Safeguard Measures Are Rights Conferred
Safeguard measures are rights conferred upon a WTO member to protect the domestic industry from serious harm cased by import and trade concessions. Safeguard measures are imposed through mechanism like tariff, quotas, etc. Safeguard measures are not there to protect the unfair trade or remove certain trade distortions by exporters that generally happen in case of antidumping. On the contrary safeguard measures actually allow fairly traded imports to be restricted but only on satisfaction of certain preconditions.
Benefits Of Safeguard Measures:
Firstly they maintain a balance between Trade and Politics: for example, trade may lead to prosperity of a nation but when a particular group of producers producing like or directly competitive products to those that are being imported in such large quantities that they are actually adversely affecting the guild of producers then they form a lobby against such imports and pushes the government to take safeguard measures to restrict them. Therefore government gets to play a role of a balancer between trade benefits and also takes significant political decisions to protect domestic industries also.
Secondly safeguard measures are considered as Political Safety Valve so that national policy makers should not hesitate to pursue a long term free trade strategy.
Thirdly, they extend protection to workers and firms that suffer from trade related liberalization or trade related injury
Fourthly they provide a breathing space so that countries can take actions necessary on a macro or a micro economic level either to resolve competition and encourage efficiency of their own industry or to undertake an orderly contraction.
GATT or WTO provides for two general safeguards in the field of textiles agriculture and services mainly. Article XIX of the Agreement on Safeguards is the operative provision as far as imposition of the safeguard measures are concerned. The roots of the contemporary escape clause are in Article XIX of GATT lies in American trade law of early 1940s. The inception of the existing safeguard clause that we see today could be traced back to the 1943 accord between United States and Mexico, a trade agreement negotiated pursuant to the Reciprocal Trade Agreement Act of 1934 which contained the first escape clause. Article XIX was formally introduced into GATT 1994 once it was approved at the Uruguay round. Apart from this Article XII and XVIII B that deals with adoption of import restrictions for balance of payment reasons but they have a somewhat diminished importance now.
Article XIX, GATT is often referred to as the escape clause. As the name suggests, this provision provides a leeway to countries from their WTO obligations by imposing safeguard measures. But for this Article XIX requires 2 measures to be satisfied.
There must be increase in import of product in question
Increase in imports must be caused by developments that are not foreseen.
The increase in imports should threaten to cause serious injury.
Article XIX of the GATT addresses circumstances in which unforeseen developments and the effect of GATT obligations result in increased quantities of imports that cause or threaten to cause serious injury. The causal chain therefore begins with unforeseen development. As a natural corollary therefore it can be argued that the clause in question requires members to establish the existence of unforeseen developments that led to increases in imports.
However it is interesting to note that another instrument of World Trade Law which is known as the WTO Agreement on Safeguards also deals with imposition of safeguard measures wherein, the general conditions cited above, in Article XIX para 1(a) for imposition of safeguard measures is also set out in Article 2 of the Safeguards Agreement(SA). Article 2 of SA is almost a verbatim repetition of Article XIX GATT but unforeseen development clause is not included in it. This has in face led to a lot of confusion in interpretation of the safeguard clause which is the reason why a study of the unforeseen development clause becomes all the more relevant.
Article XIX GATT V/S Article
Agreement On Safeguards
The conflict therefore was the difference between conditions for the application of the safeguard measure as distinguished from circumstances that must be shown. For this purpose we have to break article XIX 1(a) into two parts. The opening statement of this article starts with and ‘if' and this is directly linked to the second portion of this Article which talks about the conditional requirements like
Product has to be imported in such quantities so as to cause serious injury or threat of serious injury to the domestic producers.
These are precisely the conditions that are set out in Article 2.1 of The WTO Agreement on Safeguards. The additional condition of unforeseen developments was added later on under the GATT as an extra ground for imposition of safeguard.
The opening statement of this Article which said - “..as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions…” together forms the dependant clause which is dependent on the conditional requirements.
Therefore, though Article 2.1 of the AS repeats all other conditions of Article XIX it makes no mention of the unforeseen developments clause and the effect of obligations incurred requirement. Their omission from the otherwise parallel text hints that Uruguay round negotiators were content for them to remain dead letters. However Agreement on safeguard does not supplant Article XIX.
