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Three Wrongs Do Not Make a Right: The Conundrum of the US Steel and Aluminum Tariffs

Published online by Cambridge University Press:  14 May 2019

YONG-SHIK LEE
YONG-SHIK LEE*
Affiliation:
The Law and Development Institute
*
*Email: yslee@lawanddevelopment.net.
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Abstract

In March 2018, the United States enacted tariff increases on a vast range of imported steel and aluminum products. The Trump administration cited national security concerns as the justification, claiming an exception under GATT Article XXI. In response to these tariffs, several WTO Members, including the European Union, Canada, Mexico, China, Russia, and Turkey, adopted their own tariffs against imports from the United States, justifying their tariffs under the WTO Agreement on Safeguards. Other Members, such as South Korea, Brazil, and Argentina opted for quota agreements on these exports with the United States in exchange for exemption from the tariffs. This article argues that none of these measures is consistent with WTO rules. The sweeping tariffs that the United States have adopted, the retaliatory measures that several Members have implemented, and the bilateral quota agreements that three Members concluded with the United States are indeed ‘three wrongs’ that do not make a right, but rather endanger the stability of the international trading system under WTO legal disciplines.

Type
Snipings
Information
World Trade Review , Volume 18 , Issue 3 , July 2019 , pp. 481 - 501
Copyright
Copyright © Yong-Shik Lee 2019 

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Footnotes

The author is grateful to Ms. Annelie Ellen Stallings for her editorial assistance.

The rubric ‘Snipings’, which has been dormant since 2011, is intended for contributions which, while rigorous, offer early analyses of issues of immediate policy relevance for the multilateral trading system. They would normally be shorter and possibly be less extensively documented than our standard articles with a view to stimulating current debates. They are subject to standard, albeit expedited, refereeing procedures. Further submissions under this heading are welcome.

References

1 Proclamation 9705 of 8 March 2018 ‘Adjusting Imports of Steel into the United States’, 83 Federal Register 11625 (15 March 2018); and Proclamation 9704 of 8 March 2018 ‘Adjusting Imports of Aluminum Into the United States’, 83 Federal Register 11619 (15 March 2018).

2 As amended 19 U.S.C. 1862.

3 US Department of Commerce, ‘The Effect of Imports of Steel on the National Security’, An Investigation Conducted under Section 232 of the Trade Expansion Act of 1962, as amended 11 January 2018 (‘Steel Report’) and ‘The Effect of Imports of Aluminum on the National Security’, An Investigation Conducted under Section 232 of the Trade Expansion Act of 1962, as amended 17 January 2018 (‘Aluminum Report’).

4 Ibid.

5 Ibid.

6 The president acted on the secretary's counsel that steel and aluminum products were ‘being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security of the United States’ and that actions to adjust the imports of steel articles and aluminum were necessary ‘so that such imports will not threaten to impair the national security’. Supra note 1.

7 It is a new HTS heading pursuant to trade legislation and covers iron or steel products categorized under existing HTS headings including: flat-rolled products provided for in headings 7208, 7209, 7210, 7211, 7212, 7225, or 7226; bars and rods provided for in headings 7213, 7214, 7215, 7227, or 7228; angles, shapes and sections of 7216 (except subheadings 7216.61.00, 7216.69.00, or 7216.91.00); wire provided for in headings 7217 or 7229; sheet piling provided for in subheading 7301.1 0.00; rails provided for in subheading 7302.10; fish-plates and sole plates provided for in subheading 7302.40.00; and other products of iron or steel provided for in subheading 7302.90.00; tubes, pipes, and hollow profiles provided for in heading 7304, or 7306; tubes and pipes provided for in heading 7305; ingots, other primary forms and semi-finished products provided for in heading 7206, 7207, or 7224; and products of stainless steel provided for in heading 7218, 7219, 7220, 7221, 7222, or 7223.

8 The covered aluminum products include: unwrought aluminum provided for in heading 7601; bars, rods, and profiles provided for in heading 7604; wire provided for in heading 7605; plates, sheets, and strip provided for in 7606; foil provided for in heading 7607; tubes, pipes, and tube or pipe fittings provided for in heading 7608 and 7609; and castings and forgings of aluminum provided for in subheading 7616.99.51.

