FACTORIAL CAUSATION ANALYSIS: HOW TO RESOLVE SAFEGUARDS PARADOX

IN WORLD TRADE ORGANIZATION DISPUTE SETTLEMENT

By Nathan Cole1

December 15, 2009

ABSTRACT:

Safeguards are an essential part of World Trade Organization (“WTO”) agreements, but

safeguard disputes have not been resolved in accord with agreements. The United States

recently invoked a special safeguard under Section 421 of the 1974 Trade Act2 (“421

safeguard”), and China appealed to the WTO. This appeal presents an opportunity for the WTO

to correct its flawed causation analysis. The WTO should adopt a multi-factor balancing test to

evaluate whether the underlying conditions have been met to give rise to a proper safeguard use.

The test should focus on the principles and goals described in the WTO agreements, and also

consider practical realities such as the legal concept of state sovereignty, political pressures

exerted by state constituencies, and varying levels of commitment to free trade principles. The

WTO must then uphold this 421 safeguard action because (1) it is valid under a proper

understanding of the Agreement on Safeguards, (2) this is the best opportunity to correct the

WTO flawed causation test; and (3) the WTO will risk appearing illegitimate if it cannot analyze

safeguards in accord with the trade agreements it is legally bound to faithfully adminster.

1
Juris Doctor Candiate, University of San Diego Law 2010.
2
As amended, 19 U.S.C. 2451

1
TABLE OF CONTENTS:

Introduction..........................................................................................................................2

I. Background ......................................................................................................................4

II. The Safeguard Paradox, and Proposed Solution...........................................................10

A. Safeguards.................................................................................................................10

B. Factorial Balancing Test ...........................................................................................12

C. The China Tires Case................................................................................................14

D. Factorial Balancing Applied to Tires........................................................................19

III. Conclusion ...................................................................................................................25


INTRODUCTION

A trade dispute case recently initiated before the World Trade Organization (“WTO”)

represents a great opportunity to address one of the most fundamental problems facing

international economic development in the 21st century.3 The United States (“US”) recently

imposed a tariff on automobile tires imported from the People’s Republic of China (“China”).

The tariff was authorized by Section 421 of the US Trade Act of 1974 (“Section 421” or “421”),

and allows the US to protect domestic industry from sudden, unforeseen surges in commodities

imports from China.4 China voluntarily agreed to this provision as part of its accession to the

WTO in 2001. However, China responded by appealing to WTO Dispute Settlement (“DS”).

3
The WTO continues to issues relating to its expansion, and a significant aspect of that is the harmonization of mature market
economies, such as that of the United States, with emerging economies that have varying degrees of state control.
“Section 421 was created to provide some protection for American workers while allowing China entry to our markets. If Obama
opts not to enforce it, why would anyone concerned about American jobs believe such provisions in future trade agreements?
Why would US manufacturers maintain their domestic production if they know that none of the legal protections they’ve been
promised will ever be invoked?” The News Journal, Tire Duel:The Rubber Meets the Road for Obama, September 7, 2009.
“’And understand if the president refuses to enforce these rules, as President Bush did, it makes it much harder for us to pass any
trade agreements in Congress and it makes it much harder for the American people to accept that trade is on the up-and-up, that
there is any kind of a level playing field.’ [Senator Sherrod Brown (D-OH)] said. However, Brown stopped short of saying that
the decision could ease the way for passage of pending trade deals. ‘I think there is still strong opposition to these pending
agreements,’ he said, when asked if the safeguard decision could help ease passage of those trade deals.” Inside US Trade, Brown
Sees Tires Safeguards as Bolstering Confidence in Trade, September 25, 2009, Volume 27, issue 37.
4
International Trade Commission investigation report “Certain Passenger Vehicle and Light Truck Tires from the People’s
Republic of China,” Investigation No. TA-421-7, USITC Publication No. 4085 (July 2009).

2
WTO Members5 may challenge the legality of another Member’s invocation of a safeguard

provision. If the US and China do not reach a settlement on their own, a Dispute Settlement

Panel will be assembled to give a legally binding opinion. The reaction from the press was

largely hysterical, blaming the US for being “protectionist” and even potentially igniting a “trade

war.”6 This reaction was perfectly appropriate given the prevailing misunderstanding that all

tariffs violate principles of free trade.7 But these misconceptions are pervasive enough they are

one of the primary causes of the holdup in current negotiations to expand the WTO.8 One aspect

of this problem lies not with the WTO itself, its mission, or its agreements, but the lack of

Members’ faith in the dispute settlement process to faithfully interpret those agreements.9 The

WTO has shown itself to be a successful international organization, and has played a critical role

5
Signatories to the GATT/WTO agreements are referred to in the agreements as “Members” to respect the sovereignty of the
nations represented.
6
Many leading publications speculated about the possibility of a trade war: Investor’s Business Daily, America’s Tired
Protectionism, September 15, 2009; Manufacturing & Technology News, “China Tire Case Results in New Free Trade Lobby,”
September 17, 2009, volume 16, issue 15; Independent (UK), Obama Must Resist the Siren Call of Protectionism Ahead of the
G20,” September 21, 2009; Tire Business, Tire Tariffs; What Now? Obama Order Spurs Trade War Fears,” September 28,
2009, Volume 27, Issue 13.
7
“Not to accept the tariff recommendation would be a severe blow to open trade and globalisation as well as to America's future
economic health. The conventional view is based on the notion that free trade is always a win-win proposition and that our trade
with China fits the conditions of the traditional free-trade model. These include the assumptions that the markets are perfectly
competitive, that exchange rates are not manipulated, that there are no economies of scale, that there is no cross-border
investment or cross-border transfers of technology, and that there are no government subsidies or export requirements. If this
were a true picture of our trade in tyres with China, then imposing tariffs would truly be harmfully protectionist and not be
justified. But this is not even close to the reality of our trade with China, which far from embracing orthodox free trade has
openly adopted a neo-mercantilist, export-led economic growth strategy. China keeps its renminbi undervalued against the dollar
in order indirectly to subsidise its exports. Foreign direct investment in China is often induced by the use of special, targeted tax
and financial incentives. Foreign companies investing in China are often required to export the bulk of their production as a
condition of being allowed to enter the Chinese market. This is the case with Cooper Tires, which agreed to export 100 per cent
of its production in return for being allowed to invest in a Chinese tyre factory. The tyre industry is characterised by enormous
economies of scale and imperfectly competitive markets in which a few oligopolistic producers divide the market among
themselves. It is Chinese industrial policies and not market forces that are currently determining the trade flows and the location
of production and jobs to the detriment of the US tyre industry.” Clyde Prestowitz, Obama Can Help Free Trade With Tariffs,
The Financial Times, September 11, 2009. Clyde Prestowitz is founder and President of the Economic Strategy Institute.
[www.econstrat.org].
8
Some get it right: “A dispute over Chinese tyre exports to the US is overshadowing trade relations, but a major escalation is
unlikely.” Business Asia, Tyre-some Tiff, September 28, 2009.
9
“US experts held out little hope that the tire tariffs would prevail before the WTO. ‘I think the US will lose at the WTO if the
issue goes there,’ said Dennis M. Byrne, professor emeritus of economics at the University of Akron and an expert on US-China
trade. ‘The tariffs go against the principles of free trade, which hold that certain areas produce certain things that they happen to
produce well. Free trade causes certain industries in certain countries to die.” Tire Business, Tire Tariffs; What Now? Obama
Order Spurs Trade War Fears, September 28, 2009, Volume 27, Issue 13. This paper will argue that this logic is faulty because
it assumes that (1) there will never be any predatory free trade practices, and (2) there will never be any valid political reason to
protect a domestic industry, even if a nation is committed to free trade principles.)