One of the first cases before the WTO Dispute Settlement Body (DSB) which raised the question of unforeseen developments was brought about by the European Communities (EC) in 1997 against measures in the Korean dairy industry.
The panel, favouring Korea in Korea-Dairy, observed that that the term “unforeseen developments” is a linguistic verbiage which merely adds on to the conditional requirements and does not qualify them. “Unforeseen developments” cannot exist independently. Therefore Unforeseen Development does not impose any additional obligation for imposition of safeguard measures. Also, it was not incorporated expressly under Article 2 of The WTO Agreement on Safeguards which merely talked about increased imports that injures or seriously threatens to injure the domestic industry of like or DCPs itself goes on to show that unforeseen development is not an essential criteria. Therefore the First clause merely describes certain circumstances which must be demonstrated as a matter of fact in order for the safeguard measures to be applied in consistently with the provisions of Article XIX of the GATT 1994.
Further the Panel also argued that the impact of removing Unforeseen Development as a preexisting obligation would strengthen multinational safeguards regime. The panel reasoned this out by saying this would ensure that the members invoke it only as an emergency action and not as any grey area measure.
The EC, and The Appellate Body in this case argues that imports should increase both as a result of unforeseen developments as envisaged under Article XIX and because of effect of tariff concessions or any other obligations as envisaged under Article 2.1 of the Safeguards Agreement.
Secondly they contend that Article 2.1 of SA and Article XIX 1(a) of they should be read together and not in isolation because WTO agreement is a single undertaking and both Agreement on Safeguards and GATT are components of it. So all WTO obligations should have a cumulative enforcement.
Further they contended that the object and purpose of the Safeguard measure was to find a solution to unpredictable nature of certain emergency situations in world trade and so that countries can take a swift action. Also, Unforeseen Developments clause acts as a barrier against random application of safeguards mechanism to withdraw from liberalization obligation due to developments which were actually foreseeable and used just to restrict free trade.
Therefore unforeseen development is not a derogable but a mandatory clause.
The Appellate Body came to very similar conclusion in Argentina Footwear case as well. The Panel in Argentina Footwear emphasized the express omission of unforeseen developments requirement from AS. Panel concluded that compliance with the requirement of AS regarding the prerequisites for safeguard measures should also be deemed compliance with Article XIX.
The EC and Appellate body had also contended that the panel had interpreted Unforeseen developments contrary to the ordinary meaning of the term. The ordinary meaning has been already laid down in Hatter's Fur Case.
Therefore the important questions that are to be asked now are:
How can “unforeseen development” be actually defined?
How do nations actually prove factually that an unforeseen development has taken place?
The answer depends on the resolution of several other questions.
Meaning Of Unforeseen Development
In both Korea Dairy case and Argentina Footwear's case, the appellate body offered some initial thoughts on the meaning of unforeseen developments requirements.
The appellate body while construing the true meaning of unforeseen developments in the light of object and purpose of Article XIX, first looked into the ordinary meaning or the dictionary meaning of the term unforeseen developments. The dictionary meanings are “unexpected”, “unpredictable” or “incapable of being foreseen, foretold or anticipated”. The appellate body thus observed that unforeseen developments in this case would mean developments which led to a product being imported in such increased quantities and under such conditions so as to cause or threaten to cause serious injury to domestic products must have been “unexpected”. However no guidance as to what constitutes “unexpected” is not laid down. Neither is there any explanation or examples to further explain the term either in Article XIX of GATT 1994 or the AS. In such cases the only plausible reason why this term is left so open to interpretation is because deals with unexpected developments which by definition is difficult to anticipate precisely.
