WTO Safeguard Measures: Lessons from the Argentine Footwear Case


– B. Kalyani M. Jayasekera

 Attorney-at-Law, Notary Public, Commissioner for Oath, Company Secretary, Colombo, Sri Lanka.

Author can be reached at: kalyajayasekera[at]gmail[dot]com

“The tragic events in Japan have added to the growing concerns about the strength of the global economy but they should not push the world back into recession”, finds the latest GPS Monthly report from CIBC World Markets Inc.[i] However, with the development of technology, all the other supplementary things such as laws, thinking pattern of human, etc also was changed. Specially now there are lots of laws for every and each situations. So we find separate law for safeguard to protect goods in domestic side in the trade situations. For that international level, law has prepared by World Trade Organization (WTO).

The WTO Agreement on Safeguards, together with Article XIX of the General Agreement on Tariffs and Trade 1994 (GATT 1994),[ii] sets out the general WTO regime. WTO Members may apply these safeguard measures. And this is to prevent or remedy “serious injury” to an import-competing industry sector resulting from unforeseen import surges in their markets. In this paper main contribution will be to understand what a safeguard in WTO is and how it applies in the practical situation like Argentina Footwear case. Therefore firstly this paper gives an attention to make clear the safeguards in WTO.

Safeguard measures

Article XIX of the General Agreement on Tariffs and Trade 1994 (GATT 1994) says “1 (a) If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession.”[iii]

With compared to Article XIX of GATT 1994, drafted in 1947 and remaining virtually unchanged,[iv] the Agreement on Safeguards provides the first elaboration on the substantive requirements for the adoption of safeguard measures[v] and on the requirements that these measures have to follow. It further sets out procedural obligations (both concerning domestic proceedings and the WTO level) that WTO Members wishing to take safeguard action must comply with. It also contains specific obligations that Members have to respect in case safeguard action is taken against imports from developing countries.[vi]

A Member may apply a safeguard measure to a product only if that Member has determined, pursuant to the provisions set out below, that such product is being imported into its territory in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products. Safeguard measures shall be applied to a product being imported irrespective of its source.[vii]

Bilateral trade agreements normally provided for a “safety valve” in the form of safeguard measures. This happens in prior to the GATT 1947. This means to avoid those circumstances. And this is to the contracting parties, faced with the dilemma of either having their domestic market heavily disrupted or withdrawing from their agreements, chooses the latter option, thus ultimately reducing the overall level of liberalization.[viii]

And the scope of safeguard regime is special rules on the taking of safeguard measures against textile imports are laid down in Article 6 of the Agreement on Textiles and Clothing [hereinafter ATC]. In addition, pursuant to Article 5 of the Agreement on Agriculture [hereinafter AA] Members can adopt special safeguards in respect of agricultural products, provided their right in this respect has been recorded in their tariff schedules. As regards services, there are currently no safeguard rules. However, Article X of the General Agreement on Trade in Services 1947 provides for multilateral negotiations on such rules.

Argentine Footwear Case

Now this paper is moving to discuss the Argentina Footwear case. Facts of the case is Argentine footwear manufacturing was born in late 1940s and those days it was highly protected. After the liberalization, the CNCE (Comisión Nacional de Comercio Exterior), which is responsible for safeguard investigations, estimated that in 1991, footwear production amounted to 71.4 million pairs. In turn, the National Economic Census of 1994 shows a total of 27,177  people employed by this industry12, whereas the 1985 census showed a total employment of 31,596people. As for the number of industry producers, the National Economic Census of 1994 revealed a total of 1,554 factories, out of which 998 manufactured leather footwear; 292 produced footwear made of fabric, plastic and other materials; and 264 produced footwear parts. In 1985, the census recorded 2,211 factories.[ix]

The footwear industry has two clearly differentiated segments – sports footwear and non-sports footwear. Those were different from the leather footwear. When on the basis of well-known international brands the sports footwear industry became “globalized” in the 1980s, Argentine producers obtained producing licenses to manufacture and sell these brands in the domestic market.[x]

Eventually, the response of policymakers to growing pressures for import relief was positive: the unemployment that might be caused by the collapse of the major producers was perceived as too high a political and social cost. This was the typical case when taking one step backward was perceived as a politically necessary action in order for later taking two steps forward and protecting the trade liberalization program.[xi]

So Argentine took safeguard measures to limit imports footwear. As Argentine had more domestic footwear. Therefore in 1998 European Communities requested consultation with Argentine. But they failed to reach a mutually satisfactory solution. Then as the request of European Communities a panel was established. Brazil, Indonesia, Paraguay, Uruguay and the United States reserved their rights to participate in the Panel proceedings as third parties.

