Electronic copy available at: http://ssrn.com/abstract=1768345

FLEXIBILITIES, RULES AND TRADE REMEDIES IN THE GATT/WTO SYSTEM

by

J. Michael Finger

Copyright J. Michael Finger February 22, 2011

Electronic copy available at: http://ssrn.com/abstract=1768345

ii

AbstractTrade remedies have served the GATT/WTO system well in that they have provided the mechanisms for Member governments to manage protectionist pressures so that new import restrictions have minimally compromised the momentum of liberalization that negotiations have established. They are however an embarrassment to both legal and economic theory in that in practice they do not limit protection to sensible social or economic circumstances, nor even establish clearly when and when not a Member may apply a restriction. What follows from this conclusion are not suggestions for policy reform, but suggestions for analytical reform, particularly more attention to national institutions for managing trade remedies. The discipline in the system is less a matter of how the WTO regulates, more a matter of how the WTO has helped to shape the evolution of the domestic institutions that regulate.

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Table of Contents

1. The evolution of trade remedy use ............................................................2A Diplomats jurisprudence ..................................................................................................3Negotiated Export Restraints ...............................................................................................5Antidumping ascends ..........................................................................................................6

2. The magnitude of trade remedy usage ......................................................93. The limits on trade remedy application are not what they appear to be .....124. US safeguard measures against imports of steel, 2002-2003.....................14

Background to the case .....................................................................................................15Preempting antidumping ...................................................................................................15Affirmative determination from the USITC ..........................................................................16Managing the application of safeguard restrictions ..............................................................16WTO case.........................................................................................................................17USITC Mid-term review .....................................................................................................17Decision to terminate the restrictions .................................................................................18

5. Conclusions, closing comments and thoughts about further research.........196. References.............................................................................................23

1FLEXIBILITIES, RULES AND TRADE REMEDIES IN THE GATT/WTO SYSTEM

by

J. Michael Finger

Copyright J. Michael Finger February 22, 2011

An institution is an imperfect agent of order and of purpose. ... Intent and chance alike share in its creation. (Walton H. Hamilton, 1963, p. 89)

GATT/WTO provisions such as safeguards and antidumping provide procedures through which a member government can apply a new trade restriction. Within a system intended to promote and to defend an open international trading system, the logic of such provisions is that a controlled step back may sometimes be necessary to preserve two steps forward.

In practice, these provisions have served the system well. They have provided process and flexibility for WTO member governments to manage internal pressures for protection within a generally liberal trade policy. They have helped to keep the application of new restrictions under sufficient discipline that their use has minimally compromised the momentum of liberalization the reciprocal negotiations have created, and they have managed the application of new restrictions in such a way that unsuccessful protection-seekers have not organized to overturn the system have brought protection-seekers to accept No for an answer.

The form of these provisions (e.g., a restriction may be imposed when dumped imports injure a domestic industry) suggests that they limit Members to applying restrictions only in circumstances or in a form that makes sense re some standard of social or economic welfare this appearance intensified by the rhetoric of policing against unfair trade. In practice however they do not do this. The discipline the system applies is about less restrictions versus more, not about good restrictions versus bad. Antidumping is perhaps the classic example of a pragmatically successful flexibility instrument with pretensions, but no more than pretensions, to a real economic rational.

2What is this chapter about? As an essay, it advances the position on trade remedy usage that is stated in the two paragraphs above. The chapter is not a survey of the literature on trade remedies, several recent and comprehensiveones are already available.1 But these are in large part surveys of trade remedyanalysis and thus are only tertiary sources of information on trade remedy use. I hope in this chapter to shift attention more directly to trade remedy usage and particularly to national practice. National practice, I posit, applies discipline, while WTO rules are only one of the forces that shape national practice. To think simply of WTO rules as specifying what a Member can and cannot do overlooks a good deal of what makes the WTO system work.

As to how the chapters argument is laid out, Section 1 reviews how trade remedy use has shifted from GATTs early decades when renegotiation dominated to the post Uruguay Round era in which antidumping has become by far the most popular instrument. Section 2 documents that the application of new restrictions in the GATT era has been small relative to the extent of trade remedy usage in the 1980s, when negotiated export restraints were the most popular flexibility. Section 3 points out that the discipline the system imposes is different from that it appears to impose. A wealth of research supports the conclusion that trade remedy protection is not limited to the circumstances specified in the agreements and draws from this the incorrect conclusion that it is not limited, that trade remedies constitute a leading obstacle to free and fair trade.2

Section 4 illustrates that WTO rules are only one of the influences that have guided the evolution of national trade remedy practice. It does so by reviewing the safeguard restrictions imposed by the United States in 2002-2003 on imports of steel. It outlines the interaction of national management of protectionist pressures with the WTO agreements and it also shows that as trade remedies continue to evolve; import users are creating for themselves an increasing role in the management of pressures for protection.

Section 5 presents my conclusions and my speculations about questions on which further research might prove interesting.

1. THE EVOLUTION OF TRADE REMEDY USEHistorically speaking, trade remedy instruments such as the escape clause, antidumping and countervailing duties existed in national legislation before there was a GATT or WTO. The initial GATT agreement of 1948 did little more than to reserve the right of countries to impose such restrictions. These provisions weresimply compromises different in legal form and in political rhetoric from not

1 The recent WTO Secretariat survey (WTO 2009) lists over 350 references. Other notable surveys are Blonigen and Prusa (2003) and Nelson (2006) on antidumping and Sykes (2007) on trade remedy law.2 Kucik and Reinhardt 2008, 478, review such interpretations.

3reducing tariffs in some sectors, e.g., textiles but compromises none the less. Without their inclusion, the domestic politics of trade would not have accepted the liberalization that was achieved.