9 World Trade Organization, Disputes by Member, www.wto.org/english/tratop_e/dispu_e/dispu_by_country_e.htm (accessed 13 December 2018); United States – Certain Measures on US Steel and Aluminum Products (US–Steel and Aluminium Products (China)), WT/DS550, WT/DS563, WT/DS548, WT/DS547, WT/DS551, WT/DS552, WT/DS554, WT/DS556, WT/DS564.

10 WTO docs. G/SG/N/12/EU/1 (18 May 2018); G/SG/N/12/RUS/2 (22 May 2018); G/SG/N/12/CHN/1 (3 April 2018); G/SG/N/12/TUR/6 (22 May 2018); G/SG/N/12/IND/1/Rev.1 (14 June 2018), ‘Customs Notice 18-08: Surtaxes Imposed on Certain Products Originating in the United States’ (29 June 2018, revised 11 July 2018) (Canada); ‘Decree Modifying the Tariff Schedule of the Law of General Import and Export Taxes’, ‘Decree Establishing the General Import Tax Rate Applicable during 2003 for Goods Originating in North America, and the Decree Establishing Various Sectoral Promotion Programs’ (enacted 5 June 2018; effective 5 June 2018) (Mexico).

11 US–Steel and Aluminium Products (China), supra note 9.

12 WTO docs. G/SG/N/12/EU/1 (18 May 2018); G/SG/N/12/RUS/2 (22 May 2018); G/SG/N/12/CHN/1 (3 April 2018); G/SG/N/12/TUR/6 (22 May 2018); G/SG/N/12/IND/1/Rev.1 (14 June 2018).

13 SA, art. 8.2.

14 See WTO, ‘Communication from the United States’, WT/DS548/13 (6 July 2018).

15 WTO docs (2018), WT/DS557/1, WT/DS558/1, WT/DS559/1, WT/DS560/1, WT/DS566/1, WT/DS561/1.

16 Ibid.

17 Gray-area measures refer to voluntary measures to reduce trade, such as voluntary export restraints (VERs), orderly market arrangements (OMAs), and voluntary restraint agreements (VRAs) proliferated in the 1970s and 1980s and applied in the form of agreement between the exporting and importing countries. SA, art. 11.1(b).

18 See Office of the United States Trade Representative (USTR), ‘2018 Trade Policy Agenda and 2017 Annual Report’ (2018), https://ustr.gov/about-us/policy-offices/press-office/reports-and-publications/2018/2018-trade-policy-agenda-and-2017 (accessed 13 January 2019).

19 According to the WTO dispute record, GATT Article XXI was invoked only once in 1998. WTO, ‘India – Import Restrictions – Request for Consultations by the European Communities’, WT/DS149/1 (12 November 1998). There were a few reported cases invoking Article XXI during the previous GATT era (1948–1994). See WTO, Analytical Index: Guide to GATT Law and Practice (Analytical Index) (6th edn, WTO, 1995), at 599–610Google Scholar.

20 GATT 1994, art. XXI.

21 Ibid.

22 A view raised by the representative of India at the GATT's 47th session in December 1991 concerning trade measures for non-economic purposes against Yugoslavia. GATT, SR.47/3 (1991), at 5.

23 Ibid.

24 GATT, CP.3/SR.22, Corr. 1 (1949). Caution was advised ‘not to take any step which might have the effect of undermining the General Agreement’.

25 Scholars have pointed out ambiguity about the provision of Article XXI, particularly of its key terms, such as ‘essential’ security interests and ‘emergencies in international relations’. See Cann, W. A. Jr., ‘Creating Standards and Accountability for the Use of the WTO Security Exception: Reducing the Role of Power-Based Relations and Establishing a New Balance between Sovereignty and Multilateralism’, 26 Yale Journal of International Law (2001), 413–485, at 423Google Scholar and Lindsay, P., ‘The Ambiguity of GATT Article XXI: Subtle Success or Rampant Failure?’, 52 Duke Law Journal (2003), 1277–1313Google Scholar. For further discussion of Article XXI, see Hahn, M. J., ‘Vital Interests and the Law of GATT: An Analysis of GATT's Security Exception’, 12 Michigan Journal of International Law (1991), 558–620, at 595Google Scholar.