3
in raising standards of living worldwide.10 However, if the system is to continue to grow, the DS

must do a better job of understanding the WTO agreements, and issuing decisions that accord

with the WTO’s mission.11 Especially in the aftermath of the global economic crisis, it’s a

crucial time to revisit some of the fundamental principles upon which the WTO was built. The

WTO must stay true to its roots, but continue to evolve these principles for today’s reality if it is

to be effective in facilitating commerce and grow the global economy.12

I. BACKGROUND

The underlying principle of macroeconomics is Smith’s division of labor theory,13

whereby goods and services should be produced in the nations and regions that can support its

most efficient production.14 The elimination of trade barriers will allow resources to shift toward

10
“Over the past 60 years, the WTO, which was established in 1995, and its predecessor organization the GATT have helped to
create a strong and prosperous international trading system, thereby contributing to unprecedented global economic growth.”
The WTO Website, [http://www.wto.org/english/thewto_e/whatis_e/wto_dg_stat_e.htm]. Retrieved 10/25/09
11
“There are two essential parts to an effective trade policy in this era of globalization: it is necessary to expand trade; it is also
necessary to create and implement rules that govern that expansion. Enforcement of those rules is the opposite of protectionism –
and indeed is a weapon against it. Embracing one of these parts and rejecting the other is self-defeating, accentuating the
polarization that has handicapped the discussion and development of effective trade policies. Another key to avoiding a
polarizing debate is to get the facts straight. The Obama Administration’s decision to provide temporary relief was
recommended by the independent International Trade Commission (ITC). The ITC found a market-disrupting surge in tire
imports from China based on the facts and spelled out in detail in the majority decision. In the responses to the President’s
decision there have been numerous misstatements of the facts. Correcting the record is essential to a useful discussion as the
Administration and Congress develop a new and effective U.S. trade policy.” (website of Congressman Sandy Levin, D-MI,
Decision on Tire Imports From China – The Facts. September 23, 2009.
[http://www.house.gov/levin/levin_issues_trade_tireimports.shtml]. Retrieved 10/19/09).
12
The current economic conditions are causing leaders in finance and economics to be especially receptive to new ideas. For
example, on 10/27/09 Newsweek reported that George Soros was in the process of establishing a think-tank to promote a return
to balanced free market economics, funded initially by a personal contribution of $50 million. The key point the article
emphasizes is that there are serious discussions going on in Washington, Wall Street and elsewhere about which new organizing
principle will govern financial economics in the aftermath of the financial crisis. Michael Hirsch, Converting the Preachers.
Newsweek online edition, [http://www.newsweek.com/id/219720]. Retrieved 10/27/09.
13
Macroeconomics as a field of study is largely attributed to Keynes, but for the purposes of this paper the deeper principles of
modern economics as articulated by Smith will be examined, to avoid the exhaustive details a more in-depth economic
comparision would require. Furthermore, Wikipedia credits Plato with the earliest reference to the concept of division of labor.
See http://en.wikipedia.org/wiki/Division_of_Labour. Retrieved 10/26/09. However Smith articulated at length the efficiencies
to be had from division of labor, for example the efficiencies in production that are realized from specialization. Smith also
emphasized the aspect of interdependent nations upon wealth creation. See An Inquiry into the Nature and Causes of the Wealth
of Nations, by Adam Smith. London: Methuen and Co., Ltd., ed. Edwin Cannan, 1904. Fifth Edition. (1776). Book I, Chapter
5.
14
See Smith (1776), supra, Book I, Chapter 1.

4
the most efficient location.15 Division of labor theory implies that means of production, i.e. labor

and material resources, should be free—or as free as practicable—to flow and settle at the

locations where they facilitate maximum productivity. But these cross-border flows increase

competition and have the potential to disrupt economies, giving rise to the political resistance

known as “protectionism”. But the theory predicts, and results have shown, that the overall

effect will be the increase of individual wealth.16 For this reason, is hard to find a competing

theory of wealth creation that does not incorporate division of labor, and thus depend on free

markets. These natural dynamics occur in free markets, efficiently allocating resources, and

raising standards of living in participating economies. Thus a primary route to wealth creation is

by trade between market economies.17

However there is a tendency to be suspicious of this process, since, as alluded to, global

gains can often come at the price of local pains. The goals of free trade not come easy, nor by a

straight-line path towards the zeroing-out of all trade barriers.18 Nor does free trade mean “no

15
Id.
16
Id.
17
An economy based on free-market principles, the most fundamental characteristic being that prices are controlled by supply-
and-demand. In contrast, a planned economy controls prices by government authority, typically acting through an organization
or agency.
18
“Raising tariffs is nothing to be proud about.” Investor’s Business Daily, America’s Tired Protectionism, September 15, 2009.
“The importance of this battle goes well beyond its impact on the tire industry. Much of Americans’ skepticism from free trade
comes from their empirically verifiable sense that their government has been reluctant to enforce it sown trade laws, an issue that
candidate Obama tackled head-on last year by his repeated pledges to enforce these laws.” The News Journal, Tire Duel: The
Rubber Meets the Road for Obama, September 7, 2009. Mr Obama’s most overtly protectionist decision so far has triggered a
predictably angry reaction from China, which threatened to retaliate against American chickens and car parts and to haul America
before the World Trade Organisation. The Global Times, a newspaper that often reflects the views of hardline nationalists in
China, ran a front-page headline saying ‘America has erred before the world.’” Playing With Fire: By Succumbing to Domestic
Pressures, America Has Started an Alarming Trade Row with China. The Economist print edition 9/17/09.
[http://www.economist.com/world/unitedstates/displaystory.cfm?story_id=14460069]. Retrieved 10/22/09. “The decision to
use Section 421 is a disturbing one. John Veroneau, a lawyer and a former deputy trade representative, points out that this
particular rule “doesn't require any finding of unfair trade practice by China…Chinese tyre exporters were not found to be doing
anything wrong or illegal.” This means that it is hard for the administration to pass off the decision as being about tougher
enforcement of existing trade agreements, which has been the focus of Ron Kirk, the new American trade representative, since
his appointment.” The Economist online edition, Wearing Thin: How Strong is Barack Obama’s Belief in Free Trade?
[http://www.economist.com/businessfinance/displaystory.cfm?story_id=14442673]. Retrieved 10/22/09. “In a way, after
months of debate among pundits over whether Mr. Obama was an authentic free-trader or a protectionist – he had sounded
‘tough’ on trade, in particular with China, during the election campaign while his economic aides assured anxious foreign

5
cost” trade, where absolutely all tariffs and trade barriers are eliminated.19 The global trading

environment, with its great diversity of societies and their various principles of governance and

approaches to economics, is simply too complex for that. The 153 Members of the WTO are

mostly in varying stages of economic development.20 Some Members have a less than ideal

commitment to free market principles. For example, the Chinese recently operated a command

economy—the underlying assumptions of the WTO agreements would not apply.21 Since the

end of the Cold War, the Chinese have taken great strides to rework its economy to be more

market-based and successfully interact with the developed markets of the world. But, with an

economy the size of China’s, this is a transition that cannot be completed quickly. China’s goal

of WTO membership has caused great growing pains in China and around the world, even as it

has created unprecedented wealth, at an unprecedented pace.

Other characteristics of the international community make free trade an elusive goal. It is

informative to consider for a moment an ideal model of a free trade zone: the 50 states of the US.

The US free trade zone was established in one act, concurrent with the ratification of the Federal

Constitution.22 In contrast, the pursuit of global free trade is already decades in the making, and

the work is far from complete. To further complicate the matter, there is no central authority

with binding force of law to mandate progress towards free trade. The key driver of the

international system is private business exerting pressure on their elected representatives. Non-

diplomats that their man was doing that just to get votes – much of the conventional wisdom in Washington is going to conclude
now that the new Democratic president is a political opportunist who has surrendered his trade agenda to organized labour. He
has reached the ecision that he had no choice but to ride the protectionist wave that seems to be propelling the Democratic Party
to the political left and in an anti-globalism direction.” (Business Times (Singapore); Why Obama Had to Impose Those Chinese
Tyre Tariffs, September 16, 2009)
19
See Garcia supra at note 12.
20
Source: WTO website. [http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm.]. Retrieved 12/4/09.
21
Removing trade barriers depends on price theory, which is explained supra. In a market-based economy, aggregate market
demand sets prices, and this pricing data signals producers how to allocate resources. When a small group of government
regulators can supercede market pricing with their own prices, the pricing signals are disrupted and the system breaks down.
22
“No Tax or Duty shall be laid on Articles exported from any State.” USCA CONST Art. I § 1.

6
market economies will likely also have to be convinced by external factions to move toward a

market system.23 These collective pressures form a process that is commonly known as

globalization.

