Australia and WTO Dispute Settlement

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Monthly Bulletin: October 2001

RECENT DEVELOPMENTS

WTO Legal Issues raised at Quarantine Conference

WTO legal issues were a feature of discussions on biosecurity at the recent Quarantine and Market Access Conference (17-18 October).  The conference program looked at the WTO Sanitary and Phytosanitary (SPS) Agreement and examined how to resolve the tensions which come from protecting Australian industries and environment against pests and diseases, while honouring international obligations and pursuing trade opportunities as a major agricultural exporter.  Attached to this Bulletin is a paper delivered at the conference by Justin Brown, Assistant Secretary, WTO Trade Law Branch, DFAT, on Precaution: scientific uncertainty and the SPS Agreement.  Further information on the conference can be found at http://www.affa.gov.au/content/events.cfm, following the link to Quarantine and Exports Advisory Council (QEAC).

Australian Trade Official to Serve on Panel

Simon Farbenbloom (Counsellor at Australia's WTO Mission in Geneva) has been selected to serve as a panellist in United States Section 129(c)(1) of the Uruguay Round Agreements Act.  This panel was established by the DSB at its 23 August 2001 meeting, at the request of Canada.

A list of Australian nationals who have served or are serving as WTO panellists and of Australian experts who have advised WTO Panels is attached to this Bulletin.

WTO DISPUTE AVOIDANCE

Dispute avoidance is an important element of WTO trade policy.  Bilateral trade diplomacy using the leverage of WTO rights may deliver desired outcomes within a relatively shorter time period than through WTO-litigated processes.  Moreover, the incorporation of WTO leverage in bilateral diplomatic strategies may help persuade an importing member to decide against a trade-restrictive measure.  

The WTO dispute settlement system is structured in a way that encourages member governments to negotiate mutually satisfactory solutions as an alternative to litigated outcomes.  In the majority of cases, the initiation of a formal WTO dispute would only be considered if bilateral resolution were not in prospect.  

WTO transparency provisions include requirements for domestic administrative procedures that in some cases provide opportunities for exporting members to intervene in national deliberations on the introduction of trade restrictive measures or in reviews of such measures eg in anti-dumping, countervailing and safeguards.  In general, WTO members are not required to exhaust remedies at the domestic level in the importing country before proceeding to a formal WTO complaint.  However, it is not in a WTO member's interest to neglect such opportunities at the national level.

It is Australian practice to make submissions to relevant national bodies, with a view to influencing decisions on the introduction or review of measures.  A number of submissions have been made to United States bodies.  The most recent submission (copy attached) involves a United States International Trade Commission Investigation into Steel (all products).

Australia as a Complainant (3)

United States: Safeguard measure on imports of fresh, chilled and frozen lamb meat (WT/DS177 and WT/DS178)

In line with the agreement Australia reached on 31 August with the US Administration on the implementation of the WTO Appellate Body's finding that US safeguard measures on lamb meat were WTO inconsistent, the Presidential Proclamation terminating the safeguard measures is expected to be signed shortly.  This proclamation will terminate the safeguard at midnight 14 November and allow all lamb imports arriving in the US from 15 November 2001 to be subject to the MFN rate of duty.

Korea:  Measures affecting imports of fresh, chilled and frozen beef (WT/DS169 and WT/DS161)

No new developments.  In accordance with the 10 September 2001 implementation timetable agreed between Korea, Australia and the US, Korea removed the remaining WTO-inconsistent measures (the dual retail system and discriminatory record keeping requirements) that restricted the sale of imported beef in Korea.  Australia will continue to monitor Korea's implementing measures

United States: Continuing Dumping and Subsidy Offset Act of 2000 (Byrd Amendment) (WT/DS217 and WT/DS234)

Following a request by co-complainants (including Australia), the Director-General determined the composition of the Panel on 25 October.  As agreed by the parties, Wasescha (Switzerland) has been appointed as Chair.  The other two panelists are Abdel-Fattah (Egypt) and Falconer (New Zealand).

Disputes involving Australia as a Third Party (8)

Chile: Price band system and safeguard measures relating to certain agricultural products (WT/DS207)

No new developments.  A panel meeting with parties and third parties was held on 13 September.  The final report is scheduled to be publicly released on 21 February 2002.