In form, these provisions are regulations or rules. They allow restrictions, but limit them to particular conditions or in response to particular problems, e.g., antidumping measures, measures in response to balance of payments problems. In the WTO Secretariat, antidumping, safeguards and countervailing duties are within the ambit of the Rules Division.

From a more functional perspective, such provisions provide flexibility for governments to respond to pressures for protection that if not accommodated might undo a generally liberal trade policy framework. The clich, one step backward to preserve two steps forward, describes this linkage. The Foreword by Pascal Lamy in the WTO Secretariat review of contingency measures (WTO 2009) provides a useful exposition of this perspective.

Generally speaking, the provisions the GATT provides for imposing import restrictions include the following:

Provisions for renegotiating previous tariff concessions and commitments; Restrictions than can be imposed unilaterally, but only in particular

circumstances, i.e., contingent or administered protection; Measures that may have trade effects but are imposed for different

reasons, e.g., to protect human, animal or plant life and health;3

Provisions for specific, one-off approval such as a waiver.The changes of usage, from reliance in GATTs early decades on tariff renegotiations to the modern era in which antidumping is the predominant vehicle, was part of the evolution of the GATT/WTO system from a diplomatic process toward a more judicial one.

A Diplomats jurisprudenceGATTs early decades were characterized by what Robert Hudec described as a diplomats jurisprudence.4 This diplomats jurisprudence was a compromise between jurisprudence as understood by lawyers and the reality of the limited influence trade negotiators had over national trade policy decisions. In an era in which there was sometimes a greater sense of shared objective among trade negotiators than between these negotiators and government officials at home, not pinning down trade differences with legal precision could allow the working out of a mutually acceptable solution before the matter reached domestic politics.

3 The Uruguay Round agreements on technical barriers and on sanitary, phyto-sanitary barriers stem from concern that standards were being used to provide protection not justified by the principal purposes a standard serves. This chapter will not however take up these agreements.4 Particularly in Hudec 1970, generally in Hudec 1975 and Hudec 1978.

4As to dealing with domestic parties who pressed for protection, trade policy officials tried to kept decisions out of the give and take of domestic politics andexploited the discretion the trade remedies mechanisms allowed to avoid applying them. Irwins study (2005), for example, documents that the US Treasury Department did not find less-than-fair-value pricing in a large share of antidumping cases.5

I have documented elsewhere6 that renegotiations under GATT Article XXVIII were in GATTs early decades the most used means for obtaining GATT clearance for new restrictions. We know little about the domestic processes through which officials managed protectionist pressures, decided in which instances a tariff rate would be renegotiated.

The thrust of Hudecs analysis is that in this era the contribution trade remedies made to the development of an open international trading system was more a matter of how trade policy officials used them to manage the domestic politics of trade than of the legal limits the relevant GATT articles imposed. Julio Nogus and I, in our study of Latin American liberalization, found a similar role for the acceptance of GATT/WTO commitments. For Latin American reformers, a significant attraction of full entry into GATT/WTO system was that such entry

5 Blonigen and Prusa 2003, 254, after noting the relatively few antidumping actions pre-1980, attribute this to (or conclude from this that) the GATT rules for imposing antidumping duties were difficult to satisfy.This however cannot be the explanation. First, in an era in which positive consensus was required to adopt a panel report, it was difficult to establish through the dispute settlement procedure that a national practice was in violation of a countrys Article VI obligations. The respondent could simply block adoption of the panel report. Absent such adoption, the consequent steps, possibly authorized retaliation, would never come into play.Second, there is little GATT jurisprudence that demonstrates active enforcement of GATT rules on antidumping. The GATT Analytical Index, (GATT 1994) that covers the entire history of the GATT, 1948-1994, lists only five panel reports in which Article VI antidumping obligations were referenced.In three of the five, reference to Article VI by the respondent had about it the air of a last gasp attempt to find legal cover for something that was quite different from what we think of today as antidumping. Swedish antidumping actions and US exports of potatoes to Canada, were about reference price tariff systems, in which a tariff surcharge was added if the price of an import shipment was below the reference price. A third case, Japan trade in semiconductors, was about Japanese government export restraints on semiconductors. In its defense (in a case that was basically about Article XI obligations to avoid quantitative restrictions) Japan argued that its export restraints were to prevent dumping by Japanese enterprises, referring to Article VIs hortatory condemnation of dumping.The other two cases, New Zealand antidumping duties on imports of electrical transformers from Finland and US antidumping duties on imports of cement from Mexico, did involve issues central to antidumping enforcement. In the New Zealand case the panel took up the way in which the New Zealand government had determined injury and a causal link. In the US cement case the panel found that the US government had not adequately satisfied itself that the request for the antidumping investigation was on behalf of all or most of the producers in the relevant regional market. The US cement panel report was not adopted.6 Finger 2002.

5supported the domestic politics of removing administration mechanisms that they had been unable to control. Almost the entirety of the protection that was removed had been administered protection, applied through such mechanisms.(There would thus be some navet in treating trade remedy notifications by developing countries since the Uruguay Round as an increase of protection.) The GATT/WTO system of bindings and trade remedy rules was critical to the success of these liberalization programs; but equally critical was the skill and the courage of reformers in Latin American to use these rules in support of liberalization.7

Negotiated Export Restraints In the mid 1970s, the negotiation of voluntary export restraint agreements (VERs) became the favored instrument for handling trade problems. A GATT Secretariat tabulation identified 249 such arrangements in place in 1989 these in addition to restraints sanctioned by the Multi-Fiber Arrangement.8 Laird (1992) estimated that in 1988 about 14 to 15 percent of US and EC imports were under VERs or orderly marketing arrangements.9 (Lairds figure includes MFA-sanction restrictions.)