The WTO was designed to help manage the globalizations process. The WTO facilitates

international trade and provides a structured process to resolve disputes arising therein. The

structures, processes, and agreements represent a concerted effort to relax the tension between

state sovereignty and free trade. The WTO system is not the first, but the culmination of

repeated attempts to organize nations to work towards free trade. One of the defining

characteristics of the WTO is that it has evolved organically, largely motivated through failures

of existing systems, in a practical fashion to meet the most urgent needs of its members. There

has been no organizing theory or blueprint other than the principles of free trade and the

objective of poverty reduction.24 The WTO was born out of the near failure25 of the General

23
See Frank J. Garcia, Is Free Trade “Free”? Is It Even “Trade”? Oppression and Consent in Hemispheric Trade Agreements.
Seattle Journal for Social Justice, Spring/Summer 2007. Garcia argues generally against the conventional view that the
implication of “free” in free trade means freedom from any distorting governmental intrusion upon the marketplace. However
Garcia’s conclusion focuses on consensus-building as a primary aspect of trade-facilitating organizations (in this case, CAFTA).
“If trade agreements do not facilitate consensual economic exchanges, and are not themselves the result of consensual
negotiations, they become oppressive. One way to envision the role of trade institutions is that of a playground monitor charged
with maintaining a beneficial process of interaction, but allowing a great deal of latitude to the participants in establishing their
own relationships and conducting their own transactions. As with playground games, there will be transitory winners and losers,
but the monitor's role is to watch out for bullying.” 5 Seattle J. for Soc. Just. 505, 522 (.2007). This is a valid proposition in this
Author’s view, but does not go far enough to ensure a legal framework that ensures that the parties have access to a dispute
settlement device that will ensure they can fairly address their alleged “bullying” grievances.
24
“The WTO's founding and guiding principles remain the pursuit of open borders, the guarantee of most-favoured-nation
principle and non-discriminatory treatment by and among members, and a commitment to transparency in the conduct of its
activities. The opening of national markets to international trade, with justifiable exceptions or with adequate flexibilities, will
encourage and contribute to sustainable development, raise people's welfare, reduce poverty, and foster peace and stability. At the
same time, such market opening must be accompanied by sound domestic and international policies that contribute to economic
growth and development according to each member's needs and aspirations.” The WTO website.
[http://www.wto.org/english/thewto_e/whatis_e/wto_dg_stat_e.htm.] Retrieved 12/4/09.
25
Before the WTO was formed, the “multilateral trading system of which GATT is the legal foundation is seriously endangered,”
declared the contracting parties. (Ministerial declaration adopted on 11/29/82, GATT Doc. No. /5424; BISD 29 Sept. at 9 (1983).
“From December 1988 to the final conclusion of the Final Act of Uruuguay Round on 15 April, 1994, the Uruguay Round
negotiation saw many ups and downs including the comprehensive final draft (The Dunkel Draft 1991) in which major
compromises of the conflictual interests of the negotiating countries had been largely settled along with certain objections from
both developed and developing countries. By 1993, it had become certain as put in words by Peter Sutherland, the then Director
General of GATT that ‘the world has chosen openness and cooperation instead of uncertainty and conflict… important new areas
of world economy have been brought under multilateral disciplines, and added together, the achievements amount to a major

7
Agreement on Tariffs and Trade (“GATT”) framework that was the WTO’s predecessor.26 The

GATT in turn was the result of the failure of the International Trade Organization (ITO) to

achieve ratification by its members. The GATT/WTO framework has been largely successful

thus far, some calling the WTO the most successful international organization ever created.27 It

has been to achieve its objectives where others have failed because it has both legislative and

adjudicative functions. The WTO manages the multilateral trade agreements process,

administers the already-agreed treaties, and provides a structured forum for resolving trade

disputes.28 The WTO has clearly played a leading role in the story of globalization, as its

Members intended.29 These fundamental goals are the most valid and true to the original

renewal of the world trading system.’” Guide to the WTO and GATT, Economics, Law, Politics. Page 28. Autar Krishen Koul,
Kluwer Law International. 2005.
26
See generally Koul (2005), Chapter 1. At a 1946 post World War II economic redevelopment conference in London, “the
central issue was still the conflict between free trade, whih implied freedom for private enerprises to make their decision on
imports and exports in accordance with the laws of the markets, and full employment policies which might necessitate control of
the economy by the government.” Id. at p.5. The GATT evolved out of this conflict. In fact, out of such severe conflict that the
Havana Charter to establish the International Trade Organization failed when the US refused to ratify the Charter. This failure
created a vacuum for resolution of this philosophical trade conflict, and the GATT was born as a means to resolve this tension
between absolute free trade and state control. See Id. at p.5-9.
27
See generally the WTO website, and in particular Some Facts and Figures, Stats for Seattle.
[http://www.wto.org/english/thewto_e/minist_e/min99_e/english/about_e/22fact_e.htm]. Retrieved 10/22/09. (Tariffs were
reduced by hundreds of billions of dollars in successive negotiation rounds during the GATT years and after the Uruguay Round,
significantly contributing to a global per capital income increase of 250% over the 50-year period 1948-1998.)
28
The GATT sets up a “Framework for the exchange of tariff concessions and by establishing a code of rules on non-
discrimination and unfair trading practices.” Koul (2005), p 9. “Recognizing that their relations in the field of trade and
economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and
steadily growing volume of real income and effective demand, developing the full use of the resources of the world and
expanding the production and exchange of goods, Being desirous of contributing to these objectives by entering into reciprocal
and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the
elimination of discriminatory treatment in international commerce, Have through their representatives agreed as follows” (GATT
Preamble. [http://www.wto.org/english/docs_e/legal_e/gatt47_e.pdf]. Retrieved 10/16/09.)
29
“The Parties to this Agreement, Recognizing that their relations in the field of trade and economic endeavour should be
conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real
income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal
use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve
the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at
different levels of economic development, Recognizing further that there is need for positive efforts designed to ensure that
developing countries, and especially the least developed among them, secure a share in the growth in international trade
commensurate with the needs of their economic development, Being desirous of contributing to these objectives by entering into
reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and
to the elimination of discriminatory treatment in international trade relations, Resolved, therefore, to develop an integrated, more
viable and durable multilateral trading system encompassing the General Agreement on Tariffs and Trade, the results of past
trade liberalization efforts, and all of the results of the Uruguay Round of Multilateral Trade Negotiations, Determined to
preserve the basic principles and to further the objectives underlying this multilateral trading system, Agree as follows:”

8
principles that inspired the organizers and negotiators throughout the life of the GATT/WTO.30

The organic development of the WTO and its predecessors has shown itself to be very

pragmatically oriented, and highly functional. The leadership of the WTO focuses on this

purpose, and the scope of the WTO’s mission.31 The WTO’s leader, Pascal Lamy, made it clear

that he wants the organization to stay responsive to the needs of its Members.32 Thus, it would

seem that the organization is well aware that its existence depends on Member consent.

WTO Members have a right to this focus on servicing their needs. Member agreements

are legally binding treaties ratified by the various national legislative bodies. The WTO

incorporates its Members agreements into a body of law, and then provides a mechanism to

resolve disputes fairly. Thus Members have a right to have trade disputes resolved in a way that

reasonably interprets the treaties to reflect Member agreements. Unfortunately, in key areas, the

WTO has failed to achieve principled dispute resolution. The failure of the DS to harmonize its

analysis of safeguard disputes with the principles of the Agreement on Safeguards is

problematic, both on principal and practically.

Consequently, at least with respect to safeguards, the DS shows itself to be out of touch

with the WTO’s mission and with the legal foundations and traditions upon which the WTO DS

Preamble, Marrakesh Agreeement Establishing the World Trade Organization.

[http://www.wto.org/english/res_e/booksp_e/analytic_index_e/wto_agree_01_e.htm]. Retrieved 10/26/09.
30
WTO Director-General Pascal Lamy, in his keynote address to the WTO Public Forum on 28 September 2009: “As I have said
many times before, it is to your needs and aspirations that this organization must cater, and I certainly hope that this Forum will
enable the entire WTO family, members and Secretariat staff alike, to better keep their ‘fingers on the pulse’ so to speak. In other
words, to better gage your concerns and expectations of how we, in the WTO, can do things better in future.”
[http://www.wto.org/english/news_e/sppl_e/sppl136_e.htm]. Retrieved 10/16/09.
31
Lamy at note 20, supra: “What our radar shows so far is ‘low-intensity’ protectionism; in other words, a large number of
measures whose intensity has so far remained constrained. But there should be no complacency. Rising unemployment will
continue to usher-in the inevitable protectionist pressures. Ladies and gentlemen, the impulse to go ‘local’ in answer to the
financial crisis must be resisted. In fact, I would argue that we should continue ‘going global,’ if I may say so, for the simple
reason that many consumers have seen their purchasing power decline, and are in need of cheaper, more competitive, goods and
services, and not more expensive ones produced behind a national tariff wall.”
[http://www.wto.org/english/news_e/sppl_e/sppl136_e.htm]. Retrieved 10/16/09.
32
Id. at note 20, supra.

9
and other agreements are based.33 Thus, there are significant problems with the DS, especially

with respect to safeguards. The DS must fashion a legal remedy to address the treatment of

safeguards.