Arguments of European Communities

European Communities requested that Argentina has violated Articles 2:1, 4:2(a), 4:2(b), 4:2(c), 5:1, 6, 12:1 and 12:2 Agreement on Safeguard[s][xii] and Article XIX:1(a) of GATT 1994.They argued that “All of the above violations, except for the violation of Article 5:1, relate to the way in which the investigation was conducted or the way in which procedural obligations were carried out by Argentina. Accordingly, any change to the measure which Argentina may introduce will only affect the violation of Article 5:1 (necessity of the measure and adequacy of the adjustment plan) and not the remaining violations. Accordingly, the EC submits that Argentina’s safeguard measures on imported footwear, however they may be adapted or adjusted in the meantime, should be removed.”

Arguments of Argentine

  • “to give consideration to the issues of procedure raised in its first written submission” (section IV.A). First, Argentina “[does] not consider that the DIEMs applied to footwear and now revoked should be discussed by the Panel. [Argentina] therefore respectfully request the Panel not to take into account any of the claims made by the EC in this respect”. Second, “Argentina respectfully requests the Panel not to make any ruling on Resolution 512/98, which was never the subject of consultations between the European Communities and Argentina and is not included in the terms of reference which the DSB adopted for the Panel’s proceedings, although these were the subject of detailed discussions at two consecutive meetings of the DSB”;
  • “to reject the EC’s request for a preventive ruling by the Panel on any change that Argentina might make to the measure”;
  • “to reject the request that the panel “find” that Argentina, in conducting its investigation, has failed to comply with the different provisions that the EC claims to have been violated, in particular its obligations under Articles 2.1, 4.2(a), 4.2(b), 4.2(c), 6, 12.1 and 12.2 of the Agreement on Safeguards and Article XIX:1(a) of the GATT 1994″;[xiii]
  • “to reject the EC’s request that any change to the measure which Argentina may introduce only affect the alleged violation of Article 5.1 and not the remaining alleged violations”;
  • “to reject the EC’s request that the Panel “recommend” that however the measure may be adjusted, it should be removed.”

 

Findings of panel and Panel decision

The Panel submitted its final report to the parties on 4 June 1999. Chairman of the panel is Mr. John McNab and Members of the panel are Ms. Claudia Orozco and Ms. Laurence Wiedmer.

  • Claims under Articles 2 and 4 of the Agreement on Safeguards regarding Argentina’s investigation, and findings of serious injury, threat of serious injury and causation

 

The question of threat, whether instead of or in addition to a finding of present serious injury, must be explicitly examined in an investigation and supported by the evidence in accordance with Article 4.2(a-c). Moreover, if only a threat of increased imports is present, rather than actual increased imports, this is not sufficient. Article 2.1 requires an actual increase in imports as a basic prerequisite for a finding of either threat of serious injury or serious injury. A determination of the existence of a threat of serious injury due to a threat of increased imports would amount to a determination based on allegation or conjecture rather than one supported by facts as required by Article 4.1(b).

Given that the question of threat as such was not adequately addressed or analysed in Act 338 or in the Technical Reports, we do not consider it necessary to rule on the question of whether it is possible to make simultaneously findings of serious injury and threat of serious injury. We further note that, pursuant to paragraphs 1(b) and 2(a) of Article 4, any determination of threat must be supported by specific evidence and adequate analysis. For the foregoing reasons, we find that Argentina’s determination of the existence of a threat of serious injury does not conform to the requirements of Articles 2 and 4 of the Agreement.

  • Claims regarding the application of safeguard measures (Article 5)

 

The safeguard investigation and determination leading to the imposition of the definitive safeguard measure is inconsistent with Articles 2 and 4 of the Safeguards Agreement, and thus provide no legal basis for the application of a safeguard measure, we do not consider it necessary to make findings on the European Communities’ claims concerning Argentina’s alleged violations of Article 5.

  • Claims regarding the provisional safeguard measure (Article 6)

In the light of our findings concerning the investigation and the definitive measure, panel does not find it necessary to make a finding concerning this claim.