26 GATT, ‘Second Session of the Preparatory Committee of the United Nations Conference on Trade and Employment’, EPCT/A/PV/33 (24 July 1947), at 20–21. See also EPCT/A/SR/33 (24 July 1947), at 3, as cited in WTO, Analytical Index, supra note 19, at 600, fn. 1. Michael Hahn also stated that Article XXI is not an unrestricted or open-ended provision allowing nations to escape their GATT obligations. Hahn, supra note 25, at 579.

27 WTO, Analytical Index, supra note 19.

28 A view has been raised that the circumstance described in (iii) might be applicable in relation to a possible US justification under Article XXI, at least in relation to China. However, neither country has declared the existence of war or other ‘emergency’ in their relations. There seems to be no other circumstance that indicates otherwise, except, perhaps, the tension in their trade relations that has been escalated by the measures in question.

29 See ‘Communication from the United States’, supra note 14.

30 See R. P. Alford, ‘The Self-Judging WTO Security Exception’, Utah Law Review (2011), 697–759.

31 Ibid., at 758.

32 WTO, Analytical Index, supra note 19, at 603.

33 Ibid., at 603, fn. 22.

34 The shoe quota was removed in 1997 due to the concerns raised in the GATT Council over its validity. Ibid., at 603.

35 WTO, ‘Dispute Settlement Understanding’ (DSU), art. 26, para. 1.

36 Panel Report, Korea – Definitive Safeguard Measure on the Imports of Certain Dairy Products, WT/DS98/R (21 June 1999), para. 7.30 and Panel Report, Argentina – Safeguard Measure on the Imports of Footwear (Argentina–Footwear), WT/DS121/R (25 June 1999), para. 8.124. The Appellate Body affirmed this approach, and the subsequent panels also followed it. Appellate Body Report, Argentina–Footwear, WT/DS121/AB/R (14 December 1999), paras. 116–122; Panel Report, United States – Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities, WT/DS166/R (25 June 1999), para. 8.5; Panel Report, United States – Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia (US–Lamb Meat), WT/DS177/R, WT/DS178/R (21 December 2000), para. 7.3; and Panel Report, Dominican Republic – Safeguard Measures on Imports of Polypropylene Bags and Tubular Fabric, WT/DS415~DS418/R (31 January 2012), para. 7.7.

37 Appellate Body Report, US–Lamb Meat, para. 141.

38 WTO, Disputes by Member, www.wto.org/english/tratop_e/dispu_e/dispu_by_country_e.htm (accessed 21 January 2019); US–Steel and Aluminium Products (China)), supra note 9.

39 For the imposition of anti-dumping measures, see WTO, ‘Anti-dumping Sectoral Distribution of Measures: By Reporting Member 01/01/1995–31/12/2017’, www.wto.org/english/tratop_e/adp_e/AD_Sectoral_MeasuresByRepMem.pdf (accessed 21 January 2019).

40 WTO, Disputes by Member, supra note 38.

41 ‘Steel Report’, supra note 3, and ‘Aluminum Report’, supra note 3.

42 Ibid.

43 As amended 19 U.S.C. 1862.

44 ‘Steel Report’, supra note 3, at 23; and Aluminum Report, supra note 3, at 23.

45 ‘Steel Report’, supra note 3, at 23–24.

46 ‘Aluminum Report’, supra note 3, at 24.

47 Steel Report, supra note 3, at 23. Aluminum Report, supra note 3, at 23.

48 Ibid.

49 Ibid.

50 See ‘Communication from the United States’, supra note 14.

51 WTO, Analytical Index, supra note 19.

52 See ‘Communication from the United States’, supra note 14. However, a recent WTO panel has found that it has jurisdiction to review Article XXI matters. WTO, Russia–Measures Concerning Traffic in Transit, Report of the Panel, WT/DS512/R (5 April 2019), paras. 7.53–7.58.