EC:  Measures affecting meat and meat products (Hormones) (WT/DS26)

No new developments. The EC is still facing WTO-authorised retaliation by the US and Canada because of its failure to implement within a reasonable period of time.

United States: Import prohibition of certain shrimp and shrimp products (the shrimp/turtle" case) (WT/DS58)

On 22 October, the Appellate Body rejected Malaysia's challenge against the Article 21.5 panel report, ruling that the Panel had correctly fulfilled is mandate under Article 21.5.  It upheld the Panel's core finding that the US measure was justified under the GATT exception provision (Article XX).  The Panel and Appellate Body reports are available on the WTO web site (www.wto.org).

Canada: Measures affecting the importation of milk and the exportation of dairy products (WT/DS103 and WT/DS113)

Canada has appealed the Article 21.5 panel finding in favour of the US and New Zealand that the revised Canadian measures are export subsidies.  An oral hearing was held on 26 October and the Appellate Body's report is due by 3 December 2001.

United States: Section 110(5) Copyright Act ("Homestyle"exemption) (WT/DS160)

No new developments.  The US and the EC are engaged in negotiations on compensation and have jointly requested arbitration pursuant to Article 25 of the Dispute Settlement Understanding to determine the level of nullification and impairment of benefits to assist these negotiations.  Australia has registered its expectation that any compensation will be non-discriminatory.

United States: Definitive safeguard measures on imports of circular welded carbon quality line pipe from Korea (WT/DS202)

The Panel released its report on 29 October.  The Panel found that the US line pipe measure was imposed inconsistently with certain provisions of GATT 1994 and the Safeguards Agreement and recommended that the DSB request the US to bring its pipe line measure into conformity with its obligations under these agreements.

United States: Tax Treatment for Foreign Sales Corporations (WT/DS108)

The US has appealed the finding by the Article 21.5 compliance panel that its revised FSC scheme is inconsistent with US WTO obligations.  An oral hearing has been scheduled for 26 November, and the Appellate Body's report is due by 14 January 2002.  In announcing its intention to appeal, the US has said that it will continue to cooperate with the EC with the aim of resolving the dispute.

Canada: Export credits and loans guarantees for regional aircraft (WT/DS222)

No new developments. The Panel informed the DSB in August that it would not be possible to complete its work with the 3 months deadline from its composition.  The panel expects to complete its work shortly.

Disputes in which Australia has a Policy or Economic Interest (4)

Japan:  Measures affecting agricultural products (Varietal testing) (WT/DS76)

Japan outlined its agreement with the US on a mutually satisfactory solution at the 25 September DSB meeting. Australia has registered its expectation that the outcome will be applied in a non-discriminatory manner to the products of all WTO members.

EC:  Regime for the Importation, Sale and Distribution of Bananas (WT/DS27)

The EC is continuing its efforts to obtain the two waivers it requires to implement its bilateral settlements with the United States and Ecuador in this dispute.  The 90 day examination period for the request of the waiver began on 5 October, although the working party examining the request is attempting to complete its work before the Doha Ministerial Conference.

United States: Section 129(c)(1) of the Uruguay Round Agreements Act (WT/DS221)

Canada is challenging the legality of a specific aspect of the US statute controlling the US implementation of DSB rulings.  A panel with standard terms of reference was established at the 23 August 2001 DSB meeting, and was constituted on 30 October.  Third party rights were reserved by the EC, India, Japan and Chile. 


United States Section 211 Omnibus Appropriations Act (WT/DS176)

The EC has appealed certain issues of law and legal interpretations in the panel report, including the finding that WTO intellectual property rules do not cover trade names (company or business names that are not registered as trademarks).  The Panel had ruled that a U.S. law known as Section 211, which prevents U.S. recognition of trademarks and other intellectual property used in connection with confiscated property, was partially inconsistent with the WTO TRIPS Agreement.  Other of the EC's claims relating to the inconsistency of Section 211 with Article 42 of the TRIPS Agreement were rejected by the Panel.