Except for those sanctioned by the textile arrangements, VERs were GATT-illegal.10 Nevertheless, they accorded well with its ethic of reciprocity and their negotiation controlled for the possibility of chain reaction of import restrictions from one country to another, as had been disastrous in the 1930s. The reality of power politics was at play, but compensation was involved. Reduced export volumes were compensated by higher prices, the result often being a net gain for exporters. Sometimes the quid pro quo was foreign aid or some other non-trade consideration.

The Uruguay Round Agreements on Safeguards and on Textiles and Clothing required phase-out of existing VERs and banned further use of such restrictions. One might speculate that the reasons behind this elimination of VERs includedthe shift of Congressional power in the United States away from the Southern delegations who represented textile-manufacturing states, the increasing weight of developing countries in world trade and their increasingly active role in the GATT system. They also included the growing realization in developed economies that a VER was a costly form of protection; the long-term legal pressure of the GATT rules; and not to be underestimated the availability of an attractive, GATT-legal alternative, antidumping.

7 Finger and Nogus 2006.8 GATT 1991, Appendix Table 2.9 Laird reported that it was difficult to identify restraints applied by EC member states. Some such restraints, he reports, were negotiated between EC Member State governments and foreign enterprises rather than foreign governments. These had limited degrees of transparency and differing degrees of official sanction.10Gatt, 1994, p. 494.

6Antidumping ascendsAntidumping measures and VERS proved to be effective complements; the threat of formal action under the antidumping law provided leverage to force an exporter to accept a VER. Nearly half of the antidumping investigations opened in the United States in the 1980s were superseded by VERs, agreed price undertakings were the end result of EC cases more often than were antidumping duties.11

Once antidumping action proved itself to be applicable to any case of troublesome imports, its other attractions for protection-seeking industries became apparent. The rhetoric of foreign unfairness provides a vehicle for building a political case for protection. Additionally, GATT/WTO rules allow specific exporters to be targeted by antidumping measures and the usual practice has been to target the newer, more dynamic ones. Traditional exporters who often were being displaced by them would often serve as passive if not active allies of such restrictions.

Before the Uruguay Round agreements went into effect in 1995, application of antidumping was almost exclusively by the major industrialized countries. Since, antidumping use had become widespread among Developing Members as well as Developed (Table 1) and antidumping has dominated use of other provisions that sanction import restrictions: 2,374 antidumping measures as compared with 99 safeguard measures, 139 countervailing duty measures and 32 renegotiations. (Table 2) WTO Balance of Payments Committee Reports (WT/BOP/R/10 and WT/BOP/R/19) for 1995 and 1996 reported balance of payments measures in place in 18 Members; subsequent Reports (through 2008) indicate that all such measures have been removed.

Countervailing measures have remained an instrument primarily of industrialized countries. Over the period 1995-2009 three-quarters of countervailing duty investigations notified to the WTO have been by three Members: Canada, the United States and the European Union. Countervailing duty investigations have often been the complement of disputes in which the complainant has likewise taken up the allegedly illegal subsidy under the WTO Subsidy agreement.

Again, the minimal use of countervailing duties can be explained by the administrative convenience of antidumping. Strictly as a matter of providing import relief, antidumping can cover the same problems. In addition, the standards for demonstrating that the exporter receives a subsidy are more difficult to meet than the standards for demonstrating dumping.

11 Finger 2002 and Stegemann 1991.

7Table 1: Numbers of WTO Members who have notified trade remedy measures, 1995-2009

Trade RemedyDevelopi

ng Members

Developed

MembersAll

Members

AntidumpingInvestigations Initiated 30 13 43Measures applied 26 13 39

SafeguardsInvestigations Initiated 26 19 45Measures applied 14 14 28

Countervailing measures

Investigations Initiated 12 8 20Measures applied 9 6 15

Source: Tabulated from information in the WTO website database.

8Table 2: Numbers of Antidumping, Safeguard and Countervailing Investigations Undertaken and Measures Applied by Developed and Developing WTO Members, 1995 2009

Investigations MeasuresDeveloped Developing All Developed Developing All

Antidumping 1,325 2,350 3,675 815 1,559 2,374Safeguards 62 136 198 39 60 99Countervailing 200 45 245 107 32 139Totals 1,587 2,531 4,118 961 1,651 2,612

Source: Tabulated from data in the WTO website database.

92. THE MAGNITUDE OF TRADE REMEDY USAGEThough the numbers of countries who have applied trade remedy measures and the number of measures applied have increased notably, such measures in fact have been applied to a limited amount of trade. Chad Bown (2010), building from a World Bank data base12, has put together a careful year-by-year tabulation of the number of products and the value of imports on which temporary trade barriers were in place. The tabulation includes safeguards, antidumping, countervailing duties and special safeguards against China as allowed in Chinas protocol of accession to the WTO. For a representative sample of countries (that account for 86 percent of antidumping measures applied in 2007-2009) he found that the share of imports subject to such measures has remained flat or even declined since the 1990s, minimally affected by the Asian crisis of 1997 or the global downturn that began in 2007. (Bown, Figure 1.)

Tables 3 and 4 are constructed from Bowns findings and provide a profile of restrictions as of 2009. They show that across the countries in his sample well less than 2 percent of import value were subject to trade remedy measures, for only four of the 14 countries in the sample were there trade remedy measures on as much as 2 percent of import value.

This coverage is well below the 15 percent of imports Laird (cited above) found to be subject to VERs by major trading countries before the Uruguay Round agreements eliminated VERs.

