions by USA and EU against exports from China and unexpected drop in consumption in European Markets [see end note 5] were considered to be “unforeseen developments” resulting in increased imports into India. However, the final findings do not contain any data relating to the drop in consumption in European markets and why such drop in consumption was considered unexpected. There is also no evaluation as to whether trade remedy actions by USA is the cause or it is only a remedy to the underlying cause of low priced exports from China to those countries. Since the latter is the real cause, Indian authority has only examined the low export price of the Chinese producers as the unforeseen development.
Low price of raw material in China [see end note 6] has been held to be an unforeseen development resulting in increased imports into India. However, there is no examination as to (a) why the low prices of raw materials in China are considered to be unforeseen; (b) whether the said prices in China were higher in the past and fell down unexpectedly or the prices existed at lower levels throughout. In fact this decision is contrary to what the Panel has stated in Chile – Price Band System and Safeguard Measures relating to certain agricultural products where Chile had not set forth reasoned findings as to as to why the reported "sizeable and rapid decrease in international prices" could be regarded as an unforeseen development.
Increase in production (of DOP) in China reduced the market opportunity to the producers in other countries such as Korea and Taiwan and these producers were forced to look around for other markets such as India that caused increased imports to India from Korea and Taiwan [see end note 7]. However, a perusal of the underlying data shows a somewhat skewed trend. For instance drop in Korean exports of DOP to China from 2007 to 2011 was over 108,000 MT but exports to India rose only by 3,374 MT during the same period. Such an increase could be more appropriately attributed to the normal increase over the said period and could not be attributed to any “unforeseen developments”. Thus, the analysis and conclusions of the Indian authority were not supported by the underlying data.
Slowdown in the end markets of Europe and America from 2009 onwards and the crises in Spain, Italy, Portugal, Greece and Ireland resulted in surplus production worldwide in comparison to available capacity since plants had to operate at sufficient run rates to achieve economies of scale. The surpluses for the industry were channeled into India. These developments were held to be unforeseen. In addition, imposition of antidumping duty by China and Pakistan on the imports from Korea and Taiwan was also considered to be an unexpected development [see end note 8]. The first reasoning appears to be ‘unforeseen’ but the second one was a remedy instituted by a government and not a cause as stated earlier.
Excess capacity in major exporting countries and increasing Indian demand were found to be the reasons for increase in imports. Without assigning any reasons and without examination, the Indian authority has held that the said developments to be ‘unforeseen developments’[see end note 9].
Special relationship between a Chinese and a South Korean producer as well as recession in the global market leading to significant drop in demand for the product in developed countries and China [see end note 10] were considered to be “unforeseen developments” resulting in increased imports into India. However, the final finding does not contain any data on how the special relationship between the two companies resulted in an increase in imports into India.
Unexpected fall in demand worldwide on account of recession coupled with the imposition of export duty on basic raw material from which users in exporting country are immune[see end note 11] were considered to be “unforeseen development” resulting in increased imports into India. However, the final finding does contain any analysis on how the imposition of export duty on the basic raw material has resulted in increase in imports of the finished product into India. Also simply listing unexpected fall in demand worldwide on account of recession without analyzing how it would lead to increased imports into India is not sufficient to meet the requirements of WTO law and jurisprudence.
Interestingly, India has also held that “additional capacities in China PR and new capacities planned in United States and unforeseeably low pricing of imports despite increase in material cost”[xii] did not constitute unforeseen developments. Thus, no consistent trend emerges as to what would constitute ‘unforeseen developments’.
Conclusion
It can be concluded that the safeguard measure should only be applied in emergency situations as a measure to protect the domestic industry against increased imports, resulting from unforeseen developments under such conditions to cause serious injury to the domestic industry. India’s determinations with regard to ‘unforeseen development’ have improved over time but lack consistency in application. Further, India is yet to determine whether the increased imports were an effect of obligations undertaken under GATT including tariff concessions.
[The author is an Associate, International Trade Team, Lakshmikumaran & Sridharan, New Delhi]
End Notes:
- Appellate Body Report, Argentina-Safeguard Measures on Import of Footwear, para 91
- Appellate Body Report, Argentina-Safeguard Measures on Import of Footwear, para 96
- Appellate Body Report, US-Safeguard measures on imports of fresh, chilled or frozen lamb from New Zealand and Australia, para 76
- United States - Definitive Safeguard Measures on Imports of Certain Steel Products (DS248, DS249, DS251, DS252, DS253, DS254, DS258, DS259)
- Final finding dated 11th March 2014 issued by DG Safeguards concerning imports Seamless Pipes and Tubes into India, page 145
- Final finding dated 31st July 2012 issued by DG Safeguards concerning imports of Carbon Black(China Specific safeguard measure)
- Final finding dated 16th November 2012 issued by DG Safeguards concerning imports of Dioctyl Phthalate (DOP) into India, Para 39
- Final finding dated 29th March 2012 issued by DG Safeguards concerning imports of Phthalic Anhydride (PAN) into India
- Final finding dated 17th September 2013 issued by DG Safeguards concerning imports of Sodium Nitrite into India, para 52
- Final finding dated 6th June 2011 issued by DG Safeguards concerning imports of PX-13 or 6-PPD into India, para 214
- Final finding dated 14th May 2009 issued by DG Safeguards concerning imports of Dimethoate Technical into India
- Final finding dated 11th March 2014 issued by DG Safeguards in Seamless Pipes & Tubes investigation, page 145