Meeting of the Dispute Settlement Body: October 2001

The DSB, consisting of all the Members of the WTO, met on 15 October 2001. The next regular DSB meeting will be held on 5 November 2001.  Australia uses DSB meetings to monitor progress and to register its views on disputes of interest. The agenda of the October DSB meeting was as follows (any Australian interventions are indicated):

DSB Meeting 15 October 2001

1. Surveillance of Implementation of Recommendations adopted by the DSB

EC Regime for the Importation, Sale and Distribution of Bananas (WT/DS27)                - status report by the EC

The EC presented its status report on progress in the implementation of the DSB's recommendations on its banana import regime.  Latin and Central American banana producers expressed concern at the EC's overall approach, particularly as regards the scope of the requested GATT waiver.

2. Report of the Panel

US Tax Treatment for Foreign Sales Corporations (WT/DS108) recourse to Article 21.5 of the DSU by the EC

The Panel Report was removed from the agenda following the US decision to appeal the Report.

3. Proposed Nominations for the Indicative List of Governmental and Non-Governmental Panelists

Members of the WTO and Observer Governments to WTO Bodies were requested to inform the Secretariat of the names of their representatives as soon as possible.

RESOLVING EXPORT ACCESS PROBLEMS THROUGH THE WTO SYSTEM

  • Are you an exporter or intending to export?
  • Do you export to one or more of the 142 markets that belong to the World Trade Organization?
  • Are you experiencing access problems in one or more of those markets?
  • Is the access problem related to a measure or measures of the importing government (at central, regional or local government level?)

If you have answered "yes" to those questions, the Department of Foreign Affairs and Trade stands ready to examine and discuss options for resolution of your access problems.  Exporters can contact WTO legal specialists in the Department on the following numbers:

  • Email:  wto.disputes@dfat.gov.au

  • Fax:      02 6273 1527

  • Telephone:  02 6261 2617 or 02 6261 1890

PRECAUTION, SCIENTIFIC UNCERTAINTY AND

THE AGREEMENT ON THE APPLICATION OF SANITARY AND PHYTOSANITARY  MEASURES (SPS AGREEMENT)

Quarantine   and   Market   Access   Conference,   Canberra  

17 October 2001

Many of you will be aware that preparations are now at an advanced stage for the next ministerial meeting of the WTO, to be held in Doha from 9 to 13 November.  All being well, ministers will decide to launch a new round of multilateral trade negotiations, the first since the end of the Uruguay Round in 1994.

Environment and the new WTO round

How to deal with the environmental agenda in a new WTO round remains one of the outstanding issues.  In the lead-up to Doha, the European Union (EU) has made it clear that it wants substantive negotiations in this area.  And it has threatened unspecified ripple effects on other aspects of the negotiating mandate if it does not get what it wants.

There are a number of elements in the EU's proposals on the environment.  Its approach is underpinned by the concept of multifunctionality, that is, that so-called non-trade concerns such as food safety, animal welfare and the environment - should be accorded equal weight in determining the pace and scale of future agricultural trade liberalisation. 

The main issues being advanced by the EU are:  rules on eco-labelling; the relationship between the WTO and multilateral environment agreements; and the status of the precautionary approach in WTO rules or, as the EU characterises it, the precautionary principle.

There remains considerable ambiguity in the EU's proposals.  It has called for a clarification and/or a codification of WTO rules in these three areas on the grounds that the existing rules are inadequate to deal with contemporary and emerging policy challenges.  It has also couched its proposals in terms of the importance of rule-making being the province of WTO Member governments rather than dispute settlement panels and the Appellate Body.

But while the EU claims that its stance is motivated by a desire to restore the WTO's environmental image, a more persuasive reason can be found in the politics of the food safety debate in Europe.  The food safety problems in Europe - foot and mouth disease (FMD), bovine spongiform encephalopathy (BSE) and dioxin - have created a decline in European public faith in the political and scientific leadership in this field.  A large part of the general European public is now openly sceptical about the willingness and capacity of politicians, regulators and scientists to reflect what they see as consumers' interests against the economic interests of the industrial agriculture sector.

This has led to a view emerging in Europe that scientific expertise and decision-making on food safety and quarantine issues should be democratised so that it reflects social and community values, not just the scientific evidence.