These restrictions, by the way, display a pattern that has been noted before: developing country restrictions have the same bias (against developing countries) as do developed country restrictions, and they are more severe. Another familiar result is that restrictions are relatively high against the more dynamic exporters, e.g., China and South Korea.

12 World Bank 2010. Bown was one of the principal constructors of the data base.

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Table 3. Imports of selected economies subject to temporary trade barriers in 2009

Economy applying measure

Percentage of product

lines*

Percentage of import value**

Developing economiesTurkey 5.3 3.1India 6.1 2.9Argentina 2.8 2.0Brazil 1.5 1.7China 0.9 1.7Mexico 1.1 0.7Indonesia 0.5 0.7South Africa 0.8 0.3Simple average of above

developing economies 2.4 1.6

High income economiesUnited States 4.7 2.3European Union 2.5 1.6Japan 0.1 1.1Canada 1.3 0.6Australia 0.6 0.4South Korea 0.9 0.4Simple average of above

high-income economies 1.7 1.1* Percentage of 6-digit (HS-06) lines with at least one measure in place.** in the HS-06 lines where measures have been applied.Source: Bown. 2010, Table 1.

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Table 4. Percentages of Exporters' Products* Subject to the Antidumping Measures of Selected Importers**, 2009

Exporting Economy Products exported

to developing economies

Products exported to developed

economies

Developing economy exporters China 2.6 1.6India 0.5 0.6Thailand 0.8 0.4Indonesia 1.0 0.6Ukraine 1.3 1.7Brazil 0.5 0.7Russia 1.1 0.9South Africa 1.2 0.5Malaysia 0.6 0.1Vietnam 0.3 0.3Kazakhstan 7.9 0.7Mexico 0.1 0.2Turkey 0.2 0.1Argentina 0.0 0.1Pakistan 0.0 0.1Other developing 0.1 0.0Simple average of above

developing economies 1.1 0.5

High income economy exporters South Korea 1.1 0.6European Union 0.4 0.6Taiwan, China 0.7 0.5Japan 0.3 0.5United States 0.3 0.1Other high income 0.1 0.0Simple average of above high-

income economies 0.5 0.4* Note that these are percentages of product lines (HS-06) on which antidumping measures are imposed, not of import values.** These data cover antidumping measures imposed by the following: Developing economies: Argentina, Brazil, China, India, Indonesia, South Africa, Turkey; High-income economies: Australia, European Union, Japan, South Korea, United States. These economies account for 86 percent of antidumping measures in place 2007-2009. Source: Bown, Table 5.

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3. THE LIMITS ON TRADE REMEDY APPLICATION ARE NOT WHAT THEY APPEAR TO BE

As noted in the introduction, a considerable amount of research has been done on the application of trade remedies. A major conclusion that has emerged from this work is that trade remedy application is not limited to sets of circumstances defined by WTO agreements.

Antidumping by far the most used trade remedy is not about dumping in any specialized economic sense. Operationally speaking, the law specifies the conditions under which an industry is eligible for antidumping protection and dumping is implicitly whatever you can get the government to act against under the antidumping law. Similarly, safeguard action, in practice, is not limited to those instances in which it has been demonstrated in an econometrically meaningful way that injury has resulted from imports that themselves result from unforeseen developments as GATT Article XIX demands.

Different persons have stated this conclusion in different ways. Finger 1993, 34, concluded that Antidumping is ordinary protection with a grand public relations program;13 Hoekman and Kostecki 2001, 322, that Antidumping constitutes

13 Douglas Nelson 2006, 582, fn. 68 castigated severely this statement. He described it as hysterical rhetoric, as being wrong in virtually every essential way, and concluded, It does not help.To the contrary, it helped tremendously. In the late 1970s when I first began to think about antidumping, it had about it an aura of righteousness. An objective that soon emerged for me was to de-sanctify it. When I first presented at the World Bank a tabulation of protection against developing country exports, a prominent economist objected to my including antidumping measures. In his words, antidumping is GATT-legal. When I replied, so are tariffs, he saw my point immediately. It took longer in political circles.The statement, antidumping is ordinary protection with a grand public relations program, first came to mind in 1991 as I drove into the parking lot of a Canberra radio station. The talk show moderator looked at me as if she expected another technocrat she would have to carry through the session. She opened by asking Whats antidumping? My response set the tone for the discussion, put the industry people on the panel on the defensive. The program provided a few licks in support of the ongoing attempt by the Hawke government to reign in Australias then copious application of antidumping measures.By the early 1990s several studies had pointed out technical biases in trade remedy procedures and professionally the proposition was being accepted that antidumping, as economics, was little different from ordinary protection. Boltuck and Litan 1991 is an example. My phrase helped to elevate such studies from technicalities to a political force turned the tide so that antidumpings supporters rather than is opponents were on the defensive. In support of this point I draw on two examples from my own experience. First, Greg Mastels book (1998) in defense of antidumping begins by arguing that contrary to what Michael Finger has asserted, antidumping does not have a favorable public image. The second concerns an appearance I made at a US Congressional sub-committee hearing. In response to the public relations point (and others) one of the big-time trade lawyers with a long list of antidumping-protected clients circulated afew days later a 30-page rejoinder to my 8 page testimony. (My second reaction to the rejoinder was pique. The lawyer probably billed his clients a handsome fee for preparing it. My appearance at the hearings had cost me, a day of unpaid leave from the World Bank to prepare the statement, a second to appear at the hearings.)I had begun in 1982 (Finger 1982) my effort to shift the rhetoric, from protections advocates sounding like people and its opponents like college professors, to the other way around.

