D

U.S. Use of Transitional Rights (textile safeguards; Section 421; AD NME status)

Protocol of accession provisions

The protocol on China's accession, as well as the working party report, include special provisions unique to China's accession to the WTO that apply to the transitional period following China's accession. First, there is available to WTO members a special safeguard provision applicable to textile and apparel products in order to deal with market disruption due to increased imports of Chinese textile and apparel products. Second, WTO members may apply a product-specific transitional safeguard to deal with import surges of particular products from China that cause market disruption.

Textile safeguards

Upon accession, China became a party to the Agreement on Textiles and Clothing (ATC). As such, China is subject to the rights and obligations of the ATC, including quotas. The ATC, and the textile and apparel quotas under the ATC, will expire on December 31, 2004. However, the special textile safeguard mechanism that China agreed to as part of its accession commitments will be applicable through the end of 2008.

The working party report to China's accession (at paragraph 242)[1] sets out the terms of the special textile safeguard. Under that provision, if a WTO Member believes (and can show) that imports of certain Chinese textile and apparel products are “threatening to impede orderly development of trade in these products” due to “market disruption,” the WTO Member can request consultations with China “with a view to easing or avoiding such market disruption.”[2] The scope of products for which this regime applies includes those textile and apparel products covered by the ATC as of the date the WTO Agreement entered into force, that is, January 1, 1995. Upon receipt of a request, China has agreed to “hold its shipments ... to a level no greater than 7.5 per cent (6 per cent for wool product categories) above the amount entered during the first 12 months of the most recent 14 months preceding” the request.[3] Consultations would be held within 30 days of the request with the aim of reaching a "mutually satisfactory solution" within 90 days of the request.[4] If no solution can be reached, consultations, and export restraints, continue.[5]

There is a time limit on the application of special textile safeguards. Export restraints may be applied from the date that consultations are requested through December 31 of that year. If, however, three or fewer months remain in that year, then the export restraints may stay in place for up to one year from the date of the request for consultations.[6] In general, no export restraint may last longer than one year unless it is reapplied through further consultations, or otherwise agreed to by China and the WTO member.[7] The special safeguard provision, itself, expires on December 31, 2008.[8]

In addition to time limits, another limitation applies to the special textile safeguard. A measure under the special textile safeguard provision may not be applied to the same product at the same time as a measure under the accession protocol’s “transitional product-specific safeguard mechanism” (Article 16 of the protocol of accession; referred to as “Section 421” in U.S. law). However, a WTO member could apply a special textile safeguard measure and a regular safeguard measure under GATT Article XIX and the WTO Agreement on Safeguards to the same product at the same time.

Under the special textile safeguard provision, a WTO Member can request consultations and secure export restraints by showing that imports from China are “threatening to impede orderly development of trade in these products” due to “market disruption.” The standard of injury required here -- “market disruption” -- is less stringent than the “serious injury” test of a regular safeguard action under GATT Article XIX and the WTO Agreement on Safeguards. The consultative procedure of the special textile safeguard was established as a less formal means of temporarily limiting the impact on WTO members of increased Chinese textile and apparel imports. Thus, it should be easier for WTO Members to use the special textile safeguard than the regular safeguard mechanism.

The box below shows the working party report commitments agreed to by China with respect to textiles and apparel.

Special Textile Safeguards

Working Party Report, WT/MIN(01)/3 (10 November 2001)

11. Textiles

241. Some members of the Working Party proposed and the representative of China accepted that the quantitative restrictions maintained by WTO Members on imports of textiles and apparel products originating in China that were in force on the date prior to the date of China's accession should be notified to the Textiles Monitoring Body ("TMB") as being the base levels for the purpose of application of Articles 2 and 3 of the WTO Agreement on Textiles and Clothing ("ATC"). For such WTO Members, the phrase "day prior to the date of entry into force of the WTO Agreement", contained in Article 2.1 of the ATC, should be deemed to refer to the day prior to the date of China's accession. To these base levels, the increase in growth rates provided for in Articles 2.13 and 2.14 of the ATC should be applied, as appropriate, from the date of China's accession. The Working Party took note of these commitments.

