Safeguard Measures: Why Are They Not Applied Consistently With the Rules? Lessons for Competent National Authorities and Proposa

26/08/2008 12:00 - 1487 total view

Yong-Shik Lee

 

On 5 March 2002, President Bush of the United States (hereinafter “US”), following the recommendation previously made by the United States International Trade Commission (USITC), announced the decision to apply a safeguard measure to imports of steel products in the form of increased tariffs up to 30 percent. This announcement immediately made headlines around the world and invited swift and furious responses from the international community. Only two days after the US decision, the European Union (EU) filed a complaint with the Dispute Settlement Body of the World Trade Organization, also threatening to retaliate against imports from the United States. Several other countries including Japan, South Korea, Switzerland, Venezuela, Norway and China shortly afterwards joined with the EU for the complaint against the US measure. A dozen other countries, including non-WTO Members such as Russia, have criticized the US action as frustrating international efforts for free trade and expressed their intent to challenge the US decision. The strong reaction from the international community signifies the critical impact of safeguard measures on international trade.

“Safeguard measures” or “safeguards” refer to emergency import restrictions applied under the WTO Agreement on Safeguards and GATT Article XIX. They are applied to prevent or remedy serious injury to domestic industry caused by rapid increases in imports. Unlike anti-dumping actions and countervailing duties, safeguard measures are applicable regardless of the existence of any unfair trade practices on the part of exporters. Safeguard measures are significant as they interfere with legitimate trade through unilateral restrictions on imports, and therefore, their abuse may well lead to the destabilization of the world trading system.

Safeguard measures were introduced in the world trading system as part of the GATT provisions.  Article XIX governed the application of a safeguard measure. Article XIX comprised only five paragraphs but lacked detailed procedural and substantive rules on the application of safeguards, causing ambiguities and confusion in the discipline of safeguards.3 Recognizing this problem and the critical importance of the effective discipline on import restrictions, the negotiators in the Uruguay Round agreed to establish more clear and detailed rules on safeguards, named the Agreement on Safeguards (hereinafter, “Safeguards Agreement” or “SA”). The Safeguards Agreement has been hailed as a substantial achievement of the Uruguay Round, “indeed a heroic statement of principle”. Although the SA is a much more comprehensive and enhanced set of rules than its predecessor, Article XIX, it is nevertheless not without flaws, and the inherent ambiguities in some of its provisions have caused subsequent disputes in the application of safeguard measures. As of March 2002, six disputes concerning the application of safeguard measures have been referred to the panels of the WTO Dispute Settlement Body (“DSB”) established under Article 6 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”).6 The panels and the permanent Appellate Body of the DSB have made their decisions in five disputes amongst them, finding none of the disputed measures consistent with the WTO rules on safeguards. As many as a quarter of all safeguard measures ever imposed were formerly disputed in the WTO Panel proceedings and subsequently found inconsistent with the rules on safeguards.

In contrast, less than 2 percent of anti-dumping measures were ever disputed in the WTO Panel proceedings. The high rate of disputes and successful challenges signify the apparent inability of Members to comply with the current rules. Alternatively, the rules themselves may have been made or interpreted by the panels and the Appellate Body in such a way to cause considerable difficulties for Members to comply with them. Either way, the problem has to be addressed since the continuing failure of Members to observe the rules on safeguards would compromise the stability and integrity of the discipline on safeguards. Where necessary, the modification of the rules needs to be also considered in order to remove any significant ambiguities in the text of the relevant rules. This article discusses recurring problems in the application of safeguard measures, provides advice to competent national authorities and also makes suggestions for the modification of the rules on safeguards. This article also provides a discussion on the highly publicized US steel safeguard measure which has been recently applied.