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straightforward protectionism that is packaged to make it look like something different. Blonigen and Prusa 2003, 253, in the opening paragraph of their survey of research on antidumping, specify that their work is about antidumping, not dumping antidumping has nothing to do with keeping trade fair.

Horlick and Shea 2002, 202, present the same conclusion from the perspective of motive rather than effect: From the perspective of a US industry seeking protection, those laws [the various trade remedies] simply represent different ways of reaching the same goal improvement of the competitive position of the complainant against other companies.14 Similarly, Sykes 2007, 101, concludes that the political constituency for antidumping policy is not (and never has been) an anti-monopoly constituency, but is instead much the same as the political constituency for safeguard measures declining industries.15

A related conclusion to which I want to call attention is that in practice the causal link between the injury that an import restriction relieves and the imports which are its ostensible cause is (at best) inexact. A number of studies have investigated whether affirmative results in trade remedy investigations are explained strictly by injury from imports rather than by bad times whatever the cause. They found that bad times as proxied by general macroeconomic conditions such as movements of GDP, employment and capacity utilization is the dominant explanation.16

Other studies have looked into the econometrics applied in trade remedy investigations. They examine how these investigations actually attempt to determine if the injury in evidence is the result of increased imports and to ensure that injury resulting from other causes is not attributed to imports. In the language of the investigations, the first of these is to demonstrate a causal link, the second is to demonstrate non-attribution.

Sykes (2003 and 2004) provides a detailed and perceptive analysis of these matters. He begins by questioning the economic logic of treating imports as a causal or exogenous factor. In economic logic, imports are an endogenous variable, simultaneously determined with domestic output, domestic production

14 As the number of trade agreements and arrangements has increased the number of administrative procedures available to solicit changes in the terms of importation have likewise increased. For example, there are administrative procedures in the United States by which an industry can petition for removal of a product from the list eligible for tariff preferences. The mechanisms taken up in this chapter are only a few from the long menu of alternatives a trade attorney can offer an industry seeking protection.15 Sykes, in his analyses of safeguards, does not acknowledge its fungibility with antidumping. In the two papers on safeguards (Sykes 2003 and Sykes 2004) he refers 21 times to voluntary export restraints as where governments will turn if safeguards requirements continue to be impossible to meet only once, and that parenthetically, to antidumping: WTO members may return to extra-legal alternatives such as voluntary restraint agreements (or to the excessive use of other protectionist devices such as antidumping measures). (2003, 262)If safeguards are considered the better instrument for managing import problems that do not involve predation, then nearly every one of the 3752 antidumping investigations WTO Members have notified is an excessive use of antidumping.16 Nelson 2005, 561-563 and WTO 2009, 147-148 summarize these findings.

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and imports. In raising this point Sykes questions if it is even possible to frame the conditions imposed by the WTO safeguard agreement and GATT Article XIX as workable econometrics. Going farther, his evaluation of the guidance provided by WTO Panel and the WTO Appellate Body as to how such analysis should be done leads to his skepticism on the workability of the safeguard mechanism. He concludes that WTO rules, as interpreted by recent Appellate Body decisions and applied by the dispute panel in the steel case, pose nearly insurmountable hurdles to the legal use of safeguard measures by WTO members.

Durling (2003) returns a generally positive evaluation of the quality of the WTO Appellate Body and Panel evaluations of the pricing parts of antidumpinginvestigations, but he raise questions similar to those raised by Sykes about AB and Panel treatment of the causal link and of non-attribution.

Sykes also has presented (2007, 92-94) serious criticism of the way in which causal link and non-attribution are treated in antidumping cases, Hindley, 2009,and Vermulst, Pernaute and Lucenti, 2004, point out a number of problems with European Commission analysis of these matters.

Trade remedy application, these studies show, is not limited to the specific economic circumstances specified in the GATT/WTO texts.

Finding however that the system does not impose the discipline its legal structure appears to impose does not demonstrate that there is no discipline. (Not finding the lost keys in the most obvious place does not establish that there are no keys.) The following section looks into the application and subsequent lifting of US safeguard measures on imports of steel in 2002-2003 for insights as to the disciplines that keep trade remedy application in check.

4. US SAFEGUARD MEASURES AGAINST IMPORTS OF STEEL,2002-2003

The ascent of antidumping took place at the same time as the rules for applying trade remedies were being both extensively and intensively elaborated. In the United States, the Congress saw the Executive as exploiting the discretion in trade remedy laws to administer them in a manner that was increasingly neglectful of their intent. The basic economics of the trade remedies, to neutralize injury, is at its core the premise that imports be restricted when they displace domestic production. As trade remedy use became important, analysts complained that its was biased, e.g., tilted systematically against importers, [t]he results difficult to square with economic theory or with the interests of American consumers.17

While the bias that irritated analysts was that the law overdid what economic theory intended, in my days at the US Treasury Department the bias that irritated Congress was that we did not do what the law intended. Over time, Congress imposed a series of amendments that: (1) eliminated obvious loopholes such as the lack of time limits on investigations, (2) expanded the scope for 17 Boltuck and Litan, 1991, 7.

15

affirmative determinations, (3) subjected administration to judicial appeal, (4) shifted administration of antidumping and countervailing duties from the US Treasury Department to the US Commerce Department; which was expected to offer a more sympathetic ear to US industry.

Contrary to what such changes, viewed in isolation, might suggest, the data cited above indicate that administered protection has not become more readily available.

The imposition of US safeguard restrictions on imports of steel, and their subsequent lifting, illustrate well how trade policy institutions in the United States have evolved. In 1962 US President John Kennedy, to win negotiating authority for what became the Kennedy Round, had to accept protection for the US textile industry that lasted 40 years. To obtain negotiating authority for the Doha Round, President George Bush in 2001 accepted import restrictions on steel products that lasted 13 months.