II. THE SAFEGUARD PARADOX, AND PROPOSED SOLUTION

Safeguards are a legal mechanism in the WTO multilateral trade agreements that reflect

an inherent conflict of the WTO system: state sovereignty vs. a worldwide binding legal

commitment to lower trade barriers. In essence, each nation must delegate some of its

sovereignty to the WTO in order to reap the benefits of free trade. And safeguards add needed

flexibility to this system, allowing nations to temporarily reclaim some of their sovereignty. The

WTO must respect this flexibility, and faithfully uphold safeguard usage in dispute settlement

proceedings.

A. Safeguards

Safeguards permit WTO Members to protect domestic industry from a sudden rise in

imports. The Agreement on Safeguards (“AS”) explains the purpose of a safeguard mechanism

is to “enhance competition” and “improve and strengthen the international trading system.”34

The Agreement contains 14 Articles that specify what constitutes a proper safeguard measure,

33
“Despite the significant number of [M]embers who have attempted to implement safeguard measures, not one has yet been
successful in WTO dispute settlement cases. The Panel and [Appellate Body] have concluded in every case that the causal link
between increased imports and serious injury to domestic industry is non-existent.” Because no Member has been successful in
its attempt to invoke an escape clause measure, the Appellate Body, through its line of reasoning, runs the risk that Members will
resort to other non-tariff barriers to trade to exercise their perceived right to protect their industries from harm. Non-tariff
barriers, including quotas, are widely seen as more trade distorting than tariffs because “quotas do not generate revenues, they
provide an adjustable protection . . ., they lack transparency, they are difficult to deal with in negotiations, and they create
opportunities for corruption.” If non-tariff barriers are used, the entire WTO treaty could be undermined. 17-SPG Kan. J.L. &
Pub. Pol'y 520, 540 (Spring2008).
34
Agreement on Safeguards, p.273-281 of Annex 1A of the Uruguay Round Agreements, General Agreement on Tariffs and Trade.

10
and how they are to be utilized within the wider framework of the WTO.35 National legislatures

have since adopted trade legislation with safeguard provisions, based on the principles of the AS.

There are two primary preconditions of a safeguard use. First, causation: “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.”36 Second,

nondiscrimination: “safeguard measures shall be applied to a product being imported irrespective

of its source.”37 Disputes over safeguard uses have not focused on these principles; instead the

DS has been tied up looking for an absolute, almost metaphysical, chain of causation. Not

unexpectedly, a safeguard utilization has never been upheld by the DS.38

This paper argues that the DS should rely upon the principles found in the Agreement on

Safeguards to create a legal test by which to resolve disputes. Safeguards enjoy wide agreement

in principle and in practice, in past and in the future. The current round of negotiations on

expansion of the WTO will incorporate new special safeguards.39 Safeguards are clearly

35
Id.
36
Id. at 273.
37
Id.
38
DS98, Korea — Definitive Safeguard Measure on Imports of Certain Dairy Products (Complainant: European Communities), (12 August
1997). DS121, Argentina — Safeguard Measures on Imports of Footwear (Complainant: European Communities), (6 April 1998). DS166,
United States — Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities (Complainant: European
Communities), (17 March 1999). DS177, United States — Safeguard Measure on Imports of Fresh, Chilled or Frozen Lamb from New Zealand
(Complainant: New Zealand), (16 July 1999). DS178, United States — Safeguard Measure on Imports of Fresh, Chilled or Frozen Lamb from
Australia (Complainant: Australia), (23 July 1999). DS202, United States — Definitive Safeguard Measures on Imports of Circular Welded
Carbon Quality Line Pipe from Korea (Complainant: Korea), (13 June 2000). DS207, Chile — Price Band System and Safeguard Measures
Relating to Certain Agricultural Products (Complainant: Argentina), (5 October 2000). DS248, United States — Definitive Safeguard Measures
on Imports of Certain Steel Products (Complainant: European Communities), (7 March 2002). DS249, United States — Definitive Safeguard
Measures on Imports of Certain Steel Products (Complainant: Japan), (20 March 2002). DS251, United States — Definitive Safeguard Measures
on Imports of Certain Steel Products (Complainant: Korea), (20 March 2002). DS252, United States — Definitive Safeguard Measures on
Imports of Certain Steel Products (Complainant: China), (26 March 2002). DS253, United States — Definitive Safeguard Measures on Imports
of Certain Steel Products (Complainant: Switzerland), (3 April 2002). DS254, United States — Definitive Safeguard Measures on Imports of
Certain Steel Products (Complainant: Norway), (4 April 2002). DS258, United States — Definitive Safeguard Measures on Imports of Certain
Steel Products (Complainant: New Zealand). (14 May 2002). DS259, United States — Definitive Safeguard Measures on Imports of Certain
Steel Products (Complainant: Brazil), (21 May 2002). DS274, United States — Definitive Safeguard Measures on Imports of Certain Steel
Products (Complainant: Chinese Taipei), (1 November 2002).
39
“It is indisputable that escape clause provisions, which allow Members to enact protectionist measures to shield ailing domestic
industries, run contrary to the goals and purposes of trade liberalization and harmonization under the GATT and WTO.
Nonetheless, the escape clause remains an integral element of the multilateral framework. Many Members, fearful of the harmful

11
accepted in principle by the WTO Members, which strongly suggests they should receive fair

treatment in dispute settlement proceedings.

B. Factorial Balancing Test

To improve the causation standard, we begin with the example of theThe current

approach relies on a literal causation standard, whereby the “increase” in imports must be

demonstrable as the cause of the “injury.”40 Normal safeguards rely on a “serious injury”

standard, and they are universally applicable.41 The China-specific safeguard has a lower

threshold of “material injury.”42 As is well demonstrated, imports do not “cause” anything

physically or economically.43

effects of trade liberalization, may not sign a multilateral agreement without such a remedy available. Indeed, escape clause
measures are standard in all American foreign trade agreements and have been for over three-quarters of a century. Therefore, a
proper understanding and interpretation of the correct procedure for invoking such actions is necessary to ensure global
participation in the GATT and WTO.” 17-SPG Kan. J.L. & Pub. Pol'y 520, 540 (.Spring2008). “Escape clause relief is a critical
measure that is necessary to increase participation in global trade treaties because it appeases domestic protectionist forces which
may block a country from participation in the treaty if a means of recourse is not available. “ 17-SPG Kan. J.L. & Pub. Pol'y 520,
540 (.Spring2008).
40
“Causation: A determination of serious injury cannot be made unless there is objective evidence of the existence of a causal
link between increased imports of the product concerned and serious injury. Further, when factors other than increased imports
are causing injury to the domestic industry at the same time, such injury must not be attributed to increased imports. The criterion
of a causal link falls short, however, of proposals made during the Uruguay Round that would have required imports to be the
“principal cause” of injury. Technical Information on Safeguard Measures.
[http://www.wto.org/english/tratop_e/safeg_e/safeg_info_e.htm]. Retrieved 10/15/09.
41
“(1) For the purposes of this Agreement: (a) “serious injury” shall be understood to mean a significant overall impairment in
the position of a domestic industry; (b) “threat of serious injury” shall be understood to mean serious injury that is clearly
imminent, in accordance with the provisions of paragraph 2. A determination of the existence of a threat of serious injury shall
be based on facts and not merely on allegation, conjecture or remove possibility; and (c) in determining injury or threat thereof, a
“domestic industry” shall be understood to mean the producers as a whole of the like or directly competitive products operating
within the territory of a member, or those whose collective output of the like or directly competitive products constitutes a major
proportion of the total domestic production of those products. (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 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.” WTO Agreement on Safeguards, Article 4, Determination of Serious Injury or
Threat Thereof. [http://www.wto.org/english/docs_e/legal_e/25-safeg.pdf]. Retrieved 10/15/09.
42
“The addition of ‘a significant cause’ in the U.S.-China Agreement is noteworthy, for this is unmistakably intended by the
United States to further lower the threshold test from “serious injury” in applying safeguards to Chinese products. Though what
‘a significant cause’ exactly means in this context is also left unexplained, we have a clue to what the U.S. Trade Representative
had in mind in putting this phrase into the agreement. The whole concept of “market disruption” (together with its corollary idea
of ‘material injury’) comes directly from section 406 of the Trade Act of 1974, [FN33] whose drafters took care to provide
definitions of ‘significant cause,’ though they were reticent on the enigmatic phrase ‘material injury. [FN34] The ‘significant
cause’ provision makes it easier for the importing country to invoke safeguards because it is defined under section 421 of the

12
 Factual causation is difficult, if not impossible to prove in the cases the WTO will see.

The DS must thus adopt a causation analysis that resembles the proximate causation concept in

Anglo-American tort law tradition. The history of adopting proximate causation tests as legal

standards has a pedigree of hundreds of years from which to draw insight. One notable

innovation is the Hand Rule, which uses a legal approximation to fashion a workable standard

for judges to most equitably resolve disputes.44 The point of legal approximations like this is to

allow judicial systems to continue to function where it would be practically impossible to reach a

definite conclusion by factual analysis. In the context of safeguards, an approximation should be

based on the principles and understandings that are basic to the multilateral trade system and

enjoy wide agreement among WTO Members.