53 WTO docs., Customs Notice 18-08, Decrees, supra note 10.

54 Ibid

55 WTO docs., supra note 15.

56 Ibid.

57 Ibid.

58 WTO docs., Customs Notice 18-08, Decrees, supra note 10.

59 Lee, Y. S., ‘Safeguards’, in Schefer, K. N. and Cottier, T. (eds.), Encyclopedia of International Economic Law (Cheltenham: Edward Elgar, 2017), 263–266, at 263Google Scholar; and Lee, Y. S., Safeguard Measures in World Trade: The Legal Analysis, 3rd edn (Cheltenham: Edward Elgar, 2014), at 4CrossRefGoogle Scholar.

60 WTO doc. G/SG/N/12/EU/1 (May 18, 2018).

61 Ibid.

62 ‘Communication from the United States’, supra note 14.

63 US–Steel and Aluminium Products (China), supra note 9.

64 SA, art. 8.3.

65 Ibid., art. 8.2.

66 Appellate Body Report, Indonesia – Safeguard on Certain Iron or Steel Products (Indonesia–Iron or Steel Products), WT/DS496/AB/R (15 August 2018), para. 5.49.

67 The Appellate Body considered that ‘in order to constitute one of the ‘measures provided for in Article XIX’ [safeguard], a measure must present certain constituent features, absent which it could not be considered a safeguard measure. First, that measure must suspend, in whole or in part, a GATT obligation or withdraw or modify a GATT concession. Second, the suspension, withdrawal, or modification in question must be designed to prevent or remedy serious injury to the Member's domestic industry caused or threatened by increased imports of the subject product’ (Indonesia–Iron or Steel Product s).

68 Ibid., para. 5.60.

69 Ibid.

70 Proclamations 9705 and 9704, supra note 1.

71 Ibid.

72 ‘Communication from the United States’, supra note 14.

73 Ibid.

74 Proclamations 9705 and 9704, supra note 1.

75 Ibid.

76 Ibid.

77 Ibid.

78 Steel Report, supra note 3 and Aluminum Report, supra note 3.

79 Ibid.

80 Article 4.2 of the SA requires that ‘[i]n 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’.

81 Steel Report, supra note 3, at 27–40.

82 WTO, ‘Anti-dumping Sectoral Distribution of Measures’, supra note 39.

83 Steel Report, supra note 3, at 23–27.

84 Please see note 80.

85 Steel Report, supra note 3, at 41–51.

86 Aluminum Report, supra note 3, at 23–40.

87 Please see note 67.

88 Article 4.1 of the SA defines ‘serious injury’ as ‘a significant overall impairment in the position of a domestic industry’ and ‘threat of serious injury’ as ‘serious injury that is clearly imminent’. The Article also provides that [a] determination of the existence of a threat of serious injury shall be based on facts and not merely on allegation, conjecture or remote possibility. SA, art. 4.1(a) and (b).

89 US Department of Commerce, ‘Secretary Ross Releases Steel and Aluminum 232 Reports in Coordination with White House’, Press Release (16 February 2018).

90 Steel Report, supra note 3 and Aluminum Report, supra note 3.

91 For a further discussion of the DSU, see Matsushita, M., Schoenbaum, T. J., and Mavroidis, P. C., The World Trade Organization (New York: Oxford University Press, 2003), at 17–44Google Scholar; and Lee, Y. S., Reclaiming Development in the World Trading System, 2nd edn (Cambridge: Cambridge University Press, 2016), at 244–269CrossRefGoogle Scholar.

92 DSU, art. 23.2.

93 Ibid.

94 Proclamation 9710 of 22 March 2018 ‘Adjusting Imports of Aluminum into the United States’, 83 Federal Register 13355 (28 March 2018); and Proclamation 9711 of 22 March 2018, ‘Adjusting Imports of Steel into the United States’, 83 Federal Register 13361 (28 March 2018).