Further, the very nature of the agreements that incorporate this term makes it all the more indeterminable. The Hatters' Fur case, stated: “…'unforeseen developments' should be interpreted to mean developments occurring after the negotiation of the relevant tariff concession which the negotiators could not have expected at the time of negotiation. This gives us the relevant point in time for the assessment of what is “unexpected” and is the point in time at which the “relevant tariff concession” was negotiated. That point was easy to determine at the time of Hatter's Fur, of course, because there had been only one negotiating round of WTO. However today's situation is different because there has been several GATT round negotiations in such cases since then. What is the exact time of negotiation is difficult to determine. Then how can we determine the time factor which is essential for assessing expectations? Sykes notes that each round of agreement tends to reset the clock on what is foreseen since an agreement virtually lasts fro few decades rather than a few years. GATT negotiations are on going, with new negotiating rounds happening every decade or so. Again Sykes himself offers us a solution to this problem; he says “This dilemma is put to rest by considering the fact that the final negotiation has taken place in 1994. This can be taken to have reset the clock on trade negotiations as far as assessing expectation is concerned.”
Another implication that this case has is that, what was unexpected was an objective test. One does not inquire what was in fact foreseen by the relevant trade negotiations, but what they “could and should have foreseen” at the time. This does not therefore call upon the evidentiary value of the prior trade negotiations, but on the information that was available at that point of time.
In the US Steel Products case also the Appellate Body failed to clarify as to what constitutes unforeseen developments. Even in cases like US - Steel Products the Appellate Body failed to clarify the meaning of this clause but once again held that the United States must demonstrate that unforeseen developments caused the increase in imports and resulting in injury.
There has been a lot of uncertainty with respect to unforeseen developments with respect to some other cases as well, for example in US - Wheat Gluten the panel saw no need to deal with unforeseen developments clause in the interest of judicial economy. In US - Lamb Meat Case, the United States devised a new argument against the requirement that there should be a showing of unforeseen developments under Article XIX in order to apply safeguards measures.
As far as procedural requirements are concerned both Korea-Dairy and Argentina-Footwear the Appellate Body has made it clear that the National Authorities should clearly come up with demonstrations of unforeseen developments for their safeguards which would justify the imposition of the Safeguard measures and only after having satisfied this criteria can they impose the safeguard measure. In United States - Lamb case the US had not properly demonstrated the existence or threat of unforeseen development in any of their report before imposing the safeguard restrictions. US on the contrary contended before the panel as well as Appellate Body that the US law did not require any such analysis before the imposition of safeguards measures. The United States, relying on the 1951 Hatter's Fur GATT panel decision suggested that specific developments in the marketplace leading to an injurious import surge will not normally be ‘foreseen' by negotiators at the time of making tariff concessions.Therefore, under such circumstances, the competent authority has to provide a factual basis or a finding of unforeseen developments incorporated in some sort of a report. After it is seen that such facts are actually proved, the complaining parties have the burden of proving that the factual basis is insufficient. If they fail to do so then they shall fail in their claim too.
Having said so, the important question to be asked now, is when where and how can demonstrations be proved?
In US-Lamb Meat Case United States International Trade Commission (USITC) did not consider unforeseen developments at all. Factually, the USITC report was completed seven months before the Appellate Body Reports in these two cases were circulated, which explained why the USITC's report did not address unforeseen development. The Appellate Body held that this could in no way be taken as an excuse. As the Appellate Body addressed the issue of “when” and “where” the demonstration of unforeseen developments should occur but avoided deciding “how”. As to when and where, since unforeseen development determination is a prerequisite for imposition of safeguards measures, it follows that demonstration has to be made before such measures are applied, that is in the form of a competent authorities report. The Appellate Body observed that although there are no prior guidelines as to how unforeseen developments are to be demonstrated, none the less they are to be demonstrated as a matter of fact. Otherwise the legal basis of such measure would stand flawed. It follows that demonstration has to be made before such measures are applied, in other words they have to be states along with the reports. In this case since the USITC did not submit a reasoned conclusion of unforeseen developments, USITC could not be said to have considered unforeseen developments at all. Having failed in doing so United States cannot successfully invoke unforeseen developments clause. The same observation was also made by the Appellate Body in Korea Dairy case.
Problems With Unforeseen Development Clause
The first problem is the clear conflict between Article XIX of GATT 1994 and Article 2.1 of the AS which is explained before.
The second problem is that, no guidance is given as to what constitutes an unforeseen development. This clause is not further defined or illustrated by way of examples either in Article XIX of the GATT 1994 or in Agreement on Safeguards. Professor Lee argues that this clause is too ambiguous to be an objective legal requirement.