  • Claims regarding notification requirements (Article 12)

 

Panel rejects the European Communities’ claim that Argentina’s notification of its finding of serious injury and causation was insufficient, and conclude that in this respect Argentina has not violated Articles 12.1 and 12.2. And the modifications of definitive safeguard measures foreseen in the Agreement all are subject to notification requirements under Articles 12.5 and 12.1(c)/12.2, respectively. The Agreement does not contemplate modifications that increase the restrictiveness of a measure, and thus contains no notification requirement for such restrictive modifications. Therefore panel said that there is no possibility for a ruling on this aspect of the European Communities’ claim under Article 12.

Panel recall findings those terms of reference include the definitive safeguard measure in its original legal form as well as in its subsequently modified form. They further recall the findings that Argentina’s safeguard investigation and determination underlying the definitive safeguard measure are inconsistent with Articles 2 and 4 of the Safeguards Agreement and thus cannot serve as a legal basis for any safeguard measure. Given that the subsequent modifications of the definitive safeguard measure are based on the same safeguard investigation and determination, those are findings of violations of Articles 2 and 4 resolve the dispute with respect to these modifications as well.

So the Panel recommends that the Dispute Settlement Body request Argentina to bring its measure into conformity with the Agreement on Safeguards.

Appellate body decision

Presiding Member of the Appellate Body is James Bacchus and members of the Appellate Body are Christopher Beeby and Mitsuo Matsushita. They delivered the decision in the original at Geneva on 17th day of November 1999.

For the reasons set out in this Report, the Appellate Body:

(a) concludes that the Panel did not exceed its terms of reference by referring in its reasoning to Article 3 of the Agreement on Safeguards;

(b) reverses the Panel’s conclusion in paragraph 8.69 of the Panel Report that “safeguard investigations conducted and safeguard measures imposed after the entry into force of the WTO agreements which meet the requirements of the new Safeguards Agreement satisfy the requirements of Article XIX of GATT”, and also reverses the Panel’s finding that the Uruguay Round negotiators “expressly omitted” the phrase “as a result of unforeseen developments” from Article 2 of the Agreement on Safeguards;

(c) declines to make a finding with respect to the European Communities’ claim under Article XIX of the GATT 1994 since, in light of the findings in paragraph (f) below, there is, in any event, no legal basis for the safeguard measures imposed by Argentina;

(d) reverses the Panel’s findings and conclusions relating to footnote 1 to Article 2.1 of the Agreement on Safeguards and Article XXIV of the GATT 1994, and concludes that Argentina, on the facts of this case, cannot justify the imposition of its safeguard measures only on non-MERCOSUR third country sources of supply on the basis of an investigation that found serious injury or threat thereof caused by imports from all sources, including imports from other MERCOSUR member States;

(e) concludes that the Panel correctly stated and applied the appropriate standard of review, as set forth in Article 11 of the DSU;

(f) upholds the Panel’s findings and conclusions that Argentina’s investigation and determinations of increased imports, serious injury and causation are inconsistent with Articles 2 and 4 of the Agreement on Safeguards, and that, accordingly, Argentina’s investigation provides no legal basis for the application of the definitive safeguard measure at issue or any safeguard measure; and

(g) concludes that the Panel did not fail to set out the “basic rationale” behind its findings and recommendations as required by Article 12.7 of the DSU.

The Appellate Body recommends that the DSB request that Argentina bring its safeguard measures found in this Report, and in the Panel Report as modified by this Report, to be inconsistent with the Agreement on Safeguards, into conformity with its obligations under that Agreement.

Lessons from the Argentine Footwear Case

However mainly two lessons which come out from this experience are:

– The safeguard rules of the WTO and the jurisprudence of its Appellate Body have problems that create serious uncertainty as to the circumstances under which measures are likely to be contended successfully. This uncertainty does not contribute to the economic transformation of developing countries that consider the implementation of unilateral trade liberalization programs.

– Generally for the economy and particularly for some sectors like the footwear industry, the overvalued currency increased the adjustment costs of the trade liberalization policy.

The major opposition to Argentina’s safeguard measures did not come from the major exporting countries like China, but from the countries where the firms that own the major brands are located. The political economy of this case can be explained by the globalization process of the industry, particularly the sports footwear segment, which is characterized by the existence of multinational firms that manufacture in low-wage countries, with designs and technology usually developed in their developed countries. This characteristic illustrates how an instrument like safeguards that regulates the trade between the domestic and foreign producers decided on a case where local production confronted the interests associated with the ownership of intellectual property like designs and brands in this case, European companies.