95 Proclamation 9740 of 30 April 2018, 83 Federal Register 20683 (May 7, 2018); Proclamation 9758 of 31 May 2018, 83 Federal Register 25849 (5 June 2018); and Proclamation 9759 of 31 May 2018, 83 Federal Register 25857 (5 June 2018).

96 Congressional Research Service (CRS), Section 232 Investigations: Overview and Issues for Congress (updated 21 November 2018), at 7.

97 T. McIlroy, ‘Australia's Exemption from Trump's Steel and Aluminum Tariff Extended’, Financial Review, 1 May 2018, www.afr.com/news/politics/australias-exemption-from-trumps-steel-and-aluminum-tariff-extended-20180501-h0zgxj (accessed 5 January 2018).

98 CRS, supra note 96.

99 SA, art. 11.1(b).

100 United States – Certain Measures on Steel and Aluminum Products – United States – Certain Measures on US Steel and Aluminum Products Request for consultations by Mexico, WT/DS551/1 (7 June 2018).

101 SA, art. 11.1(b).

102 Ibid., fn. 4.

103 Safeguards were available under the provisions of GATT Article XIX, but they were considered cumbersome, as Article XIX measures required injury assessment and compensation, and the application of safeguards may result in retaliation absent an agreement on compensation.

104 Stewart, T. P. (ed.), The GATT Uruguay Round: A Negotiating History (1986–1992) (The Hague: Kluwer Law and Taxation, 1993), at 1751–1752Google Scholar

105 Lee (2014), supra note 59, at 42–43.

106 SA, art. 11.1(b).

107 Ibid., art. 8.3.

108 Proclamation 9740, Proclamation 9758, and Proclamation 9759, supra note 95.

109 Proclamation 9740 confirms that ‘the United States and South Korea have agreed on a range of measures, including measures to reduce excess steel production and excess steel capacity, and measures that will contribute to increased capacity utilization in the United States, including a quota that restricts the quantity of steel articles imported into the United States from South Korea’ (para. 4). Proclamation 9759 also states that ‘the United States has agreed on a range of measures with these countries [e.g., Brazil and Argentina], including measures to reduce excess steel production and excess steel capacity, measures that will contribute to increased capacity utilization in the United States, and measures to prevent the transshipment of steel articles and avoid import surges [e.g., quota]’ (para. 5).

110 SA, art. 11.1(b).

111 See discussion Section 3.2.

112 For a full text of the US–Korea FTA, see Office of the United States Trade Representative (USTR), KORUS FTA Final Text, https://ustr.gov/trade-agreements/free-trade-agreements/korus-fta/final-text (accessed 10 April 2019).

113 The current case differs from that of Appellate Body Report, Turkey – Restrictions on Imports of Textile and Clothing Products (Turkey–Textiles), WT/DS34/AB/R (22 October 1999), which considered whether Article XXIV permitted members of FTAs to impose quotas on third countries.

114 US–Korea FTA, supra note 112.

115 H. Jin and J. Lee, ‘US, South Korea revise trade deal, Korean steel faces quota’, Reuters (25 March 2018).

116 Ibid.

117 A recent study discusses the possible clash between Members’ rights under an FTA and their WTO commitments. See Shaffer, G. and Winters, L. A., ‘FTA Law in WTO Dispute Settlement: Peru–Additional Duty and the Fragmentation of Trade Law’, 16 World Trade Review (2017), 303–326CrossRefGoogle Scholar.

118 CRS, supra note 96, at 8.

119 Ibid., at 9.

120 For instance, see, for example, International Economic Law and Policy Blog, http://worldtradelaw.typepad.com/ielpblog/2018/03/eu-can-retaliate-immediately-against-trumps-metal-tariffs.html (accessed 2 January 2018).

121 See discussion, Section 3.2.

122 Ibid.

123 Ibid.

124 United States – Certain Measures on Steel and Aluminum Products – Request for the Establishment of a Panel by the European Union, WT/DS548/14 (19 October 2018).

125 For a full text of the agreement, see Government of Canada, View Treaty, E105072, https://www.treaty-accord.gc.ca/text-texte.aspx?id=105072&lang=eng (accessed 10 April 2019).

126 Lee (2014), supra note 59, at 165–168.