Before moving to a more detailed discussion on precaution, let me make it clear at the outset that Australia, along with the vast majority of WTO Member countries, has serious reservations about the kind of broad environment agenda being advanced by the EU for the next round of WTO negotiations.

Of course, that is not to say that Australia is anti-environment or that we are somehow denying the role of the WTO in promoting sustainable development.  We have indicated that we are prepared to support a continuation of the work of the WTO Committee on Trade and Environment.  We think there are many useful things the WTO has done, and can do in the future, to improve the synergies between trade liberalisation, environmental protection and sustainable development.

We have, for example, advocated negotiations in the new round aimed at reducing those subsidies in the fisheries sector which contribute to over-capacity and over-fishing.  This area is a good example of the kind of work which would generate trade, environment and development benefits.

Our principal concern with the EU's proposals is that they could lead to a weakening of core WTO disciplines.  Our assessment is that they risk upsetting the balance in the existing WTO rules and could open the way for trade protectionist measures to be introduced in the guise of environmental protectionism.

Precaution

The main reference point on the EU's position is the resolution on the Precautionary Principle adopted at the European Council in Nice in December 2000.  In the resolution the EU member states instructed the European Commission to ensure that the precautionary principle is fully recognised in relevant international fora, particularly the WTO.

The EU believes that the precautionary principle may be exercised where scientific information is insufficient, incomplete or uncertain and where there are indications that the possible effects on the environment or human, animal or plant health may be potentially dangerous.

In the preparations for the Doha ministerial, the EU has questioned the ability of existing WTO rules to accommodate adequately measures taken in situations of scientific uncertainty.  It has called for the precautionary approach to be recognised as a general principle of customary international law, and has suggested a clarification and codification exercise to that end.

A distinction may be drawn between precaution, which is a commonly recognised element of scientific assessment and policy making, and the precautionary principle.  Contrary to popular belief, there is no internationally agreed definition of what is meant by the term precautionary principle.  Principle 15 of the Rio Declaration refers to the right of countries to take a precautionary approach to avoid serious or irreversible environmental damage.

While the EU has not been legally precise about what it has in mind in the WTO, it seems clear that its objective is to inject social and cultural factors into the process of risk assessment and risk management, turning the decision-making process into a political appraisal.

Clearly, acceptance of the EU's proposal on precaution could have potentially very wide-ranging policy consequences for Australian interests.  Our view is that the existing WTO rules are working effectively, in that they permit countries to take measures in certain situations where there is other than absolute scientific certainty and that, therefore, the case for changing the rules has not been made.

The SPS Agreement includes a number of provisions which, taken together, form a carefully negotiated balance between the sometimes competing interests of promoting international trade and of protecting the life and health of human beings.

The EC/US dispute on access for beef treated with growth hormones (referred to as the EC hormones case) has probably been the most significant case in interpreting the provisions of the SPS Agreement, including the application of the precautionary approach.

Briefly, the EC hormones dispute stemmed from action by the EU in imposing an import ban on US beef.  The EU tried to rely on the precautionary principle as its justification for the ban, but lost the case.  Despite that, it has retained the ban and has had to put up with US retaliatory measures as the penalty.

The Appellate Body made a substantive number of rulings in the case. Specifically it identified four distinct situations covered by the relevant provisions of the Agreement.

First, if a WTO Member country introduces an SPS measure that conforms to an international standard, the measure enjoys the benefit of an assumption that it is WTO-consistent.

Second, if a Member country chooses to introduce an SPS measure that is based on an existing international standard, there is no such assumption of consistency.  The member country must be prepared, if challenged, to defend the legality of the measure.  In particular, the Member in question would need to demonstrate consistency with the requirement in Article 2.2 of the Agreement that sufficient scientific evidence must exist to warrant the imposition of the measure.

Third, a WTO Member country is able to decide to set for itself a level of protection different from the international standard higher or lower - and to embody that standard in a measure.  In this situation, the country in question needs to comply with the provisions of Article 5, Article 2.2 and Article 2.3.  These involve:

  • the sufficient scientific evidence requirement
  • the requirement to avoid arbitrary or unjustifiable trade restrictions,  and
  • the requirement to carry out a risk assessment.