242. The representative of China agreed that the following provisions would apply to trade in textiles and clothing products until 31 December 2008 and be part of the terms and conditions for China's accession:

(a) In the event that a WTO Member believed that imports of Chinese origin of textiles and apparel products covered by the ATC as of the date the WTO Agreement entered into force, were, due to market disruption, threatening to impede the orderly development of trade in these products, such Member could request consultations with China with a view to easing or avoiding such market disruption. The Member requesting consultations would provide China, at the time of the request, with a detailed factual statement of reasons and justifications for its request for consultations with current data which, in the view of the requesting Member, showed: (1) the existence or threat of market disruption; and (2) the role of products of Chinese origin in that disruption;

(b) Consultations would be held within 30 days of receipt of the request. Every effort would be made to reach agreement on a mutually satisfactory solution within 90 days of the receipt of such request, unless extended by mutual agreement;

(c) Upon receipt of the request for consultations, China agreed to hold its shipments to the requesting Member of textile or textile products in the category or categories subject to these consultations to a level no greater than 7.5 per cent (6 per cent for wool product categories) above the amount entered during the first 12 months of the most recent 14 months preceding the month in which the request for consultations was made;

(d) If no mutually satisfactory solution were reached during the 90‑day consultation period, consultations would continue and the Member requesting consultations could continue the limits under subparagraph (c) for textiles or textile products in the category or categories subject to these consultations;

(e) The term of any restraint limit established under subparagraph (d) would be effective for the period beginning on the date of the request for consultations and ending on 31 December of the year in which consultations were requested, or where three or fewer months remained in the year at the time of the request for consultations, for the period ending 12 months after the request for consultations;

(f) No action taken under this provision would remain in effect beyond one year, without reapplication, unless otherwise agreed between the Member concerned and China; and

(g) Measures could not be applied to the same product at the same time under this provision and the provisions of Section 16 of the Draft Protocol.

The Working Party took note of these commitments.

Product-Specific Safeguards

In addition to the textile specific export restraint mechanism, China’s accession protocol provides for a general “product-specific special safeguard” measure, which is applicable to any type of product (i.e., industrial and agricultural goods) and will be available to the U.S. (and other WTO Members) for 12 years following China’s accession to the WTO, that is, until December 11, 2013. This measure will allow the United States to take action necessary to curtail imports of Chinese goods that cause or threaten to cause “market disruption” to the domestic industry producing such goods.

The transitional product-specific safeguard is unique to China. Before China, no other acceding country (either to GATT or the WTO) has been subject to a transitional product-specific safeguard. The product-specific safeguard mechanism was applied to China, however, because the WTO members recognized that, even though China was admitted to the WTO in December 2001, China still remained a long way from fully meeting all obligations of WTO membership. As a measure of protection for other WTO Members during China's transition to full acceptance of all WTO obligations, the product-specific safeguard allows existing WTO members to bring a China-only safeguard action where there is market disruption from increased imports from China. This is an exception from the normal rules governing safeguard actions (i.e., Article XIX of GATT 1994 and the WTO Agreement on Safeguards) which require that safeguard actions be brought against imports from all countries.

A product-specific safeguard measure is not the only means to address cases where products of Chinese origin are being imported into the territory of a WTO Member in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products. The Protocol provides that WTO Members affected by market disruption caused by increased Chinese imports may request consultations with China with a view to seeking a mutually satisfactory solution.[9] If such consultations conclude that Chinese imports are causing market disruption and action is necessary, China "shall take such action as to prevent or remedy the market disruption."[10] If, however, consultations do not lead to a mutually satisfactory solution within 60 days of the date of request for consultations, then the WTO member is to take action to prevent or remedy the market disruption through the imposition of a product-specific safeguard measure.[11]

The injury standard underlying a product-specific safeguard is "market disruption." "Market disruption” exists wherever imports of an article, like or directly competitive with an article produced by the domestic industry, are increasing rapidly, either absolutely or relatively, so as to be a significant cause of material injury, or threat of material injury to the domestic industry.[12]. This “material injury” standard is substantially less than the “serious injury” standard of a typical safeguard action.

In the case of critical circumstances, where delay would cause damage that would be difficult to repair, provisional safeguard measures can be imposed (for up to 200 days) pursuant to a preliminary determination that imports have caused or threatened to cause market disruption.[13] If a WTO Member considers that a product-specific safeguard measure taken by another WTO Member causes or threatens to cause significant diversions of trade into its market, that Member may seek consultations with China and/or the other WTO Member concerned.[14] If such consultations do not resolve the problem, then the WTO Member may take action to the extent necessary to prevent or remedy the trade diversions at issue.[15]

Measures imposed under the product-specific safeguard mechanism may be in place for two years where there has been a relative increase in imports, and three years where the increase is absolute. After these respective periods, China is permitted to “retaliate” by suspending substantially equivalent concessions or obligations under the WTO Agreement.[16]

The boxes below shows the protocol and working party report commitments agreed to by China concerning the product-specific transitional safeguard.

Transitional Product-Specific Safeguards

Protocol on Accession, WT/L/432 (23 November 2001)

16. Transitional Product-Specific Safeguard Mechanism

1. In cases where products of Chinese origin are being imported into the territory of any WTO Member in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products, the WTO Member so affected may request consultations with China with a view to seeking a mutually satisfactory solution, including whether the affected WTO Member should pursue application of a measure under the Agreement on Safeguards. Any such request shall be notified immediately to the Committee on Safeguards.