Background to the caseThe US steel industry has been one of the more frequent appellants for import restrictions, always alert for an opportunity. President George W. Bushs seeking trade promotion authority in 2001 provided such an opportunity. The Doha negotiations were under way, and scheduled to end by January 1, 2005. Trade negotiations are a prestigious platform for a US President, those in a position to give this authority to the President will bargain for something in return.

The steel-producing states of Pennsylvania, Ohio and West Virginia had been hotly contested in the presidential election of 2000, and were shaping up as battleground states for the Congressional elections of 2002. Richard Cheney, the Republican vice-presidential candidate, had emphasized in campaigning in these states the willingness of a Bush-Cheney administration to vigorously enforce US antidumping laws on behalf of steel producers. In spring 2001 the United Steelworkers of America and the congressional delegations from these states issued statements that any support for the TPA legislation would be directly related to action on steel imports.

Preempting antidumpingThe steel industry had traditionally petitioned for and received protection through the unfair trade laws; antidumping and countervailing duties. Bown (2004, 28) reports over 200 antidumping or countervailing duty investigations, 1989-2003, that led to restrictions on steel imports. US unfair trade laws allow however the President no discretion. If the dumping and injury determinations are affirmative, the restriction is automatic.

To preempt antidumping or countervailing duty petitions from the industry, the USTR in June 2001 petitioned the US International Trade Commission (USITC) to undertake a safeguards investigation. (The political/managerial skill of course included selling this option to the industry and its supporters.) An affirmative USITC determination would leave to the President the final decision; perhaps more important, it would provide for several events that would (1) allow

16

resistance to import restrictions to come forward, and (2) provide the President the legal authority to modify the restrictions. These events are taken up below.

Affirmative determination from the USITCGeneral conditions indicated that the industry had a good case. Employment at furnaces, mills and foundries dropped from almost 470,000 in 1995 to less than 400,000 in 1999, over 30 steel companies had gone bankrupt between 1997 and 2001. No one was surprised when the Commission in December 2001 submitted to the President affirmative determinations on 16 different categories of steel products.

An affirmative determination by the USITC in a safeguard case provides the President the legal authority to restrict imports. It does not however mandate such action. The President could impose or not impose restrictions of whatever form he chose, on whatever of the covered products he chose.

After the Commission returns an injury determination it then turns to deliberations and recommendations over remedy. The President is not required by law to follow the commissions recommendations, but the deliberations over remedy do serve a useful function. They provide an venue for interested parties to enter into the debate over what the Presidents action will be.

Managing the application of safeguard restrictionsAnother element of judicious management was that the period for which the President imposed restrictions (a combination of tariff rates and quantitative restrictions) was three years and one day. Why the extra day? Because as mandated by the WTO safeguard agreement, US safeguard law specifies that when restrictions of more than three years duration are imposed, there must be a mid-term review. The review provides another focal point, along with the opportunity to ease or withdrawal the restrictions.

Exporters affected by the restrictions claimed immediately that unless satisfactory compensation was provided, they would retaliate.18 The WTO safeguards agreement suspends the right of compensation/retaliation only if the safeguard measures are taken in response to an absolute increase of importsand the USITC report19 itself provided a basis to argue that there had not been an absolute increase of imports. Over the period the USITC used for its investigation, 1996-2000, imports tended to peak in the middle, decline sharply in 1999 and 2000.

To deal with such threats, the Presidents March 2002 order instructed the USTR to consider exemption requests from other countries. The initial order had already exempted free-trade agreement partners Canada, Mexico, Israel and Jordan, along with a number of smaller developing countries.

Steel-using companies had been an organized political element throughout, the resulting consultations were driven by partnerships of steel-using US companies

18 Under the Agreement on Safeguards (Article 8.2), exporters can retaliate 120 days after the date of imposition of the restrictions.19 United States International Trade Commission 2001.

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combined with their foreign sources. CITAC, the Consuming Industries Trade Coalition, was perhaps the most active organization of steel users. They claim on their webpage to employ more workers and have a greater positive impact on the U.S. economy than the industries that advocate frequent use of trade restrictions. (03 Feb. 2011 at http://www.citac.info/about/whoweare.php)

Casual information suggests that more than 60 Washington law firms were involved in the resulting bargaining. Politically speaking, the outcome of these consultations represented a balancing of the three interests at play, US producers who had petitioned for protection, US steel users, and foreign exporters. As a result of these negotiations, some 37 percent of US steel imports subject to the March 2002 order were exempted.20

Taking user interests into account did not begin with the steel case. US administrative practice has for more than a decade incorporated the concept of short supply. Even an antidumping restriction can be suspended if the administering agency determined that the product subject to restriction was important to a US buyer and that domestically produced substitutes were unavailable or in short supply. Bown 2004, 7, points that in the steel case the basis for many of the requests for exemption was that the product was trademarked or patented this to demonstrate that a domestically-made substitute was not available.

WTO caseIn May 2002 a number of exporting countries (Brazil, China, the European Communities, Japan, Korea, New Zealand, Norway and Switzerland) requested consultations with the US concerning the WTO-legality of the measures. When these consultations and the exemptions negotiated with USTR (re the previous paragraph) did not resolve the issue the exporters requested that a panel be established. The panel found against the United States, the US appealed, the Appellate Body upheld the panel on every major point. The ABs report was adopted by the WTO Dispute Settlement Body on 10 December 2003.

