Is Imposition of Tariffs by the U.S. on Imported Washing Machines and Solar Panels Legal?

By: Rishabha Meena


INTRODUCTION

The issue here is with regard to the legality of the tariff imposed by the United States on imported washing machines and solar cells. It is inconsistent with the Agreement on Safeguards (hereinafter ‘AoS’) and the General Agreement on Tariffs and Trade, 1994 (hereinafter ‘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 that 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, the US has not complied with this obligation. Therefore, the imposition of the measure is invalid even if there exists a situation of the imposition of the safeguard measure.

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, a 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, 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 was subsidised. Consequently, U.S. manufacturers filed a case against this. As a result of it, the producers shifted to China, then to Thailand and Vietnam. With regard to Solar Cells, it states that from 2012-2017, twenty-five 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 a total number of manufacturer and firm in its domestic market.

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 the 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 a reasoned and adequate explanation of the 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 the increase in import was recent and sudden.[13] Further, the Fact Sheet is silent upon the amount as well as the 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.[14] Domestic industry is determined by (i) the products at issue, and (ii) the number and the representative nature of the producers of these products.[15]

Although, there is a 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.[16]

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 tariffs 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 USTR. has been given in a very short period of time and it is not based on any ‘clear evidence’ as per the above principle.

VIOLATION OF ARTICLE 2.2 OF THE AoS

According to a report,[17] 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 to 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

South Korea took this matter to WTO on May 14, 2018.[18] The reason for the increase in the tariff is due to the dumping of the washing machine by South Korea and subsequent circumvention of US’s imposed anti-dumping duty by South Korea.[19] Rather than increasing the tariff under the garb of safeguard and hence distorting the international trade, the US could have focused on the reformation of its laws pertaining to the circumvention of the anti-dumping duties. Such incidents also give rise to the immediate concern for the implementation of the laws pertaining to circumvention of anti-dumping duty at international level. To conclude, whatever be the reason, the implantation of safeguard measures should be consistent with the WTO Agreement and its covered Agreement which is not so in case of the US and hence its action of the increase in the tariff is inconsistent with its obligation under WTO.

[1] Amiti Sen, ‘US rejects India’s request for talks on steel, aluminium tariffs under safeguards pact Hindustan Times’ (19 April 2018).

[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, 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, 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.

[5] Argentina – Safeguard Measures on Imports of Footwear, WT/DS121/R adopted 12 January 2000.

[6] ibid (n 4) [8.225].

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

[8] Fact Sheet s201 ‘Imported Large Residential Washing Machines and Imported Solar Cells and Modules’ <https://ustr.gov/sites/default/files/files/Press/fs/201%20FactSheet.pdf&gt; accessed 23 April 2018.

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

[10] Agreement on Safeguards art 4.2.

[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, 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, 3117 [289-281].

[13] ibid (n 8).

[14] Agreement on Safeguards art 4.1.

[15] Agreement on Safeguards art 4.1(c).

[16] ibid (n 8).

[17] ‘US President Confirms Hefty Tariffs on Solar Products, Washing Machines’ (International Centre for Trade and Sustainable Development) <https://www.ictsd.org/bridges-news/bridges/news/us-president-confirms-hefty-tariffs-on-solar-products-washing-machines> accessed 23 April 2018.

[18] Reuters Team, ‘Factbox: Crossfire of tariffs as Trump rattles world trade order, Reuters (2 July 2018), https://www.reuters.com/article/us-usa-trade-factbox/factbox-crossfire-of-tariffs-as-trump-rattles-world-trade-order-idUSKBN1JS0C0&gt; accessed 6 August 2018.

[19] Stephen Olson, Trump Tariffs, 101, The Diplomat (30 May 2018) <https://thediplomat.com/2018/05/trump-tariffs-101/&gt; accessed 6 August 2018.


(Rishabha is currently a student at National Law University, Jodhpur.)

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