0Fourth, under Article 5.7 if a Member decides to set for itself a level of protection that is different from the international standard and to put in place a provisional SPS measure it must comply with the four requirements set out in the Article, including:

  • it must seek the information needed to carry out a risk assessment, and
  • it must review the measure within a reasonable period of time.

The EC hormones case clearly established the relevance of the precautionary approach recognising that it is never possible for science particularly the science of risk assessment to provide for absolute scientific certainty.

Risk
The notion of risk was also examined by the Appellate Body in the EChormones case.  The SPS Agreement allows WTO Member countries greater latitude in evaluating risks associated with food compared to risks associated with pests and diseases. 

Risks associated with food may be assessed on the basis of potential harm, that is the possibility.  But the risks of pests and diseases have to be assessed in terms of the probability.

In the EC hormones case the WTO Appellate Body also ruled that the risk to be assessed under Article 5.1 must be ascertainable not theoretical.  In other words the fact that it cannot be proved that an adverse consequence will not occur does not, by itself, justify an import ban.

As to Article 5.7 measures, even though a risk assessment is not required does not mean that the WTO Member is free of obligations.  In fact in such cases the Member country has to demonstrate that there was insufficient scientific information available for a proper risk assessment, but it still needs to justify the measures taken with reference to scientific facts. 

0It remains to be tested whether Article 5.7 permits measures to be taken against theoretical risks.  The EU did not invoke Article 5.7 in the EC hormones case.  But the purpose of Article 5.7 is to permit Members to take precautionary measures where there is insufficient scientific information.  Article 5.7 would, therefore, provide cover for measures taken, for example, by the UK to protect human health against BSE at a time when the risks to humans were considered remote or theoretical. 

Non-mainstream scientific opinion

A further important provision in the SPS Agreement is that it provides scope for risk assessment to take full account of non-mainstream scientific opinion.  It does not impose a requirement that measures be based only on mainstream scientific opinion.  Governments are perfectly free to act on divergent or minority scientific opinion both in the assessment of risks, and in determining the SPS measures to be applied.  However, the fact that there is divergent scientific opinion does not necessarily imply there is insufficient scientific information to be able to conduct a risk assessment.

The Appellate Body in EC hormones clarified that a risk assessment need not come to a monolithic conclusion that coincides with the scientific conclusion or view implicit in the SPS measure. Nor must a risk assessment embody only the majority scientific view.

In the EC hormones dispute, having found that none of the scientific reports cited by the EU concluded an identifiable risk to human health from growth hormones in beef, the panel and Appellate Body went on to consider the single divergent scientific opinion expressed.

The panel and Appellate Body considered that this opinion was not the result of scientific studies carried out by the expert, or under his supervision.  It was not, therefore, sufficient to overturn the contrary conclusions in the scientific studies. 

Social and cultural values
I have already outlined what we see as the intention behind the EU's proposals. It seems to be proposing the development of guidelines for the application of the precautionary approach drawing on the EC hormones rulings.

But to the extent that the EC hormones rulings have not yet fully defined the application of the rules, the EU's intention seems to be to pick up some of the commentary by the Appellate Body and to use a negotiating process to weaken the important disciplines on the application of precaution in the SPS Agreement.

From Australia's perspective the concept of injecting social values into the SPS Agreement ignores the fact that the Agreement already permits WTO Member countries to take such values into account in its appropriate level of protection, also known as the acceptable level of risk.  This is a political determination which seeks to balance the economic benefits of trade against the potential biological, economic and environmental consequences of pest and disease establishment. 

In the EC hormones case the Appellate Body rejected the efforts of the EU to distinguish between risk assessment and risk management and apply subjective criteria to the latter process.

The Appellate Body also noted that an SPS measure must be based on the risk assessment, in the sense of a rational relationship.  It also ruled that a risk assessment has to look beyond laboratory conditions to the risks in the real world.  Further it ruled that an assessment of risks need not be quantitative and that a qualitative assessment is equally valid.

Conclusion

The SPS Agreement permits WTO Members to take measures in situations where there is other than absolute scientific certainty.  So, there is no inherent inconsistency between the exercise of precaution and the science-based disciplines of the SPS Agreement. 