Though some had questioned the earlier claim of exporters to a right to retaliate and no country had retaliated it was clear that exporters now held a right to do so. Exporting countries began soon to publicly identify US exports on which they might retaliate, focusing on US producers/exporters in sensitive states and Congressional districts. In short, they followed the same politics as the steel industry had used to put pressure on the President to restrict imports.

USITC Mid-term reviewIn March 2003 the USITC announced the opening of its mid-term review.21 Shortly after announcing this investigation, the Commission received a request from the U.S. House of Representatives, Committee on Ways and Means, to

20 Hufbauer and Goodrich 2003, 4.21 US law requires that the mid-term review be completed by the midpoint of the restrictions in place. That would have been July 2003.

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investigate also the impact of the import restrictions on US steel-consuming industries.

The Commissions conclusions on the impact on US steel producers were even-handed. The President could draw on it to support either a decision to continue the restrictions or to terminate them. As to the need for continuing protection, the report pointed out continuing weaknesses in demand for vehicle parts, appliances and construction. While profitability had improved, it was not up to the level in the base period chosen for comparison. Selling prices were well short of their 2000 and 2001 levels. On the other hand, imports had fallen in many categories not covered by the restrictions, and there was an indication that world demand was picking up. Moreover, the restructuring of the industry was continuing. Several more of the less efficient factories had been closed, four of the largest steel producers had merged into two and these had announced significant investments to increase productivity.

The companion report on the effects on steel-consuming industries was in structure the mirror image of an injury investigation: it measured how the restrictions had affected employment, wages, prices, profitability, sales, productivity and capital investment in steel-using industries and in port facilities. (Facilities relevant to internal distribution of imported or domestically produced products were not included.) A survey of steel-using companies (in parallel with a survey of US producers) added information on such factors as abrogation of contracts by export suppliers when the restrictions were applied and the continued availability of inputs needed to produce their outputs.

The report provided also the results of a modeling exercise that estimated economy-wide returns to capital to go down by $294.3 million and returns to labor go down by $386.0 million as a result of the restrictions. Tariff revenues increase by $649.9 million, the net impact on annual GDP being then a loss of $30.4 million. (US GDP in 2003 was over $11 trillion.)

Decision to terminate the restrictionsThe study sparked a surge of articles and press statements that provided the political base for a presidential decision to terminate the restrictions. Perhapsthe threat of retaliation from foreign exporters did influence the decision, but the announcement that the restrictions would be terminated did not mention thatfactor.

The announcement22 began with a review of the circumstances that warranted safeguards: thousands of jobs were at stake, many steel firms were in or facing bankruptcy; this caused by a surge in imports due in part to global overproduction. In response the President decided that the US steel industry needed breathing space the chance to adapt.

Turning to the present, the announcement reported that as the ITC's analysis clearly demonstrated, the safeguard worked. The lines that followed (1/3 of the announcement) reported the mid-term reviews findings on restructuring, higher productivity, profitability, US exports at a historically high level, etc. 22 USTR 2003.

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The announcement then explained that the risk of a foreign surge of exports hadabated; demand was up in China, Russia and other parts of the world.

The announcement then turns to user costs:In the first 21 months of the safeguard, the benefits to the industry outweighed the marginal costs to consumers. Going forward, however, this is not the case. For these reasons, the President has concluded that the safeguard has done its job and can now be lifted. (USTR 2003 p. 3)

As to lessons one might draw from steel imports experience, the first is that an institutionalized role for user costs is emerging in US administrative procedures, though this role is not mandated by WTO rules or even by US law. Given the role that import users forged for themselves in this case, it is not likely that their interests could be passed over in the next safeguard case taken up in the US. Institutionally speaking, their success in the steel case is more appropriately interpreted as building political capital rather than as using it.

Foreign exporters interests also have a role. In practice, the influence of foreign exporters on the US decision depended on the partnerships (foreign exporters and US users) that US process allows. In appearance, removing the restrictions was a concession to the interests of US users, not to foreign exporters. USTR Zoellicks announcement of the termination of the steel safeguards mentioned twice the costs to users. Though the WTO decision and the USITC mid-term review created a synergetic relationship between domestic users and foreign exporters, the final announcement did not mention the cost to US exporters of potential retaliation.

Not to be overlooked, the managerial skill of the US administration, to take up this issue as a safeguard case rather than an antidumping case and to use the various events the process allowed end the restriction at a minimal loss of domestic political capital, was critical.

5. CONCLUSIONS, CLOSING COMMENTS AND THOUGHTS ABOUT FURTHER RESEARCH

Economic analysis, by instinct, tends to ask if a policy decision system isolates interventions that make economic sense, e.g., that produce a net increase in economic welfare or the national economic interest. Legal analysis starts with such a standard, but is willing to step back to a lesser one: does the regulatory system at least tell the regulated what is and is not allowed so they can get on with their business.

I conclude from my looks at their use and at their analytical literature that trade remedies serve the WTO system well, but are an embarrassment to both legal and economic theory.

What follows from this conclusion are not suggestions for policy reform, but suggestions for analytical reform. One suggestion is for more attention to national institutions for managing trade remedies. The discipline in the system is less a matter of how the WTO regulates, more a matter of how the WTO has helped to shape the domestic institutions that regulate. A second suggestion is

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that getting protection-seekers to accept No for an answer is principally about their sharing the procedural values of the system. (The point is taken up again below.)

A related point, the subject is how institutions evolve. I am increasingly uncomfortable with interpretations of the WTO system that amount to creationist models of intelligent design.23 Bauer, Pool and Dexter, in the prologue to their classic study, 1972, ix, remind that individual and group interests get grossly redefined by the operation of the social institutions through which they must work.