Thus the DS should consider safeguards prima fascie valid on the grounds that (1) the

Members have agreed to be legally bound by the principles of safeguard construction and use,

and (2) state sovereignty compels the DS to exercise great restraint in second-guessing its

Members. The burden would thus lie with the party challenging the safeguard, who would have

to demonstrate that the safeguard use raises a substantial question as to the validity of the

United State's Trade Act of 1974 as ‘refer[ring] to a *197 cause which contributes significantly to the material injury of the
domestic industry, but need not be equal to or greater than any other cause.’” 22 B.U. Int'l L.J. 189, 197 (.Spring2004).
43
“The requirement of a causal link between ‘increased quantities’ and serious injury or threat raises perhaps the most difficult
and problematic issues of any posed by the Agreement on Safeguards. As briefly suggested in Chapters 1 and 2, the notion that
‘increased quantities’ of imports are a causal variable at all is inconsistent with basic price theory. The further requirement in
Article 4.2(b) that injury caused by other factors ‘jot be attributed to increased imports’ is equally intractable from an economic
standpoint. The fact of the matter is that injury is never ‘caused’ by increased imports at all—it is inevitably the case that some
‘other factor’ is the underlying cause of both the injury and the increase in export quantities. The problem originates with a
fundamentally deficient treaty text which borrows from the deficient standard for causation under US law. Long before the
agreement on safeguards came into existence, the USITC struggled to apply the US standard and failed to develop a logically
sound interpretation of it. WTO panels and the Appellate Body have done no better in interpreting WTO treaty text, and the
decisions to date in the WTO dispute process repeat many of the same logical fallacies that infuse ITC opinions. The result is a
morass of confused precedents that leave it quite unclear what a WTO member must do to establish ‘causation.’” Sykes, The
WTO Agreement on Safeguards, p157, Oxford University Press, (2006).
44
The “Hand Rule” (from an opinion written by Judge Learned Hand) expresses a legal approximation to determine grounds for
liability “in algebraic terms: if the probability be called P; the injury, L; and the burden, B; liability depends upon whether B is
less than L multiplied by P: i.e., whether B less than PL.” This formulation has become a landmark in American commercial
law. (United States v. Carroll Towing Co. 159 F.2d 169, 174 (C.A.2 1947))

13
safeguard. If a substantial question is raised, then the challenger must demonstrate that the

safeguard objectively violates the AS through a balancing of several relevant factors that include

(1) the organizing principles of the WTO, (2) the goals of the WTO; (3) the principles of the AS;

and (4) the supremacy of state sovereignty.

C. The China Tires Case

To improve the causation standard, we begin with the example of the 421 China-specific

safeguard case. If this appeal reaches the DS, it is expected to be evaluated using the

conventional causation analysis. The current approach relies on a literal causation standard,

whereby the “increase” in imports must be demonstrable as the cause of the “injury.”45 The

China-specific safeguard has a threshold of “material injury.”46 This is lower than a normal

safeguard, which would rely on a “serious injury” standard. Additionally, normal safeguards are

universally applicable.47 As is well demonstrated, imports cannot be said to “cause” anything

physically or economically, within the meaning of a legal analysis.48

45
“Causation: A determination of serious injury cannot be made unless there is objective evidence of the existence of a causal
link between increased imports of the product concerned and serious injury. Further, when factors other than increased imports
are causing injury to the domestic industry at the same time, such injury must not be attributed to increased imports. The criterion
of a causal link falls short, however, of proposals made during the Uruguay Round that would have required imports to be the
“principal cause” of injury. Technical Information on Safeguard Measures.
[http://www.wto.org/english/tratop_e/safeg_e/safeg_info_e.htm]. Retrieved 10/15/09.
46
“The addition of ‘a significant cause’ in the U.S.-China Agreement is noteworthy, for this is unmistakably intended by the
United States to further lower the threshold test from “serious injury” in applying safeguards to Chinese products. Though what
‘a significant cause’ exactly means in this context is also left unexplained, we have a clue to what the U.S. Trade Representative
had in mind in putting this phrase into the agreement. The whole concept of “market disruption” (together with its corollary idea
of ‘material injury’) comes directly from section 406 of the Trade Act of 1974, [FN33] whose drafters took care to provide
definitions of ‘significant cause,’ though they were reticent on the enigmatic phrase ‘material injury. [FN34] The ‘significant
cause’ provision makes it easier for the importing country to invoke safeguards because it is defined under section 421 of the
United State's Trade Act of 1974 as ‘refer[ring] to a *197 cause which contributes significantly to the material injury of the
domestic industry, but need not be equal to or greater than any other cause.’” 22 B.U. Int'l L.J. 189, 197 (.Spring2004).
47
“(1) For the purposes of this Agreement: (a) “serious injury” shall be understood to mean a significant overall impairment in
the position of a domestic industry; (b) “threat of serious injury” shall be understood to mean serious injury that is clearly
imminent, in accordance with the provisions of paragraph 2. A determination of the existence of a threat of serious injury shall
be based on facts and not merely on allegation, conjecture or remove possibility; and (c) in determining injury or threat thereof, a
“domestic industry” shall be understood to mean the producers as a whole of the like or directly competitive products operating
within the territory of a member, or those whose collective output of the like or directly competitive products constitutes a major
proportion of the total domestic production of those products. (2)(a) In the investigation to determine whether increased imports

14
 In September 2009 President Obama instituted a 35% tariff on passenger car and light

truck tires imported from China.49 This action was based on the recommendation of the US

International Trade Commission, who is purposed with investigating petitions to take actions

based on the US’s WTO obligations. The ITC is an independent federal agency, and has a

balanced record of safeguard investigations.50 When the ITC makes a safeguard

recommendation in the affirmative, the President has the option to implement their

recommended remedy. President Obama justified his decision on the grounds that enforcement

of existing trade agreements is necessary to the trading system.51 There have only been 6 other

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 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.” WTO Agreement on Safeguards, Article 4, Determination of Serious Injury or
Threat Thereof. [http://www.wto.org/english/docs_e/legal_e/25-safeg.pdf]. Retrieved 10/15/09.
48
“The requirement of a causal link between ‘increased quantities’ and serious injury or threat raises perhaps the most difficult
and problematic issues of any posed by the Agreement on Safeguards. As briefly suggested in Chapters 1 and 2, the notion that
‘increased quantities’ of imports are a causal variable at all is inconsistent with basic price theory. The further requirement in
Article 4.2(b) that injury caused by other factors ‘jot be attributed to increased imports’ is equally intractable from an economic
standpoint. The fact of the matter is that injury is never ‘caused’ by increased imports at all—it is inevitably the case that some
‘other factor’ is the underlying cause of both the injury and the increase in export quantities. The problem originates with a
fundamentally deficient treaty text which borrows from the deficient standard for causation under US law. Long before the
agreement on safeguards came into existence, the USITC struggled to apply the US standard and failed to develop a logically
sound interpretation of it. WTO panels and the Appellate Body have done no better in interpreting WTO treaty text, and the
decisions to date in the WTO dispute process repeat many of the same logical fallacies that infuse ITC opinions. The result is a
morass of confused precedents that leave it quite unclear what a WTO member must do to establish ‘causation.’” Sykes, The
WTO Agreement on Safeguards, p157, Oxford University Press, (2006).
49
On September 11, 2009, pursuant to section 421(a) of the Trade Act of 1974 (19 USC 2451(a)), President Obama instituted a
35% tariff on passenger car and light truck tires, effective 9/26/09, for the first year, lowered to 30% the second year, and 25%
the third year, after which they expire. The President decided to provide import relief based on the recommendation of the
United States international Trade Commission (USITC) transmitted to the President the results of its investigation conducted
under section 421 of the Trade Act, where it reached an affirmative determination under section 421(b)(a) of the Trade Act that
“certain passenger vehicles and light truck tires from china are being imported into the United States in such increased quantities
or under such conditions as to cause or threaten to cause market disruption to the domestic producers or like or directly
competitive products.” However the President did not agree completely with the remedy proposed by the ITC; the ITC had
instead proposed tariffs of 55%, 45% and 35% in the first, second and third years, respectively. 9/11/09, White House Press
Release. [http://www.whitehouse.gov/the_press_office/Proclamation-Address-Market-Disruption-from-Imports-of-Certain-
Passenger-Vehicle-and-Light-Truck-Tires/]. Retrieved 10/15/09.
50
73 cases filed between 1975 and 2006: 47% ITC affirmative, 44% ITC negative, 8% ITC tie, 1% terminated. (USITC Office
of Investigations; “Import Injury Investigations Case Statistics (FY 1980-2006), P94-96.
[http://www.usitc.gov/trade_remedy/documents/Report-01-08-PUB.pdf.] Retrieved 10/15/09.).
Of the 6 421 cases, 4 votes were affirmative, and 2 were negative. (USITC Office of Investigations; “Import Injury Investigations
Case Statistics (FY 1980-2006), P97. [http://www.usitc.gov/trade_remedy/documents/Report-01-08-PUB.pdf]. Retrieved
10/15/09.)
51
The US invokes provisions of existing agreements “not to be provocative or to promote self-defeating protectionism. We do so
because enforcing trade agreements is part and parcel of maintaining and open and free trading system.” International Trade