Third, although the Appellate Body, in a number of cases like, Korea Dairy, Argentina Footwear, US Lamb Meat, US Line Pipe, US Steel has been clear that unforeseen development is a mandatory condition, in spite of the fact that the term does not find a place in the AS. However neither the Appellate Body not the Panel in these cases has clarified the meaning of unforeseen developments.
Fourth, ‘foreseeablilty of those developments have become the standard to determine the existence of ‘unforeseen developments'. Therefore, to understand foreseeability, one has to determine the point of time in which the relevant tariff concession was negotiated. But this is not a simple task today as it was at the time of Hatters' Fur. This is because Hatter's Fur was negotiated at a point of time when concession was being negotiated and there had been only one negotiating round in 1947. However many of the tariff concessions now in place within the WTO were negotiated under GATT are decades old
Fifth, the addition of such requirement is not consistent with the intent of the negotiations in the Uruguay Round. In fact the negotiation history reveals that the draft version of AS did contain the unforeseen developments clause. By mid-1990, however, the clause was omitted from the draft, while other conditions of Article XIX were repeated almost verbatim. Therefore, it is only reasonable to conclude that this was intentional.
Lastly, the requirement of unforeseen developments does not seem to serve any useful purpose. It is unlikely that any Member would have granted import concessions had they foreseen any developments that would lead to serious injury or threat thereof to their domestic industry.
The academia in general agrees with the fact that Appellate Body's revival of unforeseen developments clause was a mistake because it creates considerable hurdle for WTO members while implementing safeguard measures.
Many national laws like the U.S. law and even the Indian law, do not have this requirement. The draft version of AS did contain the unforeseen developments clause. However, by mid-nineties, this clause was omitted while the other conditions of Article XIX were repeated almost verbatim. [Both the EC and the US rejected this clause as being too difficult or restrictive to apply.] Even after the implementation of the Agreement on Safeguards, the demonstration of unforeseen developments has been omitted in the vast majority of safeguards applications, suggesting that many members have not perceived the demonstration of unforeseen developments as a legal requirement for the application of a safeguard measure.
Therefore AS sets comprehensive rules for application of a safeguard measure. Therefore there is no need to include all the requirement of Article XIX, in fact it will not be a bad idea to do away with this clause all together because it will reduce a lot of confusion. Therefore the revival of unforeseen developments clause by the Appellate Body can be considered a legal mistake and the same should be removed from the discipline on safeguards
Raj Bhala, Modern GATT Law, A treatse on the General Agreement on Tariff and Trade, Sweet and Maxwell Publications
Allan O. Sykes, The WTO Agreement on Safeguards, A commentary, (2006) Oxford University Press.
Yong Shik Lee, Safeguard Measures in World Trade, (2005) Kluwer Law International
Tilottama Roy Choudhuri, Dissertation paper, Causation in Safeguards under GATT and WTO,(200 ) WBNUJS.
TVGN Sudhakar, J Adithya Reddy, “Does the Agreement on Safeguards Frustrate Its own purpose?” P Satyanarayan Prasad(Editor) World Trade Safeguard Mechanism, Amicus Books
Sheela Rai, “Safeguard Measures in WTO”, eSS Working Paper/International Trade-WTO/Rai August 2007
URL: http://www.eSocialSciences.com/data/articles/Document1882007540.2265894.pdf Last visited: 07.04.2010
Robert A. Rogowsky, “WTO Disputes: Building International Law on Safeguards”, Available at http://www.vsb.org/docs/valawyermagazine/jj01rogowski.pdf last visited on 17.03.10
Kore-Definitive Safeguard Measures on the Imports of Certain Dairy Products, (Korea Dairy Products)WT/DS98
Argentina - Safeguard Measures on the Imports of Footwear (Argentina -- Footwear) WT/DS/121
United States - Safeguard Measures on Imports of Certain Steel Products(United States -- Steel) WT/DS/248/AB/R
United States - Lamb Meat Appellate Body Report (WT/DS/178/AB/R)
Korea Definitive Safeguard Measures on Import of Certain Dairy Products (WT/DS98/AB/R)
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