There are three aspects of the case that are important to consider in the context of this paper: i) the economic and political problem underlying the dispute, ii) the determinations of the Special Group and the Appellate Body and, iii) the impact on and the response by Argentina.

i) The economic and political problem underlying the dispute

Argentina’s experience with these measures was certainly discouraging in relation to the use of WTO safeguards. As a result, this Body has established a jurisprudence that is against the use of WTO safeguards, both for developing and developed countries. However, if we consider that in the last decade most safeguards were applied by developing countries, during strong unilateral trade liberalization programs, this jurisprudence is acting against the implementation of further liberalization programs. The political economy of the Appellate Body’s decisions on safeguards reinforces the arguments of those who are against liberalization.

ii) The determinations of the Special Group and the Appellate Body

Sykes (2003) concludes that “given the lack of a coherent theory on when a safeguard should be allowed, it is absurd to expect WTO members to produce a reasonable and adequate explanation that their measure is in compliance with the law.”[xiv]

However, the Appellate Body decided to revoke this conclusion and determined that Uruguay Round negotiators “deliberately omitted” the expression “as a result of unforeseen developments…,” and supported the total validity of the text of Article XIX (1) of GATT 94[xv]. According to the Appellate Body the legality of safeguards hinges on compliance with both the requirements of GATT 94 Article XIX, and the Agreement on Safeguards[xvi]. Later determinations made by the Appellate Body in other cases have reaffirmed this interpretation.

The Appellate Body concluded that Argentina was not able to prove an increase in imports, serious injury and causality. Concerning the first aspect, under the “unforeseen argument” the recent evolution of imports was given priority over the process that started in 1991 with the unilateral trade liberalization policies. The Appellate Body concluded that to merit measures, the increase in imports must be the result of “unforeseen developments” and also that it must be “recent, unexpected, serious and important enough, both quantitatively and qualitatively, to cause or threat to cause a “serious injury.” As indicated at the beginning of this section, the WTO Dispute Settlement Body approved the reports, conclusions and recommendations of the Appellate Body.

iii) Impact on and response by Argentina

 

The central problems to solve were: a) to prove an import growth that could be considered unforeseen, recent, unexpected, serious and important, both quantitatively and qualitatively; b) to eliminate imports from Mercosur; and c) under the new evidence, to prove serious injury and causality.

Conclusion

Finally we can say that safeguard and exchange rate policy[xvii], regional safeguards[xviii], use of WTO safeguard and trade liberalization[xix] and ambiguous multilateral agreements[xx] are the main lessons in this case. Specially GATT Art. XIX:1(a) (unforeseen developments): Having determined that any safeguard measure imposed after the entry into force of the WTO Agreement must comply with the provisions of both the SA and GATT Art. XIX, the Appellate Body reversed the Panel’s conclusion that the GATT Art. XIX:1(a) “unforeseen developments” clause does not add anything additional to the SA in respect of the conditions under which a safeguard measure may be applied. It found instead that Art. XIX:1(a), although an independent obligation, describes certain circumstances that must be demonstrated as a matter of fact. The Appellate Body did not however complete the Panel’s analysis in this regard.[xxi]

The Appellate Body has concluded that: [t]he application of a safeguard measure does not depend upon “unfair” trade actions, as is the case with anti-dumping or countervailing measures. Thus, the import restrictions that are imposed on products of exporting Members when a safeguard action is taken must be seen, as we have said, as extraordinary. And, when construing the prerequisites for taking such actions, their extraordinary nature must be taken into account.[xxii]

 

In Argentina – Footwear (EC), the Panel considered that, since the wording of Article 2.1 of the SA refers to quantities, the analysis of domestic authorities and panel review must focus on quantities rather than value. Therefore this case is foot print for the safeguard measures in the world trade.

… …

Suggested Citation

OSCOLA:

B. Kalyani M. Jayasekera, ‘WTO Safeguard Measures: Lessons from the Argentine Footwear Case’ (South Asia Canteen 2014) <https://southasiacanteen.wordpress.com/2014/03/13/wto-safeguard-measures-lessons-from-the-argentine-footwear-case/&gt; accessed

Endnotes


[i] GPS Monthly report from CIBC World Markets Inc., http://research.cibcwm.com/ (retrieved 3 July 2011).