15
421 investigations, none of which have ever been implemented by the President.52 Safeguard

actions under section 201 have been more common, most notably imposed during the George W.

Bush Administration on steel imports. The ITC investigated and found that China was in

violation of section 421, and recommended higher tariffs than the President actually

implemented: 55%.53 The ITC report takes over 200 pages including appendices to exhaustively

research and report the issue.54 The ITC is required to disclose all its material findings of fact in

this report, along with a full articulation of its analysis leading to any conclusions. Part of the

ITC’s methodology is to conduct extensive surveying of the tire industry, in order to gather

factual data about the market conditions that are both timely and relevant to the issue in

question.55

Section 421 authorizes the ITC to conduct an investigation to conduct the following

analysis with respect to the imports at issue:

(1) there is market disruption or the threat of market disruption to

domestic producers of the like or directly competitive products;
and (2) imports from China are in such increased quantities or
under such conditions as to cause or threaten to cause such market
disruption. … [T]he following conditions must be satisfied to

Reporter, Obama’s Order for Safeguard Taiff Relief Against China Tire Imports Seen as Early Test., Vol. 26, No. 37, September
17, 2009.
52
Pedestal Actuators From China; Investigations No. TA-421-1 (Determination); (Publication No. 3557; November 2002). Steel
Wire Garment Hangers From China; Investigations No. TA-421-2.1 (Determination); (Publication No. 3575; February 2003).
Brake Drums and Rotors From China; Investigations No. TA-421-3 (Determination); (Publication No. 3622; August 2003).
Ductile Iron Waterworks Fittings From China; Investigations No. TA-421-4;(Publication No. 3657; December 2003). Uncovered
Innerspring Units From China; Investigation No. TA-421-5; (Publication 3676; March 2004). Circular Welded Non-Alloy Steel
Pipe From China; Investigation No. TA-421-6;(Publication 3807; October 2005).
53
“Chairman Shara L. Aranoff and Commissioners Charlotte R. Lane, Irving A. Williamson, and Dean A. Pinkert propose that
the President, for a three-year period, impose a duty, in addition to the current rate of duty, on imports of certain passenger
vehicle and light truck tires from China as follows: 55 percent ad valorem in the first year, 45 percent ad valorem in the second
year, and 35 percent ad valorem in the third year. They further propose that, if applications are filed, the President direct the U.S.
Department of Labor and the U.S. Department of Commerce to provide expedited consideration of Trade Adjustment Assistance
for firms and/or workers that are affected by subject imports.” US International Trade Commission, Certain Passenger Vehicle
and Light Truck Tires from China; Investigation No. TA-421-7; (Publication 4085; July 2009).
[http://www.usitc.gov/publications/safeguards/pub4085.pdf]. Retrieved 10/15/09.
54
Id.
55
Id. at I-11.

16
 warrant a finding of market disruption – (1) imports of the subject
product from China are increasing rapidly, either absolutely or
relatively; (2) the domestic industry is materially injured, or
threatened with material injury; and (3) such rapidly increasing
imports are a significant cause of the material injury or the threat
of material injury.56
The causation element of the analysis is satisfied using a three-factor test that is the same

as the test used for market disruption: (1) the volume of imports, (2) their effect on domestic

pricing, and (3) their effect on domestic production levels.57 These factors are to be evaluated in

light of the “significant cause” standard, whose meaning is consistent throughout the Trade Act

of 1974. The inquiry centers around the relationship of the imports to the injury, not the

relationship of the imports to other potential causes of injury. The relevant language is as

follows:

Under this standard, the imports subject to investigation need not

be the leading or most important cause of injury or more important
than (or even equal to) any other cause, so long as a direct and
significant causal link exists. Thus, if the ITC finds that there are
several causes of the material injury, it should seek to determine
whether the imports subject to investigation are a significant
contributing cause of the injury or are such a subordinate,
subsidiary or unimportant cause as to eliminate a direct and
significant causal relationship.58
The opinion of the panel was split, which is not unusual. The dissenting opinion largely

based its findings on the fact that some of the tire companies in question may have voluntarily

shifted some production capacity to China, which would both negate the loss of market share,

56
Id. at 4-5
57
Id. The relevant section is “Section 421(d) includes a list of three factors that the Commission is required to consider in
determining whether market disruption exists and that relate to the Commission’s causation analysis: (1) the volume of imports of
the product which is the subject of the investigation; (2) the effect of imports of such product on prices in the United States for
like or directly competitive articles; and (3) the effect of imports of such product on the domestic industry producing like or
directly competitive articles. The presence or absence of any of these factors is not necessarily dispositive of whether market
disruption exists. The three factors are similar to a list of factors in section 406(e)(2)(C) of the Trade Act of 1974 and parallel the
criteria in Title VII of the Tariff Act of 1930 that the Commission must consider in determining whether a domestic industry is
injured by reason of dumped or subsidized imports.”
58
Id. at 18-19. Emphasis added.

17
and account for some of the rising imports.59 These and other reasonable arguments made by the

dissent are fair and valid assertions. Nevertheless, the majority of the panel voted that these

factors were not substantial enough to overcome the relatively low “material” injury standard.

Shortly after the Obama Adminsitration announced its decision to approve the safeguard,

the Chinese appealed to the WTO.60 China challenged the decision on both legal and factual

grounds, making several counter-assertions, including arguing that the very provision to which

they agreed is itself illegal under the WTO.61 Based on prior actions before the WTO DS, there

will be a three year period for the pendency of the initial action and the appeal. In this case, the

timing is of special interest because even if China were to prevail, the 421 provision expires in

2013. As such, at that time the US would have no further rights to impose this tire tariff.62 WTO

Appellate Body decisions have no retroactive effect, so the judgment would be effective only

after the date of the ruling. As such this appeal is virtually guaranteed to have no practical effect

on either party. Nevertheless, as is repeatedly emphasized throughout this paper, the WTO

should take this controversy seriously for its precedential value for future safeguard disputes.

The DS should adopt a factorial balancing test as outlined herein.

59
Id. at 64.
60
The public document is designated as WT/DS3991 and can be found on the WTO Website [www.wto.org].
61
See Tracy Elizabeth Dardick, The US-China Safeguard Provision, The GATT, and Thinking Long Term, Chicago Journal of
International Law, Summer 2005, arguing that the concept of creating a transitional state for non-market economies violates the
WTO principle of nondiscrimination. “The [China-specific] Safeguard Provision--China's concession to the US--actively
violates both the mission and the specific requirements of the WTO as expressed in the GATT.” 6 Chi. J. Int'l L. 467, 473
(.Summer2005).
62
“[Safeguards] are by no means unusual. Each year the World Trade Organization counts 100 to 200 of them around the world,
usually imposed through the ‘anti-dumping’ and ‘countervailing duty’ laws that many countries have passed to defend industries
against predatory export practices, such as below-cost sales and government subsidies.” Business Times (Singapore), Tyre
tariffs won’t change trade scene; They will probably last 3 years, have some modest effects on trade flows, production, and all
will look much the same. September 16, 2009.