2. If, in the course of these bilateral consultations, it is agreed that imports of Chinese origin are such a cause and that action is necessary, China shall take such action as to prevent or remedy the market disruption. Any such action shall be notified immediately to the Committee on Safeguards.

3. If consultations do not lead to an agreement between China and the WTO Member concerned within 60 days of the receipt of a request for consultations, the WTO Member affected shall be free, in respect of such products, to withdraw concessions or otherwise to limit imports only to the extent necessary to prevent or remedy such market disruption. Any such action shall be notified immediately to the Committee on Safeguards.

4. Market disruption shall exist whenever imports of an article, like or directly competitive with an article produced by the domestic industry, are increasing rapidly, either absolutely or relatively, so as to be a significant cause of material injury, or threat of material injury to the domestic industry. In determining if market disruption exists, the affected WTO Member shall consider objective factors, including the volume of imports, the effect of imports on prices for like or directly competitive articles, and the effect of such imports on the domestic industry producing like or directly competitive products.

5. Prior to application of a measure pursuant to paragraph 3, the WTO Member taking such action shall provide reasonable public notice to all interested parties and provide adequate opportunity for importers, exporters and other interested parties to submit their views and evidence on the appropriateness of the proposed measure and whether it would be in the public interest. The WTO Member shall provide written notice of the decision to apply a measure, including the reasons for such measure and its scope and duration.

6. A WTO Member shall apply a measure pursuant to this Section only for such period of time as may be necessary to prevent or remedy the market disruption. If a measure is taken as a result of a relative increase in the level of imports, China has the right to suspend the application of substantially equivalent concessions or obligations under the GATT 1994 to the trade of the WTO Member applying the measure, if such measure remains in effect more than two years. However, if a measure is taken as a result of an absolute increase in imports, China has a right to suspend the application of substantially equivalent concessions or obligations under the GATT 1994 to the trade of the WTO Member applying the measure, if such measure remains in effect more than three years. Any such action by China shall be notified immediately to the Committee on Safeguards.

7. In critical circumstances, where delay would cause damage which it would be difficult to repair, the WTO Member so affected may take a provisional safeguard measure pursuant to a preliminary determination that imports have caused or threatened to cause market disruption. In this case, notification of the measures taken to the Committee on Safeguards and a request for bilateral consultations shall be effected immediately thereafter. The duration of the provisional measure shall not exceed 200 days during which the pertinent requirements of paragraphs 1, 2 and 5 shall be met. The duration of any provisional measure shall be counted toward the period provided for under paragraph 6.

8. If a WTO Member considers that an action taken under paragraphs 2, 3 or 7 causes or threatens to cause significant diversions of trade into its market, it may request consultations with China and/or the WTO Member concerned. Such consultations shall be held within 30 days after the request is notified to the Committee on Safeguards. If such consultations fail to lead to an agreement between China and the WTO Member or Members concerned within 60 days after the notification, the requesting WTO Member shall be free, in respect of such product, to withdraw concessions accorded to or otherwise limit imports from China, to the extent necessary to prevent or remedy such diversions. Such action shall be notified immediately to the Committee on Safeguards.

9. Application of this Section shall be terminated 12 years after the date of accession.

Working Party Report, WT/MIN(01)/3 (10 November 2001)

13. Transitional Safeguards

245. With respect to implementation of the product-specific safeguard, the representative of China expressed particular concern that WTO Members provide due process and use objective criteria in determining the existence of market disruption or trade diversion, because WTO Members did not have wide experience in implementing the provisions of Section 16 of the Draft Protocol. He stated that with respect to trade diversion, WTO Members needed to apply objective criteria to determine whether an action by China or another WTO Member under the product-specific safeguard to prevent or remedy market disruption caused or threatened to cause significant diversion of trade. Such criteria should include the actual or imminent increase in market share or volume of imports from China, the nature or extent of the action taken by China or the other WTO Member and other similar criteria. In addition, WTO Members should provide an opportunity for importers, exporters and all interested parties to submit their views on the matter.

246. Members of the Working Party noted that the Draft Protocol included specific requirements that WTO Members needed to follow in connection with an action under that Section. Members of the Working Party confirmed that in implementing the provisions on market disruption, WTO Members would comply with those provisions and the following:

(a) An action to address market disruption would be taken only after an investigation by the competent authorities of the importing WTO Member pursuant to procedures previously established and made available to the public;

(b) The competent authority of the importing Member would publish notice of the commencement of any investigation under the product-specific safeguard provisions of the Draft Protocol and would, within a reasonable time thereafter, hold a public hearing or provide other appropriate means for the purpose of permitting interested parties to present evidence and their views as to the appropriateness of whether or not to take a measure and to respond to the presentations of other parties;