[ii] In this Modulethe Agreement on Safeguards, the GATT 1994 and the other WTO texts are referred to with their official names, it being understood that legally they constitute a single text together with the Marrakesh Agreement Establishing the World Trade Organization, to which they are annexed.

[iii] 1 (b) If any product, which is the subject of a concession with Respect to a preference, is being imported into the territory of a contracting party in the circumstances set forth in sub-paragraph (a) of this paragraph, so as to cause or threaten serious injury to domestic producers of like or directly competitive products in the territory of a contracting party which receives or received such preference, the importing contracting party shall be free, if that other contracting party so requests, to suspend the relevant obligation in whole or in part or to withdraw or modify the concession in respect of the product, to the extent and for such time as may be necessary to prevent or remedy such injury.

2. Before any contracting party shall take action pursuant to the provisions of paragraph 1 of this Article, it shall give notice in writing to the CONTRACTING PARTIES as far in advance as may be practicable and shall afford the CONTRACTING PARTIES and those contracting parties having a substantial interest as exporters of the product concerned an opportunity to consult with it in respect of the proposed action. When such notice is given in relation to a concession with respect to a preference, the notice shall name the contracting party which has requested the action. In critical circumstances, where delay would cause damage which it would be difficult to repair, action under paragraph 1 of this Article may be taken provisionally without prior consultation, on the condition that consultation shall be effected immediately after taking such action.

3. (a) If agreement among the interested contracting parties with respect to the action is not reached, the contracting party which proposes to take or continue the action shall, nevertheless, be free to do so, and if such action is taken or continued, the affected contracting parties shall then be free, not later than ninety days after such action is taken, to suspend, upon the expiration of thirty days from the day on which written notice of such suspension is received by the CONTRACTING PARTIES, the application to the trade of the contracting party taking such action, or, in the case envisaged in paragraph 1 (b) of this Article, to the trade of the

contracting party requesting such action, of such substantially equivalent concessions or other obligations under this Agreement the suspension of which the CONTRACTING PARTIES do not disapprove.

(b) Notwithstanding the provisions of sub-paragraph (a) of this paragraph, where action is taken under paragraph 2 of this Article

without prior consultation and causes or threatens serious injury in the territory of a contracting party to the domestic producers of products affected by the action, that contracting party shall, where delay would cause damage difficult to repair, be free to suspend, upon the taking of the action and throughout the period of consultation, such concessions or other obligations as may be necessary to prevent or remedy the injury.

[iv] Analytical Index to the GATT, Vol. 1, 1995, p. 537.

[v] This WTO safe guard measures introduced as to having in mind the overall objective of the Members to improve and strengthen the international trading system based on GATT 1994; Recognizing the need to clarify and reinforce the disciplines of GATT 1994, and specifically those of its Article XIX (Emergency Action on Imports of Particular Products), to re-establish multilateral control over safeguards and eliminate measures that escape such control; Recognizing the importance of structural adjustment and the need to enhance rather than limit competition in international markets; and Recognizing further that, for these purposes, a comprehensive agreement, applicable to all Members and based on the basic principles of GATT 1994

[vi] Dispute Settlement; United Nations’ Conference on Trade and Development; 2003; P.01

[vii] Article  2 of Agreement on Safeguards

[viii] Safeguard measures do not address a specific pricing behavior of exporting companies, but a more general increase in imports taking place under certain special circumstances. In addition, it is generally considered that safeguard measures address so called “fair trade”, that is exports occurring under normal competitive conditions.

Although the basic Article XIX provision was never supplemented during GATT 1947, this does not mean that the matter of safeguards did not raise the attention of the GATT Contracting Parties. One of the very first cases taken to dispute settlement – the “Hatter’s Fur” or “Fur Felt Hats” case 7 – concerned a measure taken by the United States against imports of women’s fur felt hats and hat bodies, challenged by Czechoslovakia.

[ix] The CNCE was created in 1994 and assigned the responsibility for the injury investigations in antidumping, subsidy and safeguards investigations. Knowing that the injury test was the instance that stopped protectionist demands, the goal of the policymakers that created the CNCE, was a highly professional office that would filter the deserving from the undeserving petitions (Nogués and Baracat 2005).

[x] Thus, at the beginning of the 1990s, there were three dominant sports footwear producers – Alpargatas Calzados, Gatic and Unisol, which together employed a little more than 10,000 workers and represented one third of the total pairs of all types of footwear produced by the industry.

