On June 3, 2002, a WTO dispute settlement panel was established at the request of the European Communities to examine the consistency of the US safeguard measures with WTO rules. Complaints on the same matter by Japan, Korea, China, Norway, Switzerland, New Zealand and Brazil were subsequently submitted to the same Panel.

The Agreement on Safeguards and Article XIX of GATT 1994 provide that a WTO member may apply safeguard measures only if, following an investigation by competent authorities, it determines that imports have increased, that the increase was a result of unforeseen developments and that the increased imports have caused, or threatened to cause, its domestic industry to suffer serious injury. The Agreement further provides that the competent authorities must issue a "report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law."

The Panel concluded that all ten US safeguard measures were inconsistent with the Agreement on Safeguards and the GATT 1994. Specifically, the Panel found that the US had failed to "provide a reasoned and adequate explanation of their conclusion" (1) that imports had increased; (2) that a causal link existed between the increased imports and serious injury to the domestic industry; and (3) that the increased imports had resulted from "unforeseen developments." The Panel recommended that the Dispute Settlement Body request that the US bring all the safeguard measures into conformity with its WTO obligations. On August 14, 2003, the US appealed the Panel ruling.

The Appellate body's ruling
The Appellate Body's ruling on November 10 largely upheld the initial Panel's conclusions, specifically its focus on the inadequacy of the US explanation of how the facts supported the conclusion that each of the elements of a safeguard case had been met. It is noteworthy that the WTO violation resulted from the inadequacy of explanation and not from a fault in US law. The Appellate Body emphasised throughout its report that safeguard measures were considered extraordinary measures and that consequently WTO members had an obligation to clearly set forth the rationale for their determinations.

On the question of increased imports, the Appellate Body ruled that the USITC failed to provide a reason and adequate explanation of how the facts supported its determination that the increase in imports had been recent enough, sudden enough, sharp enough and significant enough to cause serious injury.

On the issue of "unforeseen developments," the Appellate Body similarly concluded that the USITC report was wanting in reasoning. The USITC had found that the Asian and Russian financial crisis, together with the strong US dollar and economy, were the cause of the increased imports and that those economic developments were "unforeseen." The Appellate Body did not question the existence of those developments or the claim that they were unforeseen. Neither did it question that the developments might have caused the import surge. Rather, it ruled that USITC had failed to provide a logical explanation of how such causation actually occurred.

The Appellate Body declined to rule on the general question of whether the USITC had failed to demonstrate a causal link between increased imports and serious injury, viewing such a decision as unnecessary in light of the other violations.

The aftermath
The Appellate Body Report is set to be adopted by the Dispute Settlement Body. If the US does not comply with the ruling by removing the safeguard tariffs, the EU and other complainants are expected to seek, and receive, DSB authorisation to raise duties on imports from the US in amounts equal to the trade lost by their steel companies as a result of the illegal US safeguard measures. The combined retaliation will affect several billion dollars worth of US exports.

The US is currently seeking a compromise solution that will enable it to continue some protection for the US steel industry while avoiding foreign retaliation. To date the EU has rejected compromise, arguing that the WTO ruling was clear and that the US must withdraw the illegal safeguard measures or face retaliation.

Source: American Society of International Law (ASIL).