18
D. Factorial Balancing Applied to Tires

A factorial analysis might start with the principles of safeguard construction from the

Agreement on Safeguards. A valid safeguard should be (1) temporary; (2) imposed only when

imports cause or threaten to cause serious injury to a domestic industry; (3) applied not on a

selective basis; and (4) progressively liberalized while in effect.

The first factor is clearly met by the 421 safeguard. The measure is limited to three

years, and in fact the entire 421 provision itself is set to expire in 2013. As to the second factor

of causation of injury, first, the injury standard is lower in a 421 safeguard than in a 201

safeguard. The 421 language requires only a showing of “significant cause” of “material” injury,

not “serious” injury.63 In the face of this clear mandate to lower the threshold determination of

injury, it would leave the only objection a legal one. It’s not clear what material injury means,

but standard interpretive canons would seem to impose on the DS the duty of interpreting

“material” injury within a legal context of the WTO, if it can be upheld on principle. The

presumption should be that the term can be interpreted legally and harmoniously, if at all

possible. There is no contradicting case law or principles, so this is entirely possible.64

63
“One issue that may arise here is whether article 2.1 of the WTO Agreement on Safeguards thus prohibits an agreement like
the one between the United States and China that subjects products from one party, with its own consent, to a set of standard less
advantageous to this member than the “serious injury” standard granted in the WTO Agreement on Safeguards. The plain
language of article 2.1 of the WTO Agreement on Safeguards seems to compel an affirmative answer, though if we look at the
WTO Agreement on Safeguards as a whole, the answer may not be so straightforward.
“In this respect it is worth observing that the WTO Agreement on Safeguards devotes one article, article 11, to setting forth
prohibited measures under the Agreement and there is no clear language in this article prohibiting the substitution of a test like
that of “material injury” for the “serious injury” test. The so-called “gray areas” prohibited in article 11 refer to “any voluntary
export restraints, orderly marketing arrangements or any other similar measures on the export or the import side.” Relaxing the
“serious injury” test into “material injury” does not seem to be as serious a compromise of the underlying WTO principles as a
measure like voluntary export restraints and is arguably not within the purview of article 11 prohibition.” Jing Ma, PRODUCT-
SPECIFIC SAFEGUARD IN CHINA'S WTO ACCESSION AGREEMENT: AN ANALYSIS OF ITS TERMS AND ITS
INITIAL APPLICATION IN SECTION 421 INVESTIGATIONS, Boston University International Law Journal, 22 B.U. Int'l
L.J. 189, 198 (.Spring2004).
64
“The two most salient differences between the U.S.-China Agreement and the WTO Agreement on Safeguards are: (1) the
former's use of the ‘material injury’ standard in place of the ‘serious injury’ standard as consistently used in both the GATT and
WTO; and (2) the former's China-specific provision in contrast to the provision in the WTO Agreement on Safeguards against

19
 In order to unravel the causation factor, the DS should evaluate the reasonableness of the

procedures used to arrive at the conclusion. The safeguard should be upheld if the causation

analysis is reasonable. That is, if the analysis is conducted using properly applied principles of

science and economics, and if the conclusion could be reached by a reasonable practitioner using

the data and analysis. This test forces analysis to be fact-based, and is limited in scope to what

conclusions can be reasonably reached by mainstream economics methodology. The ITC

opinion is based on such sound methodology, and is sufficient to establish a reasonable factual

basis of causation. The DS would then not be in the position of second-guessing the ITC

methodology or its conclusions, but only rendering judgment on its reasonableness.65

An expected argument against this analysis might be that the causation element

incorporates into its analysis the other elements of safeguard validity. A relevant comparison

would be to proximate causation analysis in the Anglo-American tort law tradition. The element

of reasonableness analysis is factored into the causation inquiry. In this way, the factfinder is

forced to remind themselves of the larger issues surrounding the bare facts. A primary flaw in

the DS analysis is excessive obsession with the facts, divorced from the legal context. This is a

disappointing position because there are already well-established legal traditions of handling the

metaphysical impossibility of finding an absolute chain of causation between any two events.

singling out specific countries in applying safeguards on a product. … ‘Serious injury’ is defined in the WTO Agreement on
Safeguards as ‘significant overall impairment in the position of a domestic industry.’ ‘Material injury,’ on the other hand, is left
undefined in the U.S.-China Agreement. What the U.S.-China Agreement does define in relation to ‘material injury’ is “market
disruption,’ which is defined as existing ‘whenever imports of an article’ increase so rapidly ‘as to be a significant cause of
material injury, or threat of material injury to the domestic industry.’ 22 B.U. Int'l L.J. 189, 195 -196 (Spring2004).
65
By way of analogy, the evolution of administrative law in the US started with a similar analysis to conduct judicial review of
agency decisionmaking. In the pre-Chevron era, courts frequently conducted a “reasonableness” review of agency action,
generally deferring to their conclusion if it was within a spectrum of reasonable conclusions based upon a sound procedural
foundation.

20
 This understanding will have the advantage of being clear and cognizable to Members,

and give guidance to make future dispute outcomes more predictable. Thus future domestic

industry representatives may be given some guidance as to what their options are for utilizing the

WTO dispute resolution system as a potential redress to alleged import injury. For example,

with respect to causation, some prima fascie valid reasons for import surges should be articulated

by the court. Among these might be technological breakthrough (as evidenced by patent filing or

new discovery of natural resources). An example of the opposite effect might be example of

nonmarket dynamics, which would make the safeguard use prima fascia valid. In the 421 case,

the US might argue that the Chinese centrally-planned economy has allowed the Chinese tire

companies to achieve artificially low tire production costs, since resources have been artificially

shifted from other sectors. None of these factors need be proven conclusively, but simply the

fact that they are present would create legal presumptions, and thus give the attorneys

representing these interests a good idea about how more or less likely their chances of success

are in bringing about a given action. This will allow them to properly counsel their clients and

lead to a much more functional adjudicative system. Thus the DS will see a higher quality of

cases, and be able to deal with an ever-increasing quality of disputes.

The third factor requires that safeguards not be applied selectively. The 421 safeguard is

China-specific, and is thus clearly a prima fascia violation of this principle. China’s best hope to

overcome the 421 action is to challenge the entire concept of nation-specific safeguards as in

violation of the mission of the WTO and against WTO principles.66 Unlike nonselective

66
See the WTO Website “Principles of the trading system” at [http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm],
Retrieved 10/25/09. The fundamental principle is to work for “freer” trade through successive rounds of mutual, multilateral
negotiations, with the agreements characterized by nondiscrimination, predictability through transparency, and encouraging
increased trade flows. Throughout the WTO legal texts and public documents, the recognition is made clear that these are

21
safeguards, all WTO Members did not agree on the 421 safeguard; it was bilaterally negotiated

between the US and China as part of China’s accession to the WTO.67 The argument against

bilaterally negotiated safeguards is that it fundamentally undermines the multilateral trading

system, especially basic organizing principles of the WTO such as Most-Favored Nation

(“MFN”) status.68

The US should argue that the WTO needs to update its understanding of its mission to be

cognizant of the reality that not all Member states are alike, and thus a transitional state is

required for nonmarket economies such as China. The US can argue that the DS need not create

a new rule to fully explain this exception, leaving that to future proceedings. The DS can simply

rule that the exception applies in this case because of the size and quality of China’s economy,

and its potential to disrupt other economies. Further support of this ruling is the very limited

scope of this safeguard, focused only on tires, representing a small fraction of the total trade

volume between the US and China.

The fourth factor can be quickly disposed: the 421 safeguard is progressively liberalized,

and the element of compensation either does not apply because this is specific safeguard, or if it

does apply, can be objectively determined.

The underlying assumption of utilizing this proposed factorial causation analysis is a

presumption of validity of safeguards, based on the fact that safeguards are written into WTO

agreements. One argument against a presumption of validity of safeguards is that it will be

guiding principles only, and that in practice compromise has been, and will continue to be, necessary to achieve agreement
among the over 100 WTO Members.
67
See Ma, supra, at 189.
68
Id. MFN status means each Member must extend its best trading terms and conditions to all other Members. Thus MFN is the
primary legal mechanism to ensure nondiscriminatory treatment.

22
abused by Members and will result in an unreasonable restraint of trade, discriminatory

treatment, and/or will result in excessive adjudication. As shown elsewhere in the paper, even if

these are all substantially true, the mission of the WTO may still be advanced despite this, since

safeguards are clearly favored by states who value their sovereignty.