[xi] The traditional footwear industry was located in the main urban centers, while the three major sports footwear manufacturers had located their eighteen plants in regions that were removed from the major consumption cities, and here, they were important major if not the most important employers (CNCE 1997). Obviously the high employment dependency in these locations which generally were relatively poor areas, increased the political visibility of the petition. This visibility was also heightened by the rapidly increasing unemployment of the1990s

[xii] Article 2: Conditions

1.        A Member(1) may apply a safeguard measure to a product only if that Member has determined, pursuant to the provisions set out below, that such product is being imported into its territory in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products.

2.        Safeguard measures shall be applied to a product being imported irrespective of its source.

Article 4: Determination of Serious Injury or Threat Thereof

2.       (a)          In the investigation to determine whether increased imports have caused or are threatening to cause serious injury to a domestic industry under the terms of this Agreement, the competent authorities shall evaluate all relevant factors of an objective and quantifiable nature having a bearing on the situation of that industry, in particular, the rate and amount of the increase in imports of the product concerned in absolute and relative terms, the share of the domestic market taken by increased imports, changes in the level of sales, production, productivity, capacity utilization, profits and losses, and employment.

(b) The determination referred to in subparagraph (a) shall not be made unless this investigation demonstrates, on the basis of objective evidence, the existence of the causal link between increased imports of the product concerned and serious injury or threat thereof. When factors other than increased imports are causing injury to the domestic industry at the same time, such injury shall not be attributed to increased imports.

(c) The competent authorities shall publish promptly, in accordance with the provisions of Article 3, a detailed analysis of the case under investigation as well as a demonstration of the relevance of the factors examined.

Article 5: Application of Safeguard Measures

1.        A Member shall apply safeguard measures only to the extent necessary to prevent or remedy serious injury and to facilitate adjustment. If a quantitative restriction is used, such a measure shall not reduce the quantity of imports below the level of a recent period which shall be the average of imports in the last three representative years for which statistics are available, unless clear justification is given that a different level is necessary to prevent or remedy serious injury. Members should choose measures most suitable for the achievement of these objectives.

Article 6: Provisional Safeguard Measures 

In critical circumstances where delay would cause damage which it would be difficult to repair, a Member may take a provisional safeguard measure pursuant to a preliminary determination that there is clear evidence that increased imports have caused or are threatening to cause serious injury. The duration of the provisional measure shall not exceed 200 days, during which period the pertinent requirements of Articles 2 through 7 and 12 shall be met. Such measures should take the form of tariff increases to be promptly refunded if the subsequent investigation referred to in paragraph 2 of Article 4 does not determine that increased imports have caused or threatened to cause serious injury to a domestic industry. The duration of any such provisional measure shall be counted as a part of the initial period and any extension referred to in paragraphs 1, 2 and 3 of Article 7.

Article 12: Notification and Consultation 

1.        A Member shall immediately notify the Committee on Safeguards upon:

(a)        initiating an investigatory process relating to serious injury or threat thereof and the reasons for it;

(b)        making a finding of serious injury or threat thereof caused by increased imports; and

(c)        taking a decision to apply or extend a safeguard measure.

2.        In making the notifications referred to in paragraphs 1(b) and 1(c), the Member proposing to apply or extend a safeguard measure shall provide the Committee on Safeguards with all pertinent information, which shall include evidence of serious injury or threat thereof caused by increased imports, precise description of the product involved and the proposed measure, proposed date of introduction, expected duration and timetable for progressive liberalization. In the case of an extension of a measure, evidence that the industry concerned is adjusting shall also be provided. The Council for Trade in Goods or the Committee on Safeguards may request such additional information as they may consider necessary from the Member proposing to apply or extend the measure.

[xiii] Ibid 12

[xiv]  Sykes; Use of Safeguards and Antidumping in Latin America (Buenos Aires, May 24-25, 2004); The World Bank.

[xv] On this decision to revive Article XIX (1) of GATT, Sykes (2003) argues that the Appellate Body should have at least explained its specific requirements: “At what point in time must the events in question have been unforeseen: the time of the last tariff concession? What if the last concession on the product was decades ago – could anything today have been foreseen? And other questions alike” (page 277).