WTO Members have the right, for example, to determine their own appropriate level of protection and to take provisional measures on the basis of available pertinent information, in situations where relevant scientific evidence is insufficient;  and to act on divergent or minority scientific opinion both in the assessment of risks and in determining the measures to be applied. Nor does the SPS Agreement prevent WTO Members from taking into account social values and from making subjective value-judgments in risk analysis.

The EU and other proponents of WTO negotiations on the precautionary principle often cite the BSE crisis in the UK as an example of the inadequacy of traditional science to address emerging risks and scientific uncertainty.  However, BSE was not so much a case about the failure of positive science or any constraint on governments taking precautionary measures but a fundamental failure in risk communication, a breakdown in government regulatory processes, coupled with intensive non-sustainable agricultural practices.  The BSE crisis was more an issue of governance than of science.

Given the applicable WTO rules, attempts by the EU to promote negotiations in a new WTO round aimed at amending SPS rules as they would apply to the precautionary approach carry significant risks.  In particular, they could dilute the notion of risk assessment, moving it away from a focus on science to non-scientific factors.  This could conceivably lead to future negotiations on agriculture being not so much about market opening, but more about the extent to which environmental and other subjective, non-scientific factors should dictate world trade.

Australian nationals who have served/are serving as WTO panelists

Professor Kym Anderson

EC - Bananas (WT/DS27)

Mr Robert Arnott

US - Woven Wool Shirts and Blouses (WT/DS33)

Mr Douglas Chester

India - Patent Protection (WT/DS50)
(WT/DS79)

Mr Peter May

Argentina - TCF Restrictions (WT/DS56)
EC - Measures on Poultry (WT/DS69)
Argentina - Textiles & Clothing (WT/DS/77)

Professor Richard Snape

India - Quantitative Restrictions (WT/DS90)

Mr Paul O'Connor

US - CVD on Lead and Steel (WT/DS138)
EC - Anti-dumping on Linen (WT/DS141)
Mexico Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the US (WT/DS132, DSU Article 21.5 Panel)

Mr David Hawes

US -Sections301-310 of Trade Act (WT/DS152)

Mr Ian F Sheppard

USA - Copyright (WT/DS160)

Professor Jeffrey Waincymer

India Measures Affecting the Automotive Sector (WT/DS146, WT/DS175)

Mr Daniel Moulis

Egypt Definitive Anti-Dumping Measures on Steel Rebar from Turkey (WT/DS211)

Mr Simon Farbenbloom

United States Section 129(C)(1) of the Uruguay Round Agreements Act                                                                                                                                                                                                                                                                                                   

Australian experts who have advised WTO panels

  • Dr Nicolas H de Klerk, Senior Research Fellow, Department of Public Health, University of Western Australia (EC - Measures on Asbestos - WT/DS135)
  • Dr Douglas W Henderson, Professor of Pathology, Head of the Department of Anatomical Pathology, Flinders Medical Centre and the Flinders University of South Australia (Asbestos)
  • Dr Arthur W Musk, Clinical Professor of Medicine and Public Health, University of Western Australia, and Physician, Department of Respiratory Medicine, Sir Charles Gairdner Hospital, Nedlands (Asbestos)
  • Dr Ian Pointer, CSIRO Queensland (US - Import Prohibition on Shrimp - WT/DS38)

BEFORE THE UNITED STATES INTERNATIONAL TRADE COMMISSION

 INVESTIGATION NUMBER TA-201-73

 STEEL (ALL PRODUCTS)

 PREHEARING BRIEF OF THE GOVERNMENT OF AUSTRALIA

REMEDY PHASE

29 OCTOBER 2001

Introduction

Australia supports efforts to revitalise a competitive US steel industry.

Australia has considerable experience with the difficulties of restructuring this major industry.  Over a number of years Australian Governments worked with the Australian steel industry to facilitate substantial structural adjustments. While rationalisation was very difficult, the end result is an unsubsidised, internationally competitive Australian steel industry.