(c) In determining whether market disruption existed, including the causal link between imports which were increasing rapidly, either absolutely or relatively, and any material injury or threat of material injury to the domestic industry, the competent authorities would consider objective factors, including (1) the volume of imports of the product which was the subject of the investigation; (2) the effect of imports of such product on prices in the importing WTO Member's market for the like or directly competitive products; (3) the effect of imports of such product on the domestic industry producing like or directly competitive products;

(d) The competent authorities would publish any measure proposed to be taken and provide the opportunity, including a public hearing, if requested, or provide other appropriate means, for importers, exporters and other interested parties to submit their views and evidence on the appropriateness of the proposed measure and whether it would be in the public interest;

(e) The competent authority would promptly publish notice of the decision to apply a measure, including an explanation of the basis for the decision and the scope and duration of the measure;

(f) The period of application of the measure could be extended, provided that the competent authorities of the importing WTO Member had determined that action continued to be necessary to prevent or remedy market disruption. The competent authorities of the importing WTO Member would publish notice of the commencement of any proceeding to consider whether to extend the duration of an action and would, within a reasonable time thereafter, hold a public hearing or provide other appropriate means for the purpose of permitting all interested parties to have an opportunity to present evidence or their views and to respond to the presentations of other parties;

(g) Except for good cause, no investigation under Section 16 of the Protocol on the same subject matter could be initiated less than one year after the completion of a previous investigation; and

(h) A WTO Member would apply a measure only for such period of time as was necessary to prevent or remedy market disruption.

247. Trade diversion referred to an increase in imports from China of a product into a WTO Member as the result of an action by China or other WTO Members pursuant to paragraphs 2, 3 or 7 of Section 16 of the Draft Protocol. Members of the Working Party also noted that the Draft Protocol required a determination that any trade diversion was significant and that the action taken to address market disruption had caused or threatened to cause the diversion.

248. Members of the Working Party agreed that objective criteria had to be applied in determining whether actions to prevent or remedy market disruption caused or threatened to cause significant diversion of trade. Among the factors to be examined were:

(a) the actual or imminent increase in market share of imports from China in the importing WTO Member;

(b) the nature or extent of the action taken or proposed by China or other WTO Members;

(d) conditions of demand and supply in the importing WTO Member's market for the products at issue; and

(e) the extent of exports from China to the WTO Member(s) applying a measure pursuant to paragraphs 2, 3 or 7 of Section 16 of the Draft Protocol and to the importing WTO Member.

249. A measure taken to address significant diversions of trade would be terminated not later than 30 days after the expiration of the action taken by the WTO Member or Members involved against imports from China.

250. If the WTO Member or Members taking an action to address market disruption notified the WTO Committee on Safeguards of any modification of an action, the competent authorities of the WTO Member addressing trade diversion would determine whether a significant diversion of trade continued to exist and determine whether to modify, withdraw or keep in place the action taken.

U.S. implementing provisions or existing laws

Special Textile Safeguards

The special China safeguard for textiles took effect in December 2001 upon China’s accession to the WTO. On May 21, 2003, the Committee to Implement Textile Agreements (“CITA”), the official U.S. government entity responsible for administering the Agreement on Textiles and Clothing (“ATC”), promulgated the procedures for bringing a special safeguard action to seek relief from Chinese imports.[17]

The Committee for the Implementation of Textile Agreements (CITA) is an interagency group responsible for matters affecting textile trade policy and for supervising the implementation of all textile trade agreements.[18] CITA administers the phase-out of textile and apparel quotas on WTO countries required to be completed by January 1, 2005 under the ATC. CITA was established by the President in Executive Order 11651 on March 3, 1972 and is comprised of the Departments of Commerce, State, Labor, and Treasury and the Office of the U.S. Trade Representative.[19] CITA is chaired by the Commerce Department's Deputy Assistant Secretary for Textiles, Apparel, and Consumer Goods Industries.

Implementation of the special textile safeguard in U.S. law through issuance of regulations did not occur until nearly 17 months after China's accession. This delay was costly to U.S. interests. According to the American Textile Manufacturers Institute, in the period before CITA issued its regulations, imports of Chinese textile and apparel products increased more than 165%, 50 U.S. textile plants closed, and some 39,000 textile workers lost their jobs.[20]

Under the procedures issued by CITA, a domestic interested party may file a request for a textile/apparel safeguard. Eligible requesters are those entities (including a trade association, firm, certified or recognized union, or group of workers) that are representative of (1) a domestic producer or producers of a product that is like or directly competitive with the subject Chinese textile or apparel product, or (2) a domestic producer or producers of a component used in the production of a product that is like or directly competitive with the subject Chinese textile or apparel product.[21] In addition, CITA may, on its own initiative, consider whether increased imports of Chinese-origin textile and apparel products are causing market disruption and threatening to impede orderly development of trade in such products.[22]