[xvi] More specifically, the Appellate Body’ conclusion was: “In the light of all of this, we do not agree with the Panel that any safeguard investigations conducted or safeguard measures imposed after the entry into force of the WTO Agreement “which meet the requirements of the new Safeguards Agreement satisfy the requirements of Article XIX of GATT.” (emphasis added) Therefore, we reverse the Panel’s conclusion in

paragraph 8.69 of the Panel Report that safeguard measures imposed after entry into force of the WTO Agreement which meet the requirements of the Agreement on Safeguards necessarily “satisfy” the requirements of Article XIX of the GATT 1994, as well as the Panel’s finding that the Uruguay Round negotiators “expressly omitted” the clause – “as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions … ” – from Article 2 of the Agreement on Safeguards” (WTO 1999a, para. 97).

[xvii] In the last few years, Argentina opened its economy unilaterally while at the same time its currency became overvalued. In this process, labor-intensive industries such as textiles and footwear, which had been strongly protected for many decades, faced an important increase in import competition. Confronted with this problem, the government provided temporary relief measures first through the DIEMs and later with the WTO

safeguard measures. The evidence indicates that the impact of these policies on imports was only a fraction of the effects that the early 2002 devaluation of the peso had (Graphs VI.1a and VI.2a). The lesson here is that a flexible exchange rate regime would had been a more effective import-relief policy than any of those that were actually implemented.

[xviii] The safeguards applied by Argentina in favor of its footwear industry to imports from third countries created important trade-diversion effects in favor of Mercosur. Given Brazil’s status as a major footwear exporter and the absence of a safeguard instrument to facilitate intra-regional adjustment, the discriminatory import-relief measures became a weak and quite ineffective relief policy. The lesson here is that member countries

underestimated the costs and length of time required for adjusting to free intra-regional trade. Unlike Mercosur, most other regional agreements have adopted some form of adjustment-smoothing policies.

[xix] Broad unilateral trade liberalization programs like those implemented by many developing countries should constitute the base against which to assess the increase in imports and the implementation of relief measures. Under these types of programs, there will always be unforeseen developments and adjustment processes of uncertain duration. With the WTO jurisprudence that has been established by its Appellate Body, developing countries have been stripped of a powerful argument to convince their political sectors of the advantages of opening their economies.a

[xx] Article XIX and the Agreement on Safeguards do not offer a clear framework of rules for implementing safeguard measures. The lesson here well stated by Sykes (2003) is that it is a serious error to negotiate ambiguous multilateral agreements on the expectation that at a later date the WTO Dispute Settlement Mechanism will clarify them.

[xxi] SA Art. 2 (parallelism): The Appellate Body upheld the Panel’s ultimate conclusion that, based on the ordinary meaning of Arts. 2.1, 2.2 and 4.1(c), a safeguard measure must be applied to the imports from “all” sources from which imports were considered in the underlying investigation, and found that Argentina’s investigation was inconsistent with Art. 2 since it excluded imports from MERCOSUR from the application of its safeguard measure while it had included those imports from MERCOSUR in the investigation.

• SA Arts. 2.1 (application of safeguard measures) and 4.2(a) (injury determination – increased imports): The Appellate Body found that the “increased imports” element under the SA requires not only an examination of the “rate and amount” (as opposed to just comparing the end points) of the increase in imports, but also a demonstration that “imports must have been recent enough, sudden enough, sharp enough and significant enough, both quantitatively and qualitatively, to cause or threaten to cause ‘serious injury'”. Argentina had failed to consider

adequately import trends and quantities.

• SA Art. 4.2(a) (injury determination – serious injury): The Appellate Body agreed with the Panel’s interpretation that Art. 4.2(a) requires a demonstration of “all” the factors listed in Art. 4.2(a) as well as all other factors relevant to the situation of the industry concerned. Argentina had failed to meet the requirement.

• SA Art. 4.2(b) (injury determination – causation): The Appellate Body upheld the Panel’s legal finding that a causation analysis requires an examination of: (i) the relationship (coincidence of trends) between the movements in imports and injury factors; (ii) whether the conditions of competition demonstrate a causal link between imports and injury; and (iii) whether injury caused by factors other than imports had not been attributed to imports. The Appellate Body upheld the finding that Argentina’s findings on causation were not adequately explained and supported by evidence.

Other issues addressed: terms of reference (modified measures, DSU Art. 6.2); “All pertinent information” (SA Art. 12.2); passive observer status; terms of reference (DSU Art. 7); standard of review; basic rationale of panel findings (DSU Art. 12.7).

[xxii] Appellate Body Report, Argentina – Footwear (EC), WT/DS121/AB/R, para. 94.

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