Recalling the quote from Walton Hamilton at the beginning of this chapter, I would add, and so do the social institutions through which they work.

I have focused here on US institutions, and I apologize for doing so. (My excuse is that I have stayed with what I know best.) I do not want to suggest that other countries experiences are similar. Though national experiences are all linked with the GATT/WTO system, from what I know they are quite differentone from other. Each Members experience merits study.

Another lesson I draw is that at least in US experience unintended consequences have been a significant part of the evolution of trade remedies and this is why I began with the statement from Walton Hamilton. Three I will list are:

1. After the first Reciprocal Trade Agreements Act of 1934, the Congress never went back to direct tariff writing. It is hard to imagine that the RTAA would have passed had it been presented as abandonment of the old system, but trade remedies became, by default, the only outlet for protection-seekers.

2. Congressional reforms of trade remedies failed to increase the amount of protection granted even though the reforms were explicitly about expanding the scope for protection and for management of the instruments in a manner that paid closer attention to industries asking for relief.

3. The interests of import users are increasingly influential in processes that formally give expression only to the interests of protection-seekers.

As to explaining the first of these, there is an extensive literature that explains how the trade negotiations process built momentum. A major element in the United States was that foreign policy and export interests dominated. This analysis however leaves unexplained why the Congress did not go back to direct tariff writing. Were there ever serious proposals to go back to direct tariff writing and if so, how were they managed?

A related question, in GATTs early decades, when renegotiation was a frequently-use flexibility instrument, how did the US government manage pressures for protection, channel them eventually to renegotiations? Generally, how were pressures for protection managed domestically in the era in which the international system was the diplomats jurisprudence that Hudec has explored?

23 My views on the usefulness of seeking the intrinsic rationale of things in the GATT/WTO system are expressed in Finger 2009.

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Congressionally-mandated reforms of trade remedies brought with themconsiderable technical complexity. Establishing that the injury from which the importer asked relief was really caused by imports may involve bad economic theory and bad econometrics, but that does not mean that it is easy, nor that the discretion that remains in the system can be exploited without a high level of technical expertise. There is a tendency however in the analytical literature to view anything inconsistent with the professional standards of the analysts as political, and anything political as standard-less or even capricious.

Analysis to now has paid more attention to the looseness in the administrative process than to the tightness. Seth Kaplan (1991) provided an excellent analysis of the ways in which different members of the USITC have structured their analysis of the link between imports and injury. The paper is often cited as evidence of the primitive econometrics that goes into such determinations. The next step might be for someone with such intimate knowledge of how things are done (perhaps Kaplan) to write a yes, but paper, documenting (a) the things that one must none-the-less show and the steps one must go through to win an affirmative determination, and (b) examples of short-cuts such as casualness in data management that would render information valueless as trade remedy evidence. Members of the trade bar know that it is not easy to win an affirmative determination. The literature is perhaps biased toward examples from respondents of their losing for reasons that economic theory or econometrics might find wanting. The reasons for petitioners losing would round out the story.

Nelson (2006) suggested that a sense of fairness is another part of the explanation; I would add that the sense of fairness keeping unsuccessful protection-seekers from kicking over the table and saying We will not play this game any more is likely a procedural one. The trade remedies follow standards of administration generally considered to be appropriate. The result is accepted because the process is accepted, not because it satisfied an intrinsic sense of what the result should be.

Moreover, having to go through a mandarin class (the trade bar) in order even to identify alternative courses of action helps to promote acceptance of negative outcomes. The trade bar evolving symbiotically with the trade remedies is another part of the story.

To some degree, Congress intended shift toward protection-seekers might have been overcome by the more general changes of governance standards that took place over the same period as the trade remedies were being restructured.

The third unintended consequence is that import users have pushed their interests into the determination of trade remedy outcomes. The steel case of 2001 illustrates this well.

The United States however has not undertake a safeguard investigation since the steel case. A relevant question then is if the steel case has influenced if or how import user interests are taken into account in antidumping cases.

Import user interests are not formally recognized in antidumping cases, but they are not formally recognized in safeguard cases, either. On the positive side here,

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the role of import users in the steel case reflects both the growing prosperity of import users in the US economy and with it the money they have for political contributions. It also documents the entrepreneurial skill of members of the trade bar who saw them as potentially profitable clients.24 Mechanisms through which user interests influence antidumping administration are evolving. For example, the short supply rule explained in Section 2, has been around for more than a decade. Another is that the US Congress, by direct vote on August 2, 2010, reduced tariff rates on more than 600 products, mostly imported manufacturing inputs. President Obama signed the changes into law on August 11.25

In conclusion, the trade remedy system works. The discipline the WTO system imposes on new import restrictions is about less versus more import restrictions, not about import restrictions in this circumstance but not in that. Economic theory suggests that in a universe of all possible import restrictions there are likely more bad ones than good, and in that universe a mechanism that reduces the number is, by economic theory, a useful thing.

24 This recalls another of my attempts to change the rhetoric of trade policy politics. Andre Zlate and I explained in a paper several years ago that the lesser duty rule treated import users as bastard children. After the legitimate children got what they wanted sufficient protection to remove injury the illegitimate ones could have what was left. Accepting that we had no power to make thing better, we closed by telling import users, You bastards will have to look out for yourselves.It seems they did.Some years before I had pointed out to a group of users of imported steel that pornography is protected under the law so long as it has redeeming social value. I advised them to paint dirty pictures on what they imported, then present it as pornography; pornography receiving better treatment under the law than imports.25 World Trade Interactive. 2010.

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Hudec, Robert E. 1970. The GATT Legal System, A Diplomats Jurisprudence, Journal of World Trade Law, v. 4, pp. 615-665.

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