CITA will consider requests only if they contain certain specified information. The required information concerns the following:

(1) Product description of the product, including the applicable category under the U.S. Textile and Apparel Category System, the applicable subheading under the U.S. Harmonized Tariff Schedule, and the name and description of the like or directly competitive domestic product.[23]

(2) Import data, in quantity by category unit, on total imports into the United States and imports from China into the United States. Both annual (most recent five calendar years) and quarterly (current and previous year) data are required, and the data should show imports from China increasing rapidly in absolute terms.[24]

(3) Production data, in quantity by category unit, on U.S. domestic production of the like or directly competitive products of U.S. origin indicating the nature and extent of market disruption. Both annual (most recent five calendar years) and quarterly (current and previous year) data are required.[25]

(4) Market share data, in quantity by category unit, on imports from China as a percentage of the domestic market, on total imports as a percentage of the domestic market, and on domestic production of like or directly competitive products as a percentage of the domestic market. Both annual (most recent five calendar years) and quarterly (current and previous year) data are required.[26]

(5) Additional information as to how the textile and apparel product(s) have adversely affected the domestic industry, such as the effect of imports on prices in the United States.[27]

Once a request is filed, CITA has up to 15 business days to decide whether the petition provides all the required information.[28] If CITA accepts the request, CITA issues a notice in the Federal Register soliciting public comments on the request and establishing a 30-day public comment period.[29] Once the comment period ends, CITA may take up to 60 days to decide whether to request consultations with China concerning the product that is the subject of the petition. If CITA is unable to decide whether to request consultations with China within the 60-day period, CITA publishes a notice in the Federal Register indicating the date by which it will decide whether to request consultations.[30]

If CITA determines not to request consultations, it will publish a notice of its determination and the reasons therefore in the Federal Register.[31] If CITA makes an affirmative determination that imports of Chinese-origin textiles and apparel products are causing market disruption, CITA will request consultations with China with a view to easing or avoiding such market disruption.[32] Within 30 days of the receipt of the request for consultations, CITA will hold consultations with China; and within 90 days of the receipt of the consultation request, CITA will attempt to reach agreement on a mutually satisfactory solution.[33]

Once China receives the requests for consultations, CITA will publish a notice in the Federal Register that such consultations have been requested, and will identify the quantitative limits on imports that are subject to the request for consultations.[34] Absent a mutually satisfactory solution, the quantitative limits identified by CITA will terminate on December 31 of the year in which the request for consultations was made, unless three or fewer months remain in that year at the time of the request, in which case the limits will terminate one year from the date on which consultations were requested.[35]

Product-Specific Safeguard: Statute

Section 421 of the Trade Act of 1974, as amended, 19 U.S.C. § 2451, establishes a product-specific safeguard mechanism designed to address product-specific import surges from China that occur for any reason. This statutory provision implemented the agreement reached between the United States and China in the US-China Bilateral Trade Agreement by which China agreed to allow the United States to employ a temporary safeguard mechanism directed solely at products from China. This provision was incorporated into the Protocol of the Accession of China to the World Trade Organization, thereby allowing all WTO Members to employ the same product-specific safeguard mechanism to address import surges of products from China into their countries.[36]

The United States and China concluded their Bilateral Trade Agreement on November 15, 1999. In 2000, Congress enacted Public Law 106-286[37] which authorized the extension of nondiscriminatory treatment (normal trade relations treatment) to the People's Republic of China. Section 103 of P.L. 106-286 created a new chapter and a new section 421 of title IV of the Trade Act of 1974 to implement the anti-surge mechanism established under the U .S.-China Bilateral Trade Agreement. This special safeguard mechanism is codified at 19 U.S.C. § 2451. Congress intended that this provision would replace section 406 of the Trade Act of 1974 (applicable to market disruption by imports from communist countries), which, since China joined the WTO on December 11, 2001, does not apply to China. In February 2002, the U.S. International Trade Commission published interim rules implementing the new statutory authority.[38] Subsequently, on November 19, 2003, the ITC published amendments to its interim rules.[39]

Section 421 permits U.S. domestic industries and workers adversely affected by increased imports from China to seek relief. The procedure for initiating an action under Section 421 is similar to a traditional safeguard under Section 201 of the Trade Act of 1974. A petition for an investigation under section 421 must be filed by an entity (including a trade association, firm, certified or recognized union, or group of workers) that is representative of an industry claiming injury due to import surges from China.[40] In addition to an interested party petition, the U.S. International Trade Commission may commence an investigation upon a request by the President or the U.S. Trade Representative, a resolution of either the House Ways and Means or Senate Finance Committees, or upon its own initiative.[41]