Finally, the DS should take notice of public perception of safeguards, and explain the

policy behind this ruling in order to correct common misunderstandings of safeguards. The

WTO, as a member-created, member-driven organization, should be especially sensitive to

constituent opinion. In the press two primary arguments are discussed: the first being that

safeguards are protectionist and thus should never be exercised. This is fundamentally wrong for

several reasons, primarily because of the fundamental principles discussed at length above. This

is also legally fallacious because if the safeguard provisions are legal, then their use cannot be

disparaged simply because some want to label them as protectionist, or argue that they were

never intended to be used. The only other argument, which isn’t being advanced much in the

press, is that the 421 provision is illegal under WTO standards. It is highly suspect that anyone

genuinely believes this since it is not an argument anyone in the press wants to be associated

with. Even though China has asserted this argument in its appeal, they never raised this

objection during the time they negotiated and ratified the original treaty. Furthermore, it’s clear

that their economy does have significant nonmarket forces influencing its ability to set pricing

points, and this clearly runs afoul of the WTO purposes. There would have to be a very strong

evidentiary showing that this provision somehow violates some more fundamental principle of

WTO law, and is somehow more deleterious to the whole multilateral trading system as a whole.

These are all very highly suspect charges, and for the DS to attempt to support these arguments

would only further its illegitimacy, and render it highly vulnerable to the argument that it is

23
merely a vehicle for the EU and others to exert political pressure on the US to counter any real or

alleged hegemony of the US. Even if the US is bent on hegemony, the WTO isn’t he place for

these disputes, but if the EU and others want to use it that way, then it clearly absolves the US of

any responsibility to honor its agreements under the treaties.

Some argue that the 421 is completely ineffective because the tire manufacturers will

simply reengineer their supply chains to route tires produced in china to other markets, and

source the US market from other producers.69 This however is clearly an argument in favor of

the safeguard use, since it clearly demonstrates that the purposes of the WTO are not frustrated.

If anything, this would be an argument against the US invoking the safeguard in the first place,

since it may not actually save any jobs. On the other hand, the mere fact that the US did actually

chose to invoke the safeguard is at least some evidence that the safeguard serves a political

purpose as well. The steelworkers union was the supporter of the original petition, and this

union is heavily represented by tire workers in Pennsylvania, one of the pivotal swing states in

presidential elections. This decision to support this petition, regardless of intention, has the

effect of strengthening the unions political power in at least Pennsylvania, and probably the other

69
“Tyres now being produced in China will probably end up being produced somewhere else in the emerging world.”
Independent (UK), Obama Must Resist the Siren Call of Protectionism Ahead of the G20, September 21, 2009.
“Goodyear, in a statement, noted that less than 2 percent of the tires it sells in North America come from china. ‘There are too
many variables to truly understand or estimate the impact at this point,’ the Akron-based tire maker said. ‘We acknowledge that
this ruling will likely impact other regions of the world because of two factors: Tire makers can shift their current Chinese-based
production to other countries to bypass any potential tariffs to serve the US; and The excess capacity from China that would
become available because of tariffs is likely to flow to other regions.’ Michelin North America Inc. said it expected little impact
on its operations from the tariffs, because nearly 90 percent of the tires it sells in North America are also made there.” Tire
Business, Tire Tariffs; What Now? Obama Order Spurs Trade War Fears, September 28, 2009, Volume 27, Issue 13.
But contrast the above with other reports making contrary statements. For example, “’Such a high tariff would prohibit Cooper
Tire from importing any tires from the People’s Republic of China,’ Findlay, Ohio-based Cooper Tire said in a redacted public
version of its comments to the USTR. ‘The added costs of the duties would make any such imports economically unfeasible.’”
Tire Business, Cooper, Toyo Say Tariffs Spell End of Chinese Imports, August 31, 2009, Volume 27, Issue 11. But also consider
that the tire companies were neutral on this issue: “Bridgestone Americas issued a statement only to counter a news report that
erroneously said the company opposed the tariff. ‘Reasonable minds can differ on whether or not the situation is one that calls
for action at a governmental level,’ the Nashville, Tenn.-based tire maker said. ‘That being said, we continue to remain neutral
on this matter.’” Tire Business, Tire Tariffs; What Now? Obama Order Spurs Trade War Fears, September 28, 2009, Volume
27, Issue 13.

24
states in which tire plants are located as well. So the safeguard has a likely political benefit, but

apparently is economically rather neutral. Time will tell how accurate both of these propositions

are, and what their true effect will be, but for the time being, it’s at least a convincing and

reasonable argument against the unreasonable limitation of safeguard use.

III. CONCLUSION

The WTO should deny China’s appeal. The DS needs to uphold the 421 action based on

the pure legality of the action under the laws are as they have been interpreted. In addition, the

DS should implement a new factorial balancing test for the causation element in a safeguard

analysis. The principles of free trade support this analysis, as well as the Agreement on

Safeguards itself. The Anglo-American legal tradition has several useful analogs from which to

guide this factorial balancing analysis. A more functional safeguards analysis will be well-suited

to address the foreseeable challenges this system will face over the coming decades. Thus, the

current 421 action is, and should be ruled to be, in accord with these principles of law and

economics upon which the WTO is based. Finally, implementing a factor test for causation

element analysis will further the WTO goals regarding dispute settlement and safeguard actions,

and strengthen the WTO as the administrator of the multilateral trading system.

The WTO counts among its goals the raising of worldwide standards of living, which is a

practical consequence of upholding the principles discussed above. Upholding this 421 action

reinforces the WTO’s commitment to a workable free trade system. This means free trade in the

real world, where economies large and small economies must trade, and non-market economies

trading with market-based economies. In this case, China’s long-term trade relationship with the

US will only be strengthened from a proper ruling on the pending 421 case. The two trade

25
partners would be encouraged to continue to trade and to resolve disputes within the WTO

framework. In this way the long-term goal of dismantling trade barriers is furthered, which has

the economic effect of raising standards of living.70

For these reasons, it is clearly in the WTO’s own self-interest to uphold this action. The

DS is already vulnerable to questions about its legitimacy as a forum after failing to uphold any

prior safeguard action. Not to resolve this problem soon could be disastrous for the current

round of negotiations to expand the WTO.71 The DS must produce a functional legal analysis for

causation, and articulate it clearly so as to guide future dispute resolution proceedings. The

focus should be on the fundamentals of public international law that underpin the WTO and the

economics of free trade. However, without a change, the WTO DS is unlikely to uphold this

safeguard action. Thus the inconsistency between the WTO’s agreements and its adjudicative

rulings could remain. This result would undermine the value of WTO Membership, and is

clearly unacceptable in the long-term. This clearly will not further the WTO’s goals, nor will it

be a legally acceptable result. The WTO is bound to uphold its Members’ agreements. It is

70
“It is almost inevitable that various domestic industries would suffer from foreign competition once a nation opens its market
to the outside world; this is part of the price the country pays to get the overall benefits flowing from free trade. For developed
countries, opening their domestic markets to less developed countries where labor cost, among other things, is significantly
lower, means domestic industries producing like or competitive products will almost certainly lose at least some of their sales to
competition and will have to transfer their resources to other productive pursuit--for example, developing and manufacturing
higher-end products or even entering other industries--if such domestic industries want to survive. According to the theory of free
trade, of course, the benefits the importing countries receive from such imports--benefits to their consumers, for example-- will
be greater than the losses such imports cause to domestic industries. For less developed countries like China, opening national
markets to economically more advanced countries means, among other things, that their technology-intensive and capital-
intensive industries, including services, such as automobiles, banking and insurance, which usually lag one or even several
generations behind the development level of Western countries, will face potentially debilitating competition from foreign
companies. … The WTO system, admittedly, has made some accommodations for developing nations (e.g., article 9 of the WTO
Agreement on Safeguard, “Developing Country Members”). But under the U.S.-China Agreement, China has not even availed
itself of the normal treatment for a WTO member in the safeguard area, let alone the preferential treatment reserved for
developing country members.” 22 B.U. Int'l L.J. 189, 199 -200 (.Spring2004).
71
Sarah McGregor, Doha Talks “Difficult to Conclude” by 2010, Lamy Says. Bloomberg, October 16, 2009.
[http://www.bloomberg.com/apps/news?pid=20601116&sid=a7re3EWHubOA]. Retrieved 10/27/09.

26
especially crucial in this case since it is a bilateral agreement that is entirely consistent with other

WTO principles. The WTO exists for the benefit of its members, not the other way around.

Failure has been the great innovator in the multilateral trading system. If the WTO fails

to adjust to the realities of today and beyond, it’s not inconceivable to consider that its usefulness

would run out. This would clearly be an unacceptable delay for all those who hope to grow the

world economy and raise global standards of living.

27