The Puzzle of WTO Safeguards and RTAs

1
The Puzzle of WTO Safeguards and RTAs

• Joost Pauwelyn
• Duke University, Law School
• WTO Seminar on RTAs and the WTO
• Geneva, 14 November 2003

2
What is a Safeguard ?

• Emergency action in case a product is imported
• in such increased quantities and under such
  conditions as to cause or threaten serious injury
  to domestic producers
• (GATT Article XIX)

3
Safeguards in RTAs ?

• The RTA (EU) imposes a WTO safeguard
• One regional partner (USA) imposes a WTO
  safeguard
• The RTA has its own internal safeguard mechanism
  (SADC)

4
US Safeguard on Steel

• CAN the US exclude Mexico Canada ?
• (MNF nature of safeguards)
• MUST the US exclude Mexico Canada ? (RTA
  must liberalize internal trade)
• CHOICE

5
Proposed Solution

• Injury determination must exclude regional
  imports (in most cases)
• Safeguard measure itself can exclude regional
  imports (whether it must do so will depend on the
  RTA itself)

6
Injury Determination must exclude Mexico Canada

• GATT Article XIX
• Increased imports causing injury must be
• as a result of the effect of the obligations
  incurred under this Agreement GATT, including
  tariff concessions

7
Injury Determination must exclude Mexico Canada
(cont. )

• Based on GATT Art. XIX the injury determination
  cannot take account of surges in regional imports
  since they are caused by the RTA (not GATT) and
  it is the RTA (not GATT) that prevents a tariff
  hike in response

8
Injury Determination based solely on third party
imports
    TOTAL INJURY SERIOUS INJURY
9
The Safeguard Itself

• SG Article 2.2 (MFN)
• safeguard measures shall be applied to a product
  being imported irrespective of its source
• USA Argentina included all imports for injury
  determination excluded regional imports from
  eventual safeguard

10
Can Safeguard Exclude Regional Imports?

• Appellate Body
• Parallelism requirement
• Cases so far violate parallelism

• Proposal
• Safeguard is clearly discriminatory
• Question is whether GATT Article XXIV justifies
  it
• Tackle inclusion of all imports in injury
  determination under GATT Article XIX

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Problems with Parallelism
INJURY DETERMINATION SAFEGUARD ITSELF
All imports Exclude Canada Mexico
Only third parties Only third parties ?? (contra MFN)
Only China Only China ?? (contra MFN)
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GATT XXIV and Safeguards

• Can safeguards be imposed within a RTA?
• RTA must liberalize internal trade
• Can GATT XXIV justify safeguards that exclude
  regional imports?
• MNF nature of safeguards

13
GATT XXIV permits intra-regional safeguards

• Duties and regulations must only be eliminated
  with respect to substantially all the trade
  (GATT XXVI8)
• List of permitted restrictions (XI, XII, XIII,
  XIV and XX) is not exhaustive
• Intra-regional safeguards (be it under WTO or RTA
  itself) are consistent with WTO rules

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Can GATT XXIV justify a violation of the
Safeguards Agreement?

• Is GATT XXIV available as a defense under the
  Safeguard Agreement YES
• What conditions must be met for GATT XXIV to
  justify a selective safeguard?

15
Appellate Body criteria(Turkey Textiles)

• SG exclusion must be introduced upon the
  formation of the RTA
• SG exclusion must be necessary to form RTA
  consistent with GATT XXIV

• SG exclusion is after RTA formation
• SG exclusion is not necessary to have RTA
  conform XXIV (flexibility permits regional SG)

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The ABs Timing Criterion is Flawed

• GATT provisions shall not prevent the
  formation of a customs union or of a free-trade
  area (XXIV5, chapeau)
• No reference to timing or measures introduced
  upon the formation ofa RTA
• Absurd if perfect RTA after its conclusion,
  violation would remain

17
The ABs Necessity Criterion is Flawed

• the provisions in this Agreement GATT shall
  not prevent the formation of a customs union or
  free-trade area Provided that (XXIV5,
  chapeau)
• No reference to measures necessary for the
  formation of a RTA
• Contrast with XX(b) nothing in GATT shall be
  construed to prevent measures necessary to
  protect human health
• Absurd if perfect already valid RTA then it is
  not necessary

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An Alternative Proposal

• AGGREGATE TESTS
• Economic test
• XXIV5
• Definitional test
• XXIV8

• INDIVIDUAL TESTS
• Measure must be part of the formation of a RTA
• Part of formation to be interpreted with
  reference to other provisions

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Is Excluding Regional Imports part of the
formation of a CU/FTA?

• Removing intra-regional restrictions is implied
  in the definitional test (XXIV8)
• Safeguard on third parties is not based on XXIV
  but because of import surge from those third
  parties (unlike Turkey - Textiles)
• Check objective of facilitating trade and not
  to raise barriers with third parties (XXIV4)

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In Summary

• Exclude regional imports from the injury
  determination (less WTO safeguards)
• Parallelism requirement is an unnecessary
  complication
• GATT XXIV does not prohibit intra-regional
  safeguards
• Under current AB criteria, GATT XXIV cannot
  justify safeguard excluding regional imports
• AB criteria are flawed GATT XXIV can justify a
  safeguard on third parties only