The timeline for a Section 421 action is 150 days from commencement of the investigation to proclamation of relief, the same time period for a Section 406 investigation, but much shorter than for a normal Section 201 safeguards action. A Section 421 investigation is commenced as of the day the petition is filed or the request received. Within 60 days thereafter (90 days if critical circumstances are alleged), the ITC must determine whether the subject imports are causing or threatening market disruption.[42] If critical circumstances are alleged, the ITC makes a preliminary determination within 45 days of the investigation's commencement whether market disruption exists and whether delay in taking action would cause damage which would be difficult to repair.[43] If the Commission's preliminary determination is affirmative, within 20 days thereafter, the President shall determine whether to provide provisional relief, which shall be for a period not to exceed 200 days and be in the form of increased duties, a modification or imposition of any quantitative restriction on imports, or a combination thereof.[44]

The injury standard applicable to Section 421 investigations is "market disruption." According to the statute, market disruption exists when subject imports “are increasing rapidly, either absolutely or relatively, so as to be a significant cause of material injury or threat of material injury to the domestic industry.”[45] In determining whether market disruption exists, the statute directs the Commission to consider objective factors, including: (1) the volume of imports of the product subject to the investigation; (2) the effect of imports of such product on prices in the United States of 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, however, is not necessarily dispositive of whether market disruption exists.[46]

Within 20 days after determining whether the subject imports are causing or threatening market disruption, the ITC must submit a report to the President and the U.S. Trade Representative.[47] The Commission's report includes the determination, an explanation of the basis for the determination, and, if affirmative, recommendations on proposed remedies, an explanation of the basis for each recommendation, and a description of the short and long-term effects of implementing or not implementing the recommended remedial actions on the petitioning industry, other domestic industries, and on consumers.[48] Within 20 days after receiving the Commission's report, the U.S. Trade Representative must publish a notice of the remedy proposed to be taken and of the opportunity, including a public hearing if requested, for comment by interested parties.[49] Within 55 days of receiving the Commission's report, the U.S. Trade Representative must make its recommendation to the President concerning what action, if any, to take to prevent or remedy market disruption.[50]

The President is required by the statute to “provide import relief” within 15 days of receiving the U.S. Trade Representative's report.[51] Import relief shall be in the form of "increased duties or other import restrictions."[52] Thus, if the Commission makes an affirmative determination on market disruption, there is a statutory presumption in favor of providing relief.[53] This presumption can be negated only if the President determines that provision of relief is not in the “national economic interest of the United States,” or in “extraordinary cases” that relief would cause serious harm to U.S. national security.[54] The President may find that relief action is not in the national economic interest of the United States "only if the President finds that the taking of such action would have an adverse impact on the U.S. economy clearly greater than the benefits of such action."[55] Thus, the President has limited discretion (subject to the limitations noted above) as to the remedy to be applied. As in a Section 201 case, given the President's discretion, the remedial measures ultimately applied in a Section 421 case may be subject to influence from Congress and other constituencies.

The statute also provides for a consultation track to prevent or remedy market disruption. If the Commission's determination respecting market disruption is affirmative, the statute provides that the U.S. Trade Representative should seek consultations with China with the aim of concluding an agreement for China to take such action as necessary to prevent or remedy market disruption.[56] The statute directs the U.S. Trade Representative to attempt to conclude such agreements within the 60-day consultation period provided for under the Protocol of Accession. This 60-day period begins not later than 5 days after the Commission makes an affirmative determination of market disruption.[57] If the United States and China are unable to reach agreement within the 60 day consultation period, the President is directed to provide import relief.[58] Any relief proclaimed by the President becomes effective 15 days thereafter.[59]

If necessary to continue to prevent or remedy market disruption, Section 421 permits the President to modify, reduce or terminate relief. In addition, the statute provides that, upon a request from the President or a petition on behalf of the domestic industry, the Commission shall investigate whether the safeguard action continues to be necessary to prevent or remedy market disruption.[60] If the Commission's determination is affirmative, the President may extend the effective period of the relief action.[61] [62]

Product-Specific Safeguard: Legislative History

Having reviewed the substantive provisions of Section 421, it is illuminating to review the purpose of Section 421 as illustrated by the legislative history to the provision, as well as the underlying concerns of the United States and other countries with increasing imports from China that were the raison d'être of the product-specific safeguard.

In explaining Section 421, the report of the House Ways and Means Committee stated:

Section 3 created a new chapter of Title IV which implements the anti-surge mechanism established under the U.S.-China Bilateral Trade Agreement. This is intended to replace section 406 of the Trade Act of 1974, which would no longer apply to China as the result of section 1 of this Act.