Based on this experience, the Australian Government requests that, when making its recommendations to the President on the need for and scope of any remedy to facilitate a positive adjustment by the steel industry to import competition, the Commission take into account the following:

  • First, the source of the problems facing the United States steel industry are more complex than import competition and an integrated adjustment plan to address the full range of issues would be more appropriate than suspension of imports;
  • Second, the granting of temporary relief from import competition across-the-board runs the risk of entrenching existing inefficiencies in the United States industry while simultaneously disadvantaging those parts of the industry which have made adjustments and are operating competitively as a result, as well as damaging downstream users of steel;
  • Third, any relief should not further damage the US steel industry. Far from causing injury to the United States industry, Australian companies work in long-term strategic relationships with competitive US steel mills, supplying feedstock not available domestically, for US production of higher value-added goods. Disrupting these relationships with import restrictions would cost American steel jobs and investment.
  • Fourth, the imposition of import restrictions on steel products would move the world steel industry further away from a position of sustained, unsubsidised, production and trade.
  • Fifth, the prospect of protracted litigation in the WTO against import barriers, combined with the potential disruption to world steel markets, is a recipe for commercial disruption and policy uncertainty, and would seriously hamper efforts to reach international consensus on measures to address problems in the global steel industry.

An integrated plan with an emphasis on positive measures is the appropriate vehicle for promoting a competitive United States steel industry

Some elements of the United States industry appear to have made substantial progress in solving the competitive problems that bedevilled the industry twenty five years ago to the point where today many are efficient and competitive on an operating cost basis.  On the other hand, it is evident that some other segments of the United States industry have had negative performances.  In considering possible future approaches to the problems facing these enterprises, aspects of Australia's experience in tackling structural reform of its steel sector may be relevant.

The Australian steel sector has undergone considerable, and often painful, change in recent years but has positioned itself to compete effectively over the long term both in Australia and in the global marketplace.  In the process, the Australian industry examined its own strengths and weaknesses and adjusted its operations to take full advantage of its strengths.  The thrust has been to refocus the industry's activities where its competitive advantage is greatest.

While it is true that solving problems of this magnitude is frequently difficult and can take time, on the basis of its experience, Australia believes that it is possible to create the right conditions for the emergence of a viable and competitive sector in the future.  But in order to maximise the prospects of success it is critically important to adopt an integrated approach which confronts the problems of the sector in its full dimensions rather than one isolated component, and develops solutions which are based on market mechanisms.

The Australian Government has serious reservations about the effectiveness of across-the-board import restrictions in addressing the fundamental problems affecting some elements of the United States industry, even on a temporary basis.  Not only would such action be of questionable value, it also carries some serious risks.

Australia questions the value of import relief because it would have no real impact on some of the core issues at the heart of the problems of the United States industry, most notably substantial legacy costs, unfavourable taxation provisions and regulatory impediments.  These are critically important issues that go to the heart of the problems of the United States industry and they are most effectively addressed through a comprehensive and integrated plan which builds on the industry's strengths while recognising its weaknesses.

For these reasons, Australia believes that it is imperative that any measures put in place to support the United States industry should not disadvantage those parts of the industry which have already made often difficult adjustment efforts and are competing profitably in local and global markets.  Typically, such enterprises are responding to the internationalisation of steel production by concentrating on production in areas where their comparative advantage is clear and forming commercial alliances in areas of relative weakness.  In Australia's view the interests of this important part of the United States steel industry must be taken into account in determining the nature of any measures recommended by the Commission to address the problems of the industry as a whole.

Furthermore, the potentially negative impact on the wider United States economy of providing import relief are significant.  It is important to note that there are fifty jobs in steel-consuming industries in the United States for every job in the steel sector.  Import relief, and more particularly relief which is indiscriminate and fails to take into account the interests of the more competitive elements of the steel sector and the steel-consuming sectors, would be likely to have a significant negative impact on employment levels, with more pronounced effects in some regions.  In relation to the impact on consumers, we would note recent estimates by the Consuming Industries Trade Action Coalition (CITAC) which indicate that import relief to the steel industry could cost United States' steel consumers, already suffering from the effects of the downturn in the US economy, over $US 2 billion annually for the duration of the relief.

Australian imports are fairly traded and provide competitive feedstock to the United States market

The Australian Government provides no subsidies to the steel sector in Australia and

Australian steel is fairly traded on world markets.

The vast majority of Australian exports to the United States are slab, hot-rolled steel and cold-rolled feedstock to United States mills.  The users of Australian feedstock have made considerable investment in rolling and finishing mills with the aim of increasing sales of higher value-added products. 