The safeguard would permit the United States to provide relief to domestic industries and workers where products of Chinese origin are being imported in such increased quantities and under such conditions as to cause or threaten to cause market disruption to the domestic producers as a whole of like or directly competitive products.[63]

* * *

This is a temporary, extraordinary trade remedy specifically designed to address concerns about potential increased import competition from China in the future.[64]

As the House report noted, the import surge provision is temporary -- it will be in effect for 12 years -- and it is an "extraordinary" trade remedy. The primary definition of "extraordinary" according to the New Shorter Oxford English Dictionary is "Out of the usual or regular course or order; special."[65] Section 421 fits squarely within this definition. That is, Section 421 is "extraordinary" in the sense that it is a "special" mechanism and "outside the usual course" of a safeguard mechanism pursuant to Section 201, but not in the sense that a Section 421 action is intended to be "rare." Section 421 is special and outside the usual course because:

· it is a time-limited mechanism that will operate during a 12-year transition period as China accommodates its economic and trade regime to WTO requirements;

· it is directed at products from one country, China, in contrast to the global reach of a safeguard under Section 201; and

· the legal standard applied in an Section 421 import surge action is lower than that applied in a Section 201 action. Section 421 addresses imports causing "market disruption," a condition that exists where increased imports from China are a "significant cause of material injury." In contrast, in a Section 201 action, the legal threshold requires evidence that increased imports, from all sources, are a "substantial cause of serious injury."[66]

That Section 421 actions were intended to be applied vigorously is evident from consistent statements made by Clinton Administration officials who negotiated the US-China Bilateral Trade Agreement. For example, the White House's summary of the product-specific safeguard indicates that the provision was a "special" mechanism intended to supply "strong protection" against increased imports and that, because of lower injury standards, would likely result in more safeguard actions involving products from China, not fewer.

PRODUCT-SPECIFIC SAFEGUARD

The agreed provisions for the protocol package also ensure that American domestic firms and workers will have strong protection against rapid increases of imports.

To do this, the Product-Specific Safeguard provision sets up a special mechanism to address increased imports that cause or threaten to cause market disruption to a U.S. industry. This mechanism, which is in addition to other WTO Safeguards provisions, differs from traditional safeguard measures. It permits United States to address imports solely from China, rather than from the whole world, that are a significant cause of material injury through measures such as import restrictions. Moreover, the United States will be able to apply restraints unilaterally based on legal standards that differ from those in the WTO Safeguards Agreement. This could permit action in more cases. The Product-Specific Safeguard will remain in force for 12 years after China accedes to the WTO.[67]

Ambassador Barshefsky emphasized to Congress that the import surge mechanism was special in that it was directed solely at Chinese imports, that it had a lower legal threshold compared to section 201, and that a product-specific safeguard remedy could be imposed if, for any reason, increased imports from China caused market disruption.

If, for any reason, Chinese imports into the U.S. surge, as for example, they did on steel last year as you well know, we will be able to take action and on a temporary basis, somewhere between two or three years, block or otherwise reduce the volume of those imports.[68]

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Import Surge Protection -- China agrees to a twelve-year product-specific safeguard provision, which ensures that the U.S. can take effective action in case of increased imports from China which cause market disruption in the United States. This applies to all industries, permits us to act based on the lowest showing of injury, and act specifically against imports from China.[69]

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Mr. Levin. . . . I think one factor is if we see that there is a major surge in a particular product, the way I think the accession provision is written, that we do have some defense. . . . And the reason we have anti-surge provisions is because trade flows both ways. Otherwise we wouldn’t need them. * * *

Ambassador Barshefsky. Yes. If I might say with respect to surge, this is an area where again we are trying to look ahead. We wanted to be sure we had strong anti-import surge mechanisms for many of the reasons that Congressman Rangel has pointed out. That is to say China will become a much more forceful competitor in the future. We are already seeing that in steel last year, as you may know. And we want to be sure that we can take action—and under this provision we will be able to for 12 years after accession —to take action against import surges to the extent they are causing market disruption in the United States.

Mr. Levin. Treating them, in other words, with a different standard than presently applies to—

Ambassador Barshefsky. This is a much different standard than under 201 now. One, because we can take action just against China. Two, because a market disruption standard is a very low legal threshold as you know. . . .[70]

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Mrs. Johnson. . . . I’d like you to describe, Ambassador Barshefsky, more specifically the benefits of the surge protection that you’ve negotiated. It is my understanding that NAFTA doesn’t have this surge protection, that the old GATT agreements, the WTO, that we have never had the ability that this agreement is going to give us to just manage big changes in imports. * * *

Ambassador Barshefsky. You’re quite right in pointing out that such a provision doesn’t exist in any other agreement with respect to any other country. Nor does it exist in U.S. trade law.

This is a provision designed to ensure that if imports from China surge into the U.S. and cause market disruption in the U.S., we can for a period between two and three years, depending on the type of action, move to curb or restrict imports in that product sector.

Mrs. Johnson. Now, this is similar to the way the voluntary restraint agreements worked—

Ambassador Barshefsky. It is, indeed.

Mrs. Johnson. —in the 1980s, to allow the machine tool industry to get back on its feet.

Ambassador Barshefsky. Correct. It is quite similar in intent. It will be somewhat different procedurally in implementation. But it is quite similar in intent and in design.

Mrs. Johnson. I would also like to point out that had we had this protection, the American bearing industry would be much stronger today than it is, because it would have had a more sensitive tool—

Ambassador Barshefsky. That’s exactly right.

Mrs. Johnson. —as opposed to the anti-dumping laws, to deal with the import of bearings from China.

Ambassador Barshefsky. And had this been in effect during the recent steel upsurge in the fourth quarter of 1997 and during 1998, including from China, our steel industry would have been much better positioned.[71]

Other Administration officials made similar statements to Congress about the purpose of the special import surge mechanism and that the provision, as a new additional protection against import surges from China, would likely result in more, not fewer, cases.[72]

The foregoing points were further emphasized in the course of congressional debate over H.R. 4444, which granted China permanent normal trade relations.

Mr. Levin. . . . I want to focus right now on the challenges, because there are challenges as well as opportunities. . . . The second {challenge} relates to the potential surges in products from China. It is going to compete with us. That is what trade is. It is competition. And there could be harmful surges from China into the U.S. that would hurt our workers and hurt our producers.

I will not go into detail now, but I can say, as someone who has worked on these issues now for 15 years and fought to keep the antidumping provisions in U.S. law in the Uruguay Round, and successfully. . . this provision, this specific provision as to surges from China and handling them, is the strongest anti-surge provision that will be in U.S. law.[73]

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Mr. Bentsen: This agreement also includes significant safeguards against unfair Chinese imports and failure by the Chinese to move toward market liberalization. Chinese imports will be subject to . . . tariffs for 12 years after entry into the WTO against import surges that threaten to disrupt United States markets. . . . In some cases, this language is tougher than current law. And I want to commend our colleagues, Mr. Levin and Mr. Bereuter for their work in putting these provisions into law and lessening the discretion in their implementation.[74]

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Mr. Fitzgerald: It bears emphasis that by granting PNTR, the United States gives up no trade protections. China already enjoys normal trade relations with the United States – our markets are already open to Chinese imports. The concessions that were made as a condition to Chinese entry to WTO were all made by the Chinese – the U.S. gave up nothing and PNTR will not affect a single American tariff or other trade barrier.[75]

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Mr. Baucus: The safeguard provision . . . is a very important feature of this bill. It ensures that if shifts in trade patterns following China’s entry into the world trading system cause or threaten dislocations to American workers, businesses, and farmers, they will be able to obtain relief quickly.[76]

The Administration, in negotiating the product-specific safeguard mechanism in the US-China Bilateral Trade Agreement, was concerned about the effects of present and past import surges from China, and sought to provide strong protections to U.S. industries from anticipated future import surges. The expectation of future import surges was not a theoretical consideration, but an expectation based on past surges of Chinese imports. Indeed, a review of U.S. trade statistics for imports from China during the period 1996-2000 (the period during which the US-China Bilateral Trade Agreement was negotiated) demonstrates numerous significant increases of imports from China on a yearly basis. As an illustration, the following table shows product sectors (identified by SITC code) that experienced a greater-than-50% increase in imports (by value) between 1999 and 2000.

Selected U.S. Imports from China -- 1996-2000

(By Industrial Grouping)

	U.S. Imports from China
	1996-2000 BY INDUSTRIAL GROUPING (SITC - 3 DIGIT)
Product		SITC CODE	1996 ($000)	1997 ($000)	1998 ($000)	1999 ($000)	2000 ($000)	% Change 1999-2000
-- Live Animals Other Than Fish, Seafood		00	4,328	1,603	1,703	2,849	5,126	79.9%
* Meat, Dried, Salted, or Smoked		012	1,208	1,768	1,335	2,356	3,695	56.8%
* Crustaceans, Molluscs		036	128,145	154,446	127,533	133,853	230,548	72.2%
* Other Cereals		045	56	107	71	75	193	157.3%
* Cereal Meals & Flours		047	226	192	7	46	205	345.7%
* Fruit & Vegetable Juice		059	8,285	26,128	30,083	24,412	39,507	61.8%
* Sugar Confectionary		062	7,174	10,705	11,899	16,503	25,946	57.2%
* Chocolate		073	58	34	157	87	267	206.9%
-- Animal Feed (not including unmilled cereals)		08	4,755	12,056	8,417	9,222	21,112	128.9%
* Nonalcoholic Beverages		111	1,589	1,799	1,952	1,669	3,985	138.8%
-- Tobacco & Tobacco Products		12	6,666	9,427	11,712	11,634	19,558	68.1%
* Unmanufactured		121	6,494	9,192	11,381	10,661	17,635