As reflected in previous testimony to the Commission, the economic viability of these companies is inextricably linked to their having ongoing access to competitive feedstock, a situation currently satisfied as a result of the strategic commercial partnerships with Australian suppliers.  These companies are not able to source these supplies domestically in the United States and they are, therefore, reliant on imports to justify their investments and the employment associated with them.

Far from causing injury to the United States industry, Australian exports are in fact an important component in a strategy to create a new competitive paradigm for the United States steel industry.  There is ample evidence to suggest that this strategy is bearing fruit and that a more competitive industry structure is emerging.  In Australia's view it would, therefore, be counter-productive to run the risk of disrupting these arrangements through the imposition of indiscriminate import restrictions.

Import restrictions could have a negative impact on trade flows and lead to protracted dispute settlement action in the WTO

Australia is concerned at the potential impact of any steel import restrictions introduced by the United States on global trade flows and general economic activity.

Because of the magnitude of the United States steel market, any import restrictions would have a substantial, and adverse, impact on global steel trade flows and on global steel prices.  There would be a negative impact on the trade and economic performance of a number of countries, including Australia, which has significant trading, interests not only in steel but also in commodities.  In such circumstances, it is difficult to envisage a successful conclusion to efforts to reach a global consensus in favour of concerted action to deal with some of the key issues facing the steel industry.

From a trade policy perspective, Australia shares concerns voiced by a number of countries about the procedures adopted by the United States in regard to the application of safeguard measures, specifically regarding their consistency with the conditions and requirements set out in the WTO Safeguards Agreement and Article XIX of GATT 1994.

First, given the fact that the problems of the United States steel industry have been evident for some time and are very largely homegrown, this would not seem to meet the WTO requirement that the increase in imports be the result of unforeseen developments.

Second, it would appear difficult for the ITC to sustain an argument that the United States could satisfy the conditions of the Safeguards Agreement which specify that imports must be in such increased quantities and under such conditions as to cause serious injury.  Nor is it likely that the United States has met the stringent serious injury standard in the Safeguards Agreement which requires the competent authority to evaluate all relevant factors of an objective and quantifiable nature, including the increase in imports, the market share of imports, changes in sales, production, productivity, capacity utilisation, profits and losses and employment.

Third, the Australian Government is concerned at the apparent lack of clarity on what constitutes like or directly competitive products and the domestic industries in this case.  Both are crucial to the remedy determination.  In this context, the WTO provisions specify the need to avoid any abuse of protectionist measures.

Fourth, the Australian Government also questions whether the causation methodology in the Safeguards Agreement, as interpreted in recent WTO cases, has been met by the ITC in this case.  The Australian Government notes that the methodology applied by the ITC and its past practice, which involves a determination that increased imports were a cause no less important than any other cause has been found to be not consistent with the Safeguards Agreement.

Finally, and in light of these concerns as regards WTO-consistency, it would appear highly likely that a decision by the United States to impose import restrictions would prompt early action challenging such a measure in the WTO.  Initiation of formal dispute settlement processes would likely only generate further policy and commercial uncertainty when efforts would be better focussed on building a strong, sustainable, unsubsidised global steel industry.

Conclusion

Australian steel exports are not the cause of problems faced by parts of the US steel industry. Australian exports are in fact inextricably linked to the viability of one of the most competitive sections of the US steel industry today. Continued investment and employment in this sector is tied to continued access to steel imports, including from Australia.  Furthermore, indiscriminate imposition of import restraints runs the risk of doing serious damage, at a time of a severe economic downturn, to all those steel consuming industries in the United States which rely on competitively priced steel to themselves stay afloat. The Australian Government requests that in shaping its remedy recommendation to the President, the Commission bear these facts firmly in mind.


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The Monthly Bulletin is an overview of Australian involvement in WTO Dispute Settlement from the WTO Trade Law Branch of the Department of Foreign Affairs and Trade . It updates Australian involvement in specific WTO disputes and, more generally, in disputes in which Australia has a policy or economic interest. Also included are the agendas of meetings of the WTO Dispute Settlement Body (DSB), with specific reference to